Small businesses that do business in Maine are likely to run into several state taxes imposed by Maine Revenue Services and other branches of the state government. Here are the answers to some of the most common and important FAQs about the steps small business taxpayers should take to achieve and maintain compliance with all of the requirements.
How are corporations taxed in Maine?
Maine imposes an income tax on all entities organized as corporations that have Maine-source income. The income tax generally doesn’t apply to S corporations unless they have federal taxable income at the corporate level.
Which corporations are subject to the corporate income tax?
A corporation generally has a taxable connection with Maine — or what’s known as “nexus” — if it’s organized or commercially domiciled in Maine, or if it exceeds any of the following thresholds:
- $250,000 of property in Maine
- $250,000 in payroll in Maine
- $500,000 in sales in Maine
The corporate income tax will also apply if 25 percent of a corporation’s total property, payroll, or sales are in Maine.
What is the corporate income tax rate?
Your corporate income tax is based on your adjusted federal taxable income—that is, your federal taxable income as adjusted by Maine addition and subtraction income modifications. Corporate tax is assessed as follows:
- Adjusted federal taxable income of $0-$350,000: 3.5% of adjusted federal taxable income
- Greater than $350,000 but not over $1.05 million: $12,250 plus 7.93% of the excess over $350,000
- Greater than $1.05 million but not over $3.5 million: $67,760 plus 8.33% of the excess over $1.05 million
- Greater than $3.5 million: $271,845 plus 8.93% of the excess over $3.5 million
Does Maine offer any tax credits?
Maine business owners may be able to take advantage of several state tax credits to offset their corporate income tax bill. Examples include the:
- Educational Opportunity Tax Credit for Individuals and Employers
- New Markets Capital Investment Program
- Credit for Wellness Programs (available to pass-through entities only)
- Employer Credit for Family and Medical Leave
- Maine Capital Investment Credit
- Research Expense Tax Credit
How should a corporation pay its Maine income tax?
A corporation must file Form 1120ME, “Maine Corporate Income Tax,” if it has Maine income and is subject to federal corporate income tax. The tax return is due on the same date as your federal corporate income tax return (the fifteenth day of the fourth month after the end of the tax year), without regard to an extension to file.
Certain corporations must file returns electronically using Modernized e-File or the Maine Tax Portal.
Are extensions available?
Yes—and Maine Revenue Services doesn’t necessarily require you to make a written request. If you can’t file your return by the original due date, Maine allows an automatic six-month extension of time to file a corporate income tax return.
Requests for additional time beyond the automatic six-month period must be submitted in writing prior to the expiration of the extension period. Generally, the total Maine extension period can’t exceed eight months. But, if the IRS has granted an extension to file the federal income tax return beyond the automatic six-month period, the date for filing the Maine return is automatically extended for the same period, as long as you attach proof of the federal extended due date to the Maine return when filed.
Are estimated tax payments required?
Every corporation subject to Maine income taxes must pay estimated tax unless the income tax liability for the current tax year or for the prior tax year, reduced by any allowable credits, is less than $1,000.
If required, estimated tax payments are due on the 15th day of the fourth, sixth, ninth, and 12th months following the beginning of the corporation’s fiscal year. You can make your payments online or mail a voucher and check to:
Main Revenue Services
P.O. Box 9101
Augusta, ME 04332-9101
How are other types of businesses taxed in Maine?
The owners of sole proprietorships, partnerships, S corporations, and limited liability companies (LLCs) are taxed on a personal level for their shares of the business’s profits, at their applicable individual income tax rate.
What is pass-through entity withholding?
Partnerships and S corporations with Maine income are pass-through entities that must withhold state income tax from the quarterly earnings of any member who isn’t a Maine resident (unless the nonresident member has an exemption).
Specifically, such entities must withhold 7.15 percent of the estimated Maine distributive income of each nonresident member (or 8.93% if the nonresident member is a C corporation). The Maine distributive income of a nonresident member is equal to the member’s share of the net income determined by the items of income, loss, and deduction as reported on the entity’s federal Form 1065, Schedule K.
Partnerships and S corporations must file Form 941P, “Pass-Through Entity Return of Maine Income Tax Withheld from Members.” You generally must file electronically through the Maine Tax Portal.
Entities may elect to file a composite return to report all of the Maine income of nonresident partners/shareholders on one Maine income tax return.
Are estimated tax payments required for pass-through entity withholding?
If you’re required to withhold a total of more than $1,000 from your partners or shareholders for the calendar year , you generally must make quarterly estimated payments equal to 25% of the lesser of:
- 90% of the amount required to be withheld for the calendar year, or
- The amount required to have been withheld for the prior calendar year, unless the preceding year was less than 12 months, the pass-through entity wasn’t required to withhold, or the entity didn’t file an annual return for the prior year.
You can make the payments electronically or by check using Form 901ES-ME, “Pass-through Entity Withholding Payment Voucher,” on or before April 30, July 31, October 31, and January 31 of the following year.
Does Maine have a pass-through entity election?
Unlike some states, Maine doesn’t have a pass-through entity election to help owners of pass-through businesses avoid the $10,000 limit on the federal income tax deduction for state and local taxes.
Does Maine have a sales tax?
Maine imposes a sales tax at the rate of 5.5% of the sale price on retail sales of:
- Tangible personal property
- Products transferred electronically
- Prepaid calling arrangements
- Transmission and distribution of electricity
- Extended service contracts on an automobile or truck
- Rental or lease of an automobile
- Rental or lease of a camper trailer or motor home (as tangible personal property, not as the rental of living quarters).
The sales tax rate is 8% on sales of prepared food and alcoholic drinks sold in certain establishments that are licensed for on-premises consumption of liquor.
Does the sales tax apply to remote sellers?
Remote sellers must register in the same manner as a retailer that has a physical presence in Maine if:
- The gross revenue from the delivery into Maine of tangible personal property, products transferred electronically, or taxable services in the previous or current calendar year exceeds $100,000, or
- Sales of tangible personal property, products transferred electronically, or taxable services for delivery into Maine totaled at least 200 separate transactions in the previous or current year.
How are internet sales taxed by Maine?
Internet sales are subject to the same sales tax as mail-order sales. If you’re required to be registered to collect Maine sales tax and the product is shipped to a Maine address, you should collect the tax on the sale.
What is the use tax?
The Maine use tax is a substitute for sales tax that applies when the seller doesn’t charge the correct amount of sales tax. The use tax rate is the same as the sales tax rate — 5.5%. Businesses can report use tax liabilities directly on their sales tax return.
The use tax is often applied to items purchased out of state or online. Common taxable items for a business include:
- Office supplies and equipment
- Janitorial supplies
- Computer hardware, software, and supplies
- Reference books
- Fax machines and supplies
- Photocopiers and supplies
What is the service provider tax?
The 6% service provider tax is imposed on the providers of certain services provided in Maine, including:
- Cable and satellite television or radio services
- Fabrication services
- Rental of video media and video equipment
- Rental of furniture, audio media, and audio equipment pursuant to a rental-purchase agreement
- Telecommunications services
- Installation, maintenance, or repair of telecommunications equipment
- Ancillary services
- Private non-medical institution services
- Community support services for persons with mental health diagnoses
- Community support services for persons with intellectual disabilities or autism
- Home support services
- Group residential services for people with brain injuries
Maine law allows the service provider to pass the tax on to the consumer, but it must be separately stated and identified as “service provider tax.”
Are there any exemptions from Maine’s sales, use, or service provider taxes?
Limited tax exemptions are available for certain organizations, products, and services.
How are sales, use, and service provider taxes paid?
Sales Tax, Use Tax and Service Provider Tax Returns must be filed by the 15th day of the month following each monthly reporting period. Payment of the amount due must be made when the return is filed.
Taxpayers whose average total tax liability is less than $600 per month may request authorization to file on a less frequent basis. Those with an average tax liability of $100.00–$599.99 per month may file quarterly returns. If your average tax liability is less than $100 per month, you can file semi-annual returns. And, if the average tax liability is less than $50 per year, only an annual return will be required.
Maine mandates the electronic filing of Sales, Use, and Service Provider Tax Returns. If you’re unable to file electronically, you may request a waiver to file paper returns. A tax return will automatically be sent to you for each reporting period about one month before the return is due
Does Maine have any excise taxes?
Maine has several excise taxes on items ranging from blueberries and potatoes to cigarettes and tobacco, as well as health care providers.
Does Maine tax business personal property?
Yes, but the Business Equipment Tax Exemption program exempts eligible business equipment from property tax. Eligible business equipment must be used exclusively for a business purpose, for construction-in-progress, or as inventory parts intended to be used exclusively for a business purpose. It generally must also be subject to a depreciation allowance under the Internal Revenue Code.
Eligible business equipment includes, without limitation, repair parts, replacement parts, replacement equipment, additions, accessions, and accessories to other eligible business equipment.
Certain property is excluded from the exemption, including office furniture, lamps and lighting fixtures used primarily for general office lighting, telecommunications personal property, and property used primarily for retail sales activity.
What are the withholding obligations for Maine employers?
All Maine employers must withhold state income tax from their employees’ pay (this is in addition to your federal income tax withholding responsibilities). Several forms are required as part of the withholding process, including:
- Form W-ME, “Maine Employee’s Withholding Certificate,” to determine the amount to withhold
- Form 941ME, “Employer’s Return of Maine Income Tax Withholding (quarterly or semiweekly)
- Form W-3ME, “Reconciliation of Maine Income Tax Withheld” (annual)
The state generally requires all employers to electronically file their Maine income tax withholding returns and annual reconciliation forms using the Maine Tax Portal. Payments are made semiweekly or quarterly:
Semiweekly: If you reported Maine income tax withholding of $18,000 or more for the 12-month lookback period ending June 30 of the prior calendar year, you must make your income tax withholding payments on a semiweekly schedule. Once you’re required to begin making semiweekly payments, you must continue that schedule regardless of the amount reported during the lookback period.
Semiweekly payments are based on payment of wages and are due according to the following schedule:
- For wages paid on Wednesday, Thursday, or Friday, remit withholding payment on or before the following Wednesday
- For wages paid on Saturday, Sunday, Monday, or Tuesday, remit withholding payment on or before the following Friday
Quarterly: Employers that reported Maine income tax withholding of less than $18,000 for the 12 months ending June 30 of the prior calendar year are required to make payments quarterly. Quarterly payments are due on the last day of the month following the end of the quarter.
What are the unemployment insurance tax obligations for Maine employers?
The Maine Employment Security Law requires employers to pay taxes (or “contributions”) on wages paid to workers (you must also pay federal unemployment taxes). Generally, an employer becomes liable for the taxes when it pays workers $1,500 or more in gross wages in a calendar quarter or for work performed in employment in any part of the day in 20 weeks in the calendar year.
You can register to determine your liability for the unemployment insurance tax on the Maine Department of Labor’s website on ReEmployME. You’ll receive a notice of liability status a few days after you complete your online registration.
If you’re found liable, you’ll need to create an account in ReEmployME so you can electronically file quarterly wage reports and pay your unemployment compensation contributions. The notice of liability will include your account number. Several factors will affect your unemployment compensation insurance tax rate.
The Bureau of Unemployment Compensation recalculates the Reserve Ratio for each Maine employer every year, which may result in a rate change. All employers are then arrayed into a list in descending order by their Reserve Ratios, divided into 20 categories. The most positive ratios are in the lowest rate categories and are designated as “1.” The highest rate category has the most negative Reserve Ratios and is designated as “20.”
Your individual experience rate is calculated each year after July 31. It takes into account all payments and benefits charges made to your account before that date. Three variables are used to compute your rate:
- Your three-year average taxable payroll
- The amount of benefits charged to your account in the past year
- The amount of taxes paid from July 1 of the previous year to July 31 of the current year
Maine’s unemployment compensation insurance tax rates for 2023 range from 0.22% to 5.69%. The new employer tax rate for 2023 is 2.19%. The tax is paid only on the first $12,000 of the gross wages you pay a Maine employee in a calendar year.
Your minor children, spouse, and parents are exempt from taxation. Sole proprietors are exempt, too. Other exemptions might also apply.
You make your quarterly contributions online wit Form ME-UC1, “Maine Unemployment Contributions Quarterly Report.” Your quarterly wage report is done on Schedule 2, “Maine Unemployment Contributions Wages Listing.”
These forms are due on or before the last day of the month following the close of each calendar quarter, even if you had no employment for that period. The due dates are:
- January 1 – March 30: April 30
- April 1 – June 30: July 31
- July 1 – September 30: October 31
- October 1 – December 31: January 31
Failing to comply with your Maine unemployment compensation obligations can result in two types of penalties:
- Contribution penalties when you‘re late in making your unemployment compensation contributions. The current contribution penalty is 1% of the unpaid contributions due per month, up to a maximum of 25% of the amount unpaid.
- Payroll penalties when you’re late submitting your quarterly wage reports. Currently, the payroll penalty is the greater of $25 or 10% of the taxes due.
Staying up-to-date on all of your federal and state tax obligations can take up a lot of your time and resources. Gusto’s payroll service can simplify matters by making it easier to pay employees and automatically file your payroll taxes.
