Maine Tax Changes Following End of COVID-19 State of Emergency

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On June 30, 2021, Maine Revenue Services (MRS) published a Tax Alert describing changes to COVID-19 tax relief programs following the end of Maine’s state of civil emergency, also on June 30. Below is a summary of the key changes affecting Maine taxpayers, which include the end of corporate income tax and sales tax nexus protection and the end of employer withholding relief.

Property Tax Current Use and Exemption Application Deadlines

During the state of emergency, the deadline for filing applications for certain property tax exemptions and current land use programs was extended from April 1, 2021 to the earlier of the municipality’s commitment date or 30 days after the end of the declared emergency. With the end of the state of emergency, the filing deadline is now the earlier of July 30, 2021 (30 days after June 30, 2021) or the relevant municipality’s commitment date. The extended deadline applies to the exemptions for nonprofit and educational institutions and organizations, veterans’ estates,  solar and wind energy equipment,  homesteads, and for business equipment (BETE). The extended deadline also applies to the farm and open space, tree growth, and working waterfront programs.

The MRS Tax Alert notes that municipalities will still be able to set due dates, interest rates, and interest accrual dates for taxes committed in 2021, if the municipality cannot hold its annual budget meeting.

Corporate Income Tax Nexus

During the state of emergency, MRS guidance provided that a corporation would not establish Maine corporate income tax nexus for tax years beginning in 2020 solely due  to the presence of one or more employees who began working remotely from Maine due to the pandemic. In the Tax Alert, MRS confirms that if the employee began working remotely during the state of emergency, that employee’s presence will not be considered in determining nexus for a tax year beginning in 2020.

With respect to tax years beginning in 2021, earlier MRS guidance similarly provided that a corporation would not establish Maine corporate income tax nexus solely due  to the presence of one or more employees in Maine from January through June 2021, if the employee started working remotely from Maine during the state of emergency and due to the pandemic. With the end of the state of emergency, MRS will now consider the presence of an employee in Maine (including employees working remotely in Maine) as part of the nexus determination, regardless of when the employee started working from Maine.

Sales Tax Nexus

During the state of emergency, MRS announced that, for sales occurring in 2020 and 2021, it would not treat a seller as establishing substantial physical presence in Maine solely due to the presence of one or more employees who began working remotely from Maine due to the pandemic. With the end of the state of emergency, MRS will now consider the presence of an employee who begins working remotely from Maine after June 30, 2021 as part of the sales and use tax nexus determination.   This sales tax nexus policy appears to differ from the income tax nexus policy discussed above, in that the income tax policy will consider the presence of an employee in Maine as creating nexus regardless of when the employee started working in Maine.

Employer Withholding

Under earlier MRS guidance, employers were permitted to treat employees who had previously worked outside of Maine but who began working from Maine during the pandemic as still working outside the state for income tax withholding purposes. Beginning July 1, 2021, employers will be required to comply with Maine income tax withholding rules for employees performing services from Maine, including employees teleworking in Maine for an out-of-state employer.

Expanded Resident Income Tax Credit

A Maine resident individual is allowed a credit for income tax paid to another state if the individual began working remotely from Maine due to the pandemic, and if the individual worked outside of Maine immediately before the COVID-19 state of emergency was declared in Maine or in the state from which the employee previously worked.

The credit is available in both the 2020 and 2021 tax years to the extent that (1) services were performed in 2020 or 2021 during either jurisdiction’s state of emergency, (2) the other jurisdiction asserts that the individual’s income should be sourced to that jurisdiction, and (3) the employee does not qualify for an income tax credit for taxes paid to the other jurisdiction.

The expanded resident tax credit was enacted in response to a Massachusetts rule that sourced a nonresident’s income to Massachusetts during the pandemic to the same extent as before the pandemic, even if the nonresident no longer worked from Massachusetts. Maine’s rule does not appear to account for the fact that the Massachusetts rule is set to expire on September 13, 2021, 90 days after the commonwealth’s state of emergency ended on June 15, 2021. Unless Maine provides additional relief, it appears that Maine residents who return to work in Massachusetts may be taxed twice on income earned between June 30, 2021 (the end of Maine’s state of emergency) and September 13, 2021 (the expiration of the Massachusetts rule).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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