On February 12, 2021, Maine Revenue Services (MRS) issued a tax alert with additional tax guidance for taxpayers impacted by the COVID-19 pandemic.
Maine Income Tax on COVID-19 Relief
Unemployment compensation, federal and state grants, and loan forgiveness are taxable in Maine to the extent that they are included in federal adjusted gross income and not otherwise exempt under Maine law. Maine intends to tax additional unemployment benefits provided under the CARES Act, loan and grant programs authorized by the CARES Act, and grants received through the Maine Department of Economic & Community Development. Our recent client alert, Update: Maine Governor Proposes Conformity to Federal Treatment for First $1 Million of PPP Loans, discusses the governor’s most recent proposal to exempt 99% of PPP loan recipients from tax.
No Relief from Statutory Residency for COVID-19
MRS will not provide relief from Maine’s statutory residency law to individuals who have a permanent place of residence in Maine and unexpectedly spent more than 183 days in Maine due to the pandemic. MRS takes the position that a place of abode is considered to be not permanent only if it is maintained during a temporary stay in Maine to accomplish a particular purpose. A second home in Maine does not meet this exception, even during the pandemic, according to MRS. Statutory residents will therefore be required to file Maine resident returns for 2020, even if the pandemic was their sole reason for overstaying the 183 days.
In an October tax alert, Maine Revenue announced that in 2020, employers with Maine resident employees working from Maine due to a state COVID-19 state of emergency were allowed to treat these employees as if they were still working out-of-state for Maine withholding purposes. MRS has not yet extended this relief to 2021.
Sales Tax Nexus Relief Extended
Previously, MRS announced that a business without Maine nexus will not establish nexus for sales and use tax purposes due solely to an employee working from Maine during the state of emergency and due to the pandemic. The guidance applied to sales occurring in 2020 has now been extended to apply to 2021 sales as well. MRS has not yet issued a corresponding extension for corporate income tax nexus.
Educational Opportunity Credit
MRS has finalized revisions to Rule 812, which allow student loan payments made in forbearance or deferment to qualify for the Educational Opportunity Credit.