Sales Tax Reference guide

“Retailer” means a person who makes retail sales or who is required to register by section 1754-A or 1754-B or who is registered under section 1756. §1752, sub-§10

Persons engaged in selling tangible personal property and taxable services which are subject to the sales and use tax are required to register with Maine Revenue Services to facilitate the collection of tax. Once registered, periodic reporting and remittance of the tax is required.

Registration Requirements

The statute identifies eight categories of sellers who must register for a seller's certificate under the Sales and Use Tax laws.

Every seller of tangible personal property or taxable services, whether or not at retail, that maintains in this State any office, manufacturing facility, distribution facility, warehouse or storage facility, sales or sample room or other place of business; § 1754-B(1A)

Registration is required if a retailer makes retail sales within Maine. Having any type of physical presence or nexus in this State, such as operating or maintaining a store, warehouse, office or repair facility, requires registration. If the retailer does no more than solicit sales by means of a catalog mailed into the State and the goods are delivered by common or contract carrier or the US mail, registration is not required.

Every seller of tangible personal property or taxable services that does not maintain a place of business in this State but makes retail sales in this State or solicits orders, by means of one or more salespeople within this State, for retail sales within this State; § 1754-B(1B)

Every person that makes retail sales in this State of tangible personal property or taxable services on behalf of a principal that is outside of this State if the principal is not the holder of a valid registration certificate; § 1754-B(1D)

Every agent, representative, salesperson, solicitor or distributor that receives compensation by reason of sales of tangible personal property or taxable services made outside this State by a principal for use, storage or other consumption in this State; § 1754-B(1E)

Retailers could also be subject to registration requirements even if no real property is maintained in this State. If an employee travels within the State, soliciting sales, registration is required. Persons who act as representatives, solicitors, salespersons or independent selling agents and receive commissions from sales made by the principal would be required to be registered if the principal is not. For instance, if an independent selling agent promotes the retailer's product by conducting home parties or by using the retailer's catalog to solicit sales, the agent would be held accountable for registration unless the principal is registered. In these types of situations, it is recommended that the out-of-state retailer be registered for ease in administration; not only for the Bureau, but also for the agent and the retailer.

Every person that manages or operates a hotel, rooming house or tourist or trailer camp in this State or collects or receives rents from a hotel, rooming house or tourist or trailer camp; § 1754-B(1F)

Every seller of tangible personal property or taxable services that has a substantial physical presence in this State sufficient to satisfy the requirements of the due process and commerce clauses of the United States Constitution. The following activities do not constitute a substantial physical presence for the purpose of this paragraph:

(1) Solicitation of business in this State through catalogs, flyers, telephone or electronic media when delivery of ordered goods is effected by the United States mail or by an interstate 3rd-party common carrier;

(2) Attending trade shows, seminars or conventions in this State;

(3) Holding a meeting of a corporate board of directors or shareholders or holding a company retreat or recreational event in this State;

(4) Maintaining a bank account or banking relationship in this State; or

(5) Using a vendor in this State for printing, drop shipping or telemarketing services. § 1754-B(1G)

Retailers could also be subject to registration requirements even if an employee within Maine is not soliciting sales. For instance, the retailer may only have employees providing repair, installation or maintenance services within Maine or the retailer may be delivering its goods to Maine with its own vehicle. Delivery of goods by a common or contract carrier or the US mail does not constitute delivery by the retailer.

Every lessor engaged in the leasing of tangible personal property located in this State that does not maintain a place of business in this State but makes retail sales to purchasers from this State; § 1754-B(1C)

If a business is engaged in the leasing of tangible personal property within Maine and also makes retail sales to Maine customers, the business is required to register. A lessor is engaged in making retail sales when the lessor executes a “lease in lieu of purchase”, accepts a lessee's option to purchase or sells previously rented property.

Voluntary Registration

In addition, any seller who is not required to register by any of the above, may voluntarily do so to collect our use tax.

Every seller of tangible personal property or taxable services that is not required by section 1754-B to register may register upon those terms that the assessor prescribes. Upon registration, the seller has the rights and duties of a person required to be registered and is subject to the same penalties, except that the seller's liability may be limited to tax actually collected. The seller so registered may at any time surrender the seller's registration certificate and request that the registration certificate be canceled. Upon receipt of the certificate and request, the assessor shall grant the cancellation, if it appears to the assessor that the seller has satisfied all liability to the State and that the seller is not required by law to register. Upon surrender of the certificate, the seller must cease to collect sales or use taxes upon sales that occur on and after the date of the surrender. § 1756

Rental of retail space

A person who rents or leases property and has more than 4 persons renting or leasing space at one location for less than a 12-month period for the purpose of retail sales shall register with the State Tax Assessor. The form for application for registration and the registration certificates must be prescribed and furnished free by the State Tax Assessor. For each location where more than 4 persons rent or lease space for less than 12 months from the same person, the State Tax Assessor shall issue a registration certificate, which must be conspicuously displayed at that location. The person shall provide the State Tax Assessor by the 15th of each month following any month in which rental or lease activity has occurred the names, addresses and tax registration certificate numbers of those persons who have rented space during the previous month. Informational returns must be prescribed and furnished free by the State Tax Assessor. Returns required under this section must be treated as returns filed under this Title and are subject to section 187. § 1754-A

Persons who rent out space at flea markets, craft shows or any other event where retail sales are being made are also required to register with the Bureau and provide information concerning those persons making sales. The Bureau then verifies the information and obtains compliance from those who are not registered.

Registration for use tax only

Businesses that have no sales but make purchases that are subject to use tax are required to register for reporting purposes. Returns are due in the same manner as sales tax returns, but only in those months where liability exists.

08. Use Tax Returns. Every person, not otherwise required to file sales and use tax returns, who regularly makes purchases for business use that are subject to Maine use tax must register with the State Tax Assessor to file use tax returns. Every person so registered must file a use tax return for each month in which taxable purchases were made. Use tax returns need not be filed for months during which no taxable purchases were made. Rule 304

Registration procedure

Application forms for sales tax registration certificates must be prescribed and furnished free of charge by the assessor. The assessor shall issue a registration certificate to each applicant that properly completes and submits an application form. A separate application must be completed and a separate registration certificate issued for each place of business. A registration certificate issued pursuant to this section is nontransferable and is not a license within the meaning of that term in the Maine Administrative Procedure Act.

When a retailer maintains a place of business in this State, the registration certificate must be conspicuously displayed at that place of business. In the case of a retailer that does not have a fixed place of business and makes sales from one or more motor vehicles, each motor vehicle constitutes a place of business. §1754-B(2)

Registration with Maine Revenue Services is accomplished by submitting an application for registration, Form CR-1. This application is also the mechanism to register for any other tax that the Bureau administers, such as withholding and fuel excise taxes. Once the application is processed, a Retailer's Certificate is issued. This certificate must be displayed in a prominent place in the business. The certificate is valid until canceled by the taxpayer or revoked by the Bureau and is not assignable to a new owner. If the retailer operates more than one business, a separate certificate is necessary for each location.

Collection of Taxes

The liability for, or the incidence of, the tax imposed by this Part is declared to be a levy on the consumer. The retailer shall add the amount of the tax to the sale price and may state the amount of the tax separately from the sale price of tangible personal property or taxable services on price display signs, sales or delivery slips, bills and statements which advertise or indicate the sale price of that property or those services. § 1753

Tax is part of sale price

Every retailer shall add the sales tax imposed by chapters 211 to 225, or the average equivalent of that tax, to his sale price, except as otherwise provided, and when added the tax shall constitute a part of the price, shall be a debt of the purchaser to the retailer until paid and shall be recoverable at law in the same manner as the purchase price. § 1812(1)

Unlawful to advertise no tax

It shall be unlawful for any retailer to advertise or hold out or state to the public or to any consumer, directly or indirectly, that the tax or any part thereof imposed by chapters 211 to 225 will be assumed or absorbed by the retailer, or that it will not be added to or included in the selling price of the property sold, or if added or included that it or any part thereof will be refunded. Any person violating any part of this section shall be guilty of a Class E crime. § 1761

Although the economic burden of the sales tax falls upon the purchaser, the legal incidence of the tax rests squarely on the retailer. State v. Marcotte, 418 A.2d 1118 (Me. 1980) Every retailer is required to add sales tax to the selling price and, once added, the tax becomes a debt of the purchaser to the seller. If the purchaser fails to pay the tax, the debt is recoverable by the seller at law in the same way that the selling price would be. Although the retailer can advertise that tax is included in the selling price,it is a crime for the retailer to state that the sales tax will be assumed, absorbed, refunded or not charged at all to the purchaser.

Tax returns due on 15th

Every retailer shall file with the State Tax Assessor, on or before the 15th day of each month, a report made under the pains and penalties of perjury on such form as the State Tax Assessor may prescribe that discloses the total sale price of all sales made during the preceding calendar month and such other information as the State Tax Assessor requires. The State Tax Assessor may permit the filing of returns other than monthly. The State Tax Assessor, by rule, may waive reporting nontaxable sales. Upon application of a retailer, the State Tax Assessor shall issue a classified permit establishing the percentage of exempt sales. The classified permit may be amended or revoked as to its classification whenever the State Tax Assessor determines that the percentage of exempt sales is inaccurate. The State Tax Assessor may for good cause extend for not more than 30 days the time for making returns required under chapters 211 to 225. Every person subject to the use tax shall file similar reports, at similar dates, and pay the tax or furnish a receipt for the same from a registered retailer. § 1951-A(1)

Postmark is date of filing

If any document or payment required or permitted by this Title to be filed or paid is transmitted by the United States Postal Service to the person with whom or to whom the filing or payment is to be made, the date of the United States Postal Service postmark stamped on the envelope is deemed to be the date of filing or payment if that document or payment was deposited in the mail, postage prepaid and properly addressed to the person with whom or to whom the filing or payment is to be made. If the document or payment is not received by that person or if the postmark date is illegible, omitted or claimed to be erroneous, the document or payment is deemed to have been filed or paid on the mailing date if the sender establishes by competent evidence that the document or payment was deposited with the United States Postal Service, postage prepaid and properly addressed, and, in the case of nonreceipt, files a duplicate document or makes payment, as the case may be, within 15 days after receipt of written notification by the addressee of the addressee's nonreceipt of the document or payment. A record authenticated by the United States Postal Service of mailing by registered mail, certified mail or certificate of mailing constitutes competent evidence of such mailing. Any reference in this section to the United States Postal Service is deemed to include a reference to any delivery service designated by the United States Secretary of the Treasury pursuant to section 7502(f)(2) of the Code, and any reference in this section to a postmark of the United States Postal Service is deemed to include a reference to any date recorded or marked as described in section 7502(f)(2)(C) of the Code by any such designated delivery service. § 153(1)

When due date is a weekend or holiday

When the last day, including any extension of time, prescribed under this Title for the performance of an act falls on Saturday, Sunday or a legal holiday in this State, the performance of that act is timely if it occurs on the next succeeding day which is not a Saturday, Sunday or legal holiday in this State. § 153(2)

Retailers are responsible for filing a sales tax return, form ST-7, on or before the 15th of the month. The information on the return reflects sales that occurred in the prior month.

Submission of returns and funds by electronic means

Returns; declaration covering perjury; submission of returns and funds by electronic means

1. Declaration required. Any return, report or other document required to be filed pursuant to this Title must contain a declaration, in a form prescribed by the State Tax Assessor, that the statements contained in the return, report or other document are true and made under the penalties of perjury. When a tax return is filed electronically by a taxpayer or with the taxpayer's permission, the filing of that return constitutes a sworn statement by the taxpayer, made under the penalties of perjury, that the tax liability shown on the return is correct.

2. Electronic filing. The State Tax Assessor may allow or, as provided in this subsection, require the filing of a return or document by electronic data submission or by telephone.

A. In the case of an employer that submits returns in accordance with section 5253 with respect to 100 or more employees, whether the returns are submitted directly by the employer or by a 3rd party on behalf of the employer, the assessor may require that the returns be filed by electronic data submission.

B. In the case of a payroll processor as defined in Title 10, chapter 222 that submits returns pursuant to section 5253 or Title 26, chapter 13, subchapter 7 for 100 or more employers, the assessor may require that the returns be filed by electronic data submission.

3. Payment by electronic funds transfer. The State Tax Assessor may allow or, as provided in this subsection, require the payment of a tax or the refund of a tax by electronic funds transfer. An electronic funds transfer allowed or required by the assessor pursuant to this subsection is considered a return. For the purposes of this subsection, “tax” includes unemployment insurance contributions required to be paid to the State pursuant to Title 26.

A. In the case of a person that is liable for $200,000 or more per year pursuant to section 5253 or for $400,000 or more per year in payments of any other single tax type, the assessor may require payment or refund of that tax by electronic funds transfer.

B. In the case of a payroll processor as defined in Title 10, chapter 222, the assessor may require payment or refund of taxes pursuant to section 5253 and unemployment insurance contributions pursuant to Title 26, chapter 13, subchapter 7 by electronic funds transfer.

4. Adoption of rules. The State Tax Assessor may adopt rules to establish procedures necessary to implement the provisions of this section and shall adopt rules in the event that payment of taxes by electronic funds transfer is mandated. Rules adopted pursuant to this subsection are routine technical rules for the purposes of Title 5, chapter 375, subchapter 2-A. §193

Internet Filing

The Bureau provides the ability to file sales, use and service provider tax returns through the internet. Go to http://www.maine.gov/revenue and click on “Electronic Services”. At the next screen select “Sales/Use" or "Service Provider". Bookmarking this location will give you quicker access next time.

In order to register online, you will need your sales tax registration number and your business code (both of which can be found at the top of your paper return) and a password which you will determine. (Note: your sales tax number must be seven digits and your business code must be three digits. If either are not, you may need to add a zero in front of these numbers.) After you have completed your return, you will be given three options for payment; ACH Debit, ACH Credit or payment by check.

As permitted by the statute, the Assessor has, by rule, set forth other guidelines for the reporting and payment of sales and use tax. The first is permitting the filing of returns on frequencies other than monthly.

Reporting Frequencies

.01 Except as otherwise provided below, every retailer must file monthly sales and use tax returns. The State Tax Assessor will periodically review the status of sales and use tax accounts and notify retailers whose filing frequency has been changed pursuant to this Rule. Upon application to the State Tax Assessor, a retailer may be authorized to file returns more frequently than this Rule requires.

A. .01 Except as otherwise provided below, every retailer must file monthly sales and use tax returns. The State Tax Assessor will periodically review the status of sales and use tax accounts and notify retailers whose filing frequency has been changed pursuant to this Rule. Upon application to the State Tax Assessor, a retailer may be authorized to file returns more frequently than this Rule requires.

B. Every retailer whose average sales and use tax liability is at least $100 per month but less than $600 per month must file four returns each year. The reporting periods are January through March, April through June, July through September, and October through December. The due date for filing the return and paying the tax is the fifteenth day of the month following the end of each reporting period.

C. Every retailer whose average sales and use tax liability is at least $50 per year but less than $100 per month must file two returns each year. The reporting periods are January through June and July through December. The due date for filing the return and paying the tax is the fifteenth day of the month following the end of each reporting period.

D. Every retailer whose average annual sales and use tax liability is less than $50 must file one return each year. The reporting period is the calendar year. The due date for filing the return and paying the tax is the fifteenth day of the month following the end of the reporting period.

E. The State Tax Assessor may temporarily require retailers to file using unusual or more frequent reporting periods in order to administer substantial changes in the sales and use tax law, such as rate changes.

.02 Seasonal Filing. A retailer whose business is completely closed for one or more calendar months on a regular schedule each year may register as a seasonal filer, indicating the months during which the business is open. A retailer that is registered as a seasonal filer is not required to file a sales and use tax return for any off-season reporting period during which the retailer did not engage in business.
Rule 304

Extensions

Realizing that some businesses may not have ample time to gather all the information necessary to complete the return, the rule authorizes extensions. Administratively, the Bureau will grant 30 day permanent extensions. Temporary or periodic exemptions are not granted.

03. Extension of Time for Filing. Upon application to the State Tax Assessor, the time for filing sales and use tax returns may be extended for 30 days for good cause. The extension remains in effect until revoked in writing by the State Tax Assessor. The extension does not extend the time for paying the tax. Rule 304

Reporting on cash basis

Generally, the sales tax law assumes that most businesses practice an accrual system of accounting. Sales tax is due in the month in which the sale occurred even though payment for the sale has not been received. However, the Bureau's rule does recognize the fact that businesses may be on a cash basis.

04. Basis of Accounting. Generally, retailers are required to file sales and use tax returns on an accrual basis. However, a retailer that properly files its federal income tax returns on a cash basis may elect to file its sales and use tax returns on a cash basis. Rule 304

Thus, the retailer may, with the Bureau's approval, report only the tax that has been collected in a given month. A business cannot have an accounting system for sales tax purposes and a separate system for income taxes.

Supplemental report

In addition to the sales tax return, vehicle dealers are required to file a supplemental report listing each vehicle sale.

05. Supplemental Return. Every person who makes retail sales of motor vehicles, watercraft, aircraft, manufactured housing, special mobile equipment, trailers, camper trailers or truck campers must file, in addition to the sales and use tax return, a supplemental return reporting individually each sale of any of these kinds of property made during the reporting period. Every person who rents or leases automobiles for one year or more must file a supplemental return reporting individually each lease or rental. Rule 304

Consolidated fililng

A seller who operates multiple places of business is allowed to file a consolidated return covering sales at each location in lieu of multiple sales tax returns. A breakdown of sales at each location must be provided if the seller operates businesses in various cities or towns.

07. Consolidated Filing. Upon application to the State Tax Assessor, a retailer that makes sales at more than one place of business may be authorized to file a single consolidated return reporting the total amount of sales made at all of the locations. The return must include a schedule showing a breakdown of taxable sales made at each location.

Failing to file any tax return or pay any tax due is subject to penalties as discussed later on in the "Taxpayer Compliance" section of this guide.

Recordkeeping Requirements

Persons subject to tax under this Title shall maintain such records as the State Tax Assessor determines necessary for the reasonable administration of this Title. Records pertaining to taxes imposed by chapters 371 and 575 and by Part 8 must be retained as long as is required by applicable federal law and regulation. Records pertaining to all other taxes imposed by this Title must be retained for a period of at least 6 years. The records must be kept in such a manner as to ensure their security and accessibility for inspection by the assessor or any designated agent engaged in the administration of this Title. § 135(1)

Records kept by a retailer doing business in this State must include all bills, receipts, cash register tapes, sales invoices, purchase invoices and any other documentation supporting the entries made in the normal books of account and ledgers maintained by the average prudent business person, as well as all related reports produced from these records. The records will also include all documents, schedules or work papers used in connection with the preparation of tax returns filed by the retailer.

Specific information required shall be as follows:

(1) Detailed records of all taxable sales of tangible personal property made in Maine, including all components of the total sales price of such sales.

(2) Detailed records of all taxable sales of taxable services made in Maine, including all components of the total sale price of such sales.

(3) Detailed records of all exempt sales of tangible personal property or taxable services made in Maine, including all components of the total sale price of such sales.

(4) Detailed records of all purchases of tangible personal property and taxable services purchased for use or consumption in Maine, including all components of the total purchase price of such items. Rule 103(.02D)

The burden of proving that a sale is exempt is upon the person making the sale. In most instances, the seller is relieved of this burden if the seller obtains appropriate documentation from the purchaser. Certificates issued by the Bureau would ordinarily be accepted by the seller in good faith. The good faith of the seller would be questioned if the seller had knowledge of facts which gave rise to a reasonable inference that the purchaser is not the holder of the exemption certificate, that the merchandise is not to be used exclusively by the exempt organization or will not be resold in the ordinary course of business by a retailer. Some exemptions do not require statements from the purchaser, e.g. grocery staples, while other commodities, since they can be used for a purpose inconsistent with the exemption, need affidavits, e.g. vehicles used in interstate commerce.

See Rule 103 for additional information on recordkeeping requirements.

Electronic Retention of Records

Advancing technology in the area of record retention requires the bureau to consider new standards of acceptability for such documentation. The bureau accepts imaged documents stored in a digital format provided 1) the system meets accepted industry standards for integrity and reliability, 2) the procedures used to capture and store information is reliable and includes safeguards to guarantee authenticity, 3) detail is captured and retained in order to efficiently conduct a sales/use tax review and 4) adequate hardware/software is available to readily access records. The retention of original hard-copy documents will depend upon the accuracy, integrity and authenticity offered by the system. See Rule 103 for additional information on retention of records.

EXEMPT SALE DOCUMENTATION

The following is a summation of documents that the Bureau deems necessary for the retailer to obtain and keep on file in order to support an exempt sale:

Resale Certificate

The assessor shall issue a provisional resale certificate to each applicant for initial registration that states on its application that it expects to make annual gross sales of $3,000 or more. A provisional resale certificate issued between January 1st and September 30th is effective for the duration of the calendar year in which it is issued and the 2 subsequent years. A provisional resale certificate issued between October 1st and December 31st is effective until the end of the 3rd succeeding calendar year. Each certificate must contain the name and address of the retailer, the expiration date of the certificate and the certificate number. If a vendor has a true copy of a retailer's resale certificate on file, that retailer need not present the certificate for each subsequent transaction with that vendor during the period for which it is valid. §1754-B(2-B)

The assessor shall periodically review the status of each retailer registered under this section. On or before the date of expiration of a resale certificate, the assessor shall issue to each registered retailer with gross sales of $3,000 or more during the 12 months preceding the assessor's review a resale certificate effective for the next 3 calendar years. Any subsequent annual resale certificate issued is effective for the next 5 calendar years. Each certificate must contain the name and address of the retailer, the expiration date of the certificate and the certificate number. If a vendor has a true copy of a retailer's resale certificate on file, that retailer need not present the certificate for each subsequent transaction with that vendor during the period for which it is valid. §1754-B(2-C)

A sale of tangible property for resale (except for resale as a casual sale) is not a taxable transaction. However, the burden of proving that a sale of tangible personal property is for resale is upon the person making the sale. The seller will be relieved of this burden of proof only if a resale certificate in accordance with the provisions of Rule 301 is obtained from the purchaser. Where the sale is to a person who, by reason of being a non-resident of the state not doing business within the state has no seller's registration certificate, the seller should obtain sufficient evidence to sustain the burden of proving the sale is actually for resale. If the purchaser cannot furnish such evidence, the seller should, as a protection, collect the sales tax.

Maine Revenue Service issues resale certificates to all active retailers reporting annual gross sales of $3,000 or more. The resale certificate is valid for a certain period of time, generally 3 years. (Between July 30, 2004 and March 29, 2006, resale certificates were issued if annual gross sales were $10,000 or more and were valid for only one year.) Prior to a certificate’s expiration, Maine Revenue will automatically review the account and reissue the certificate provided the account is active and has the prerequisite gross sales volume.

Out-of-state sellers, who are not required to be registered in Maine, may still buy exempt if they provide a statement similar to our resale certificate to the seller preferably on the purchaser's own letterhead. Alternatively, MRS has accepted the “Uniform Sales & Use Tax Certificate - Multijurisdiction” form issued by the Multistate Tax Commission as adequate documentation. This form contains the required language and the purchaser indicates which states the purchaser is registered to do business. Not all states have accepted this form, however. As a result, this form would not be acceptable if the out-of-state purchaser is from a state not listed on this form. A copy of the MTC form is available in the document section of this guide or it can be downloaded directly from their website at www.mtc.gov (select "Uniform Sales and Use Tax Certificate" under “Taxpayer Services”).

Since the burden of proof is on the seller, it is recommended that the seller obtain whatever documentation will prove that the purchaser is engaged in selling in their home state.

The resale certificate can be used either on a single purchase or to document the continued purchasing of goods for resale by a retailer. If the resale certificate is used as a blanket certificate, the seller is only required to retain one copy of the resale certificate in the seller's files to support the exempt sale rather than obtain a copy for each transaction. However, each transaction supported by the resale certificate must be documented as well with purchase invoices appropriately marked.

Exempt Organizations

Exempt organization certificate, or other exempt letter, issued by Maine Revenue Services, for purchases made by the organization for their own use.

Not all organizations are exempt from sales tax. The certificate or letter must be issued by Maine Revenue Services, Sales/Excise Tax Division and must be unaltered. The State of Maine, the U S Government, Maine cities, towns and counties are exempt from sales tax but, for administrative purposes, are not issued certificates. No evidence of exemption is required for sales to these entities other than the invoice of the seller showing the exempt organization.

Manufacturers

ST-P-70 - Industrial Users Blanket Certificate of Exemption.

This document is presented by a registered seller who is engaged in manufacturing a product. This includes a wide range of entities, from crafters to paper mills. It may be used to exempt all future purchases of qualifying items or for occasional purchases. Items covered by this certificate are ingredients or component parts of the item being produced, items that will be consumed and destroyed in the process, machinery, equipment and repair parts used in manufacturing and fuel or electricity used at the manufacturing facility.

Direct Pay Permits

ST-P-3 - Direct Pay Permit for use by certain manufacturers

Manufacturers and utilities which commonly acquire a substantial amount of tangible personal property under circumstances which make it impractical to determine, at the time of purchase, the manner in which property will be used and, therefore, impractical to determine whether the purchase or use of the property will be taxable or exempt, are authorized to remit tax pursuant to a direct payment permit. Holders of direct payment permits are given the privilege of purchasing tangible personal property without payment of the tax to their retailers and reporting and paying tax directly to the State. Rule 308(1)

Holders of direct payment permits issued by the State Tax Assessor shall file a copy with each retailer and the direct payment permit number shall be placed on all purchase orders of contracts covering the purchase of tangible personal property, in lieu of payment of tax to the retailer, except in those transactions excluded in 4 below. Holders of direct payment permits shall not authorize anyone to whom they have issued a direct payment permit to file the direct payment permit or permit number with a third party. Rule 308(3)

Some manufacturers are issued “direct pay permits” by the Bureau. This allows them to purchase nearly everything exempt from tax and be accountable directly to the Bureau on taxable items. This permit cannot be used for purchases of prepared food or beverages at restaurants, lodging at hotels, motels, etc., telecommunication services, interim rentals and short-term rentals of automobiles.

Commercial Farmers And Fishermen

Exemption Card and ST-L-154 - Affidavit of Exemption for use by those engaged in commercial farming and fishing

Those persons engaged in commercial agricultural production, commercial fishing and commercial aquacultural production must provide the retailer with an affidavit of exemption along with a copy of their exemption card issued by the Bureau. This card may only be used to purchase depreciable machinery and equipment, including repairs parts for same. It cannot be used to purchase items such as supplies, motor vehicles and repair parts for motor vehicles.

Vehicles used in interstate commerce

ST-MV-57a - Affidavit to document exempt vehicles for use in interstate or foreign commerce.

It is important that the purchaser read the instructions as it provides a complete description of the requirements of this exemption. Retailers should not have the purchaser sign without pointing out the instructions nor should the retailer misrepresent the qualifications of the exemption.

Out-of-state deliveries

ST-MV-36 - Affidavit to support out-of-state delivery by the seller.

This form documents the fact that the seller delivered the merchandise out-of-state. It not only requires the signature of the person making the delivery but also notarization.

Certain sales to non-residents

ST-MV-33 - Affidavit of Exemption for a sale to an out-of-state resident for immediate removal from Maine of a motor vehicle, camper trailer, semitrailer, aircraft.

ST-P-19AE - Affidavit of Exemption for a sale to an out-of-state resident for immediate removal from Maine of a watercraft.

On both of these affidavits, the purchaser must be a non-resident individual and the purchaser must be removing the property from Maine. If the retailer has any knowledge that the purchaser is actually a resident of Maine or that the non-resident does not intend to remove the property, this exemption does not apply.

ST-P-39 - Affidavit of Exemption for a snowmobile or an all-terrain vehicle sold to an out-of-state resident.

Similar to ST-MV-33 and ST-P-19AE, the purchaser must be a non-resident individual. However, the snowmobile in this situation does not need to be removed from Maine in order to qualify for exemption.

Rental of automobiles

ST-MV-63 - Certificate of Exemption to purchase an automobile for lease or short-term rental.

Other certificates and affidavits

ST-P-72 - Contractor’s Exempt Purchase Certificate

For use by a contractor or subcontractor when purchasing property that will be incorporated into the realty of an exempt organization.

STR-PTDZ – Contractor’s Refund Application for Pine Tree Zones

For use by a contractor or subcontractor when purchasing property that will be incorporated into the realty of a qualified Pine Tree Development Zone business.

ST-L-155 - Products to be Incorporated into a Commercial Fishing Vessel

For use by a person engaged in commercial fishing when purchasing property that will be incorporated into the construction of a fishing vessel.

ST-P-73 - Resale Certificate for Packaging Materials

For use by a person, other than a retailer, when purchasing packaging materials that qualify for exemption.

ST-P-71 - Affidavit for Out of state use of Promotional Materials

For use by a person when purchasing qualifying advertising or promotional materials that will be used out-of-state.

REFUNDS & CREDITS

Tax paid on purchases for resale

A retailer registered under section 1754-B may claim a credit for sales tax imposed by this Part if the retailer has paid the sales tax on tangible personal property purchased for resale at retail sale. The credit may be claimed only on the return that corresponds to the period in which the tax was paid. The credit may not be claimed if the item has been withdrawn from inventory by the retailer for the retailer’s own use prior to its sale. If the retailer purchases an item for resale at retail sale and pays tax to its vendor and if the retailer’s sales and use tax liability for the tax period in question is less than the credit being claimed, the retailer is entitled either to carry the credit forward or to receive a refund of the tax paid. §1811-B

For those retailers that do not qualify to receive an annual resale certificate, a refund or credit is available to the retailer for sales tax paid on goods actually purchased for resale. This refund/credit is taken on the sales tax return in the period in which the purchase is made.

Excess Collections

Whenever the tax collected by a retailer for any period exceeds that provided by law, whether the excess is attributable to the collection of tax on exempt or nontaxable transactions or erroneous computation, the total amount collected, excluding only that portion of the excess which has been returned or credited to the person or persons from whom it was collected, shall constitute a tax liability of the retailer and shall be reported and paid at the time and in the manner provided by sections 1951 and 1952. § 1814(1)

The tax liability specified in subsection 1 shall be subject to assessment, collection and enforcement by the State Tax Assessor in the manner provided in chapters 7 and 211 to 225. § 1814(2)

Refunds

Any such amount which has been paid by or collected from a retailer shall be refunded by the State Tax Assessor to the retailer in accordance with section 2011 only upon submission of proof to the satisfaction of the State Tax Assessor that the amount has been returned or credited to the person or persons from whom it was originally collected. In such cases, interest shall be paid by the State Tax Assessor only upon proof that interest was included in the repayment by the retailer to that person or persons. § 1814(3)

If the State Tax Assessor determines, upon written application by a taxpayer or during the course of an audit, that any tax under this Part has been paid more than once or has been erroneously or illegally collected or computed, the assessor he shall certify to the State Controller the amount paid collected in excess of that legally due . That , from whom it was collected or by whom paid, and that amount must shall be credited by the assessor State Tax Assessor on any taxes then due from the taxpayer and the balance refunded to the taxpayer or the taxpayer's his successor in interest , administrators, executors or assigns, but no such credit or refund may be allowed unless within 3 years from the date of overpayment either a written petition therefor, stating the

grounds upon which the refund or credit is claimed , is filed with the assessor State Tax Assessor or the overpayment is discovered on audit within 3 years of the date of overpayment . Interest , at the rate determined pursuant to section 186 must , shall be paid on any balance refunded pursuant to this chapter from the date the return listing the overpayment was filed , or the date the payment was made, whichever is later, on any balance refunded pursuant to this chapter, except that no interest may be paid with respect to the refunds provided by section 2013 and, in cases of excessive or erroneous collections specified in section 1814 , interest must shall be paid in accordance with section 1814, subsection 3. At the election of the assessor State Tax Assessor , unless the taxpayer specifically requests a cash refund, the refund may be credited to the taxpayer's sales and use tax account, but, in the case of a credit, no further interest may accrue from the date of that election. The taxpayer Nothing may not authorize the taxpayer, or anyone acting in his behalf, to apply for a refund of any amount assessed when administrative and judicial review under section 151 has been completed. § 2011

Reconsiderations

A taxpayer dissatisfied with the decision of the assessor, upon a written request for refund filed under this section may request reconsideration and appeal from the reconsideration to the Superior Court in the same manner and under the same conditions as in the case of assessments made under chapter 7. The decision of the assessor upon a written request for refund becomes final as to law and fact in the same manner and under the same conditions as in the case of assessments made under chapter 7. § 2011

Breakage

Breakage under this section shall be retained by the retailer as compensation for the collection. § 1812(3)

Any retailer who knowingly charges or collects as the sales tax due on the sale price of any property or service an amount in excess of that provided by section 1812 commits a Class E crime. § 1813

With the exception of breakage, any tax collected by the retailer from the purchaser must be remitted to the Bureau even if it represents an over-collection or erroneous computation unless the tax has been refunded or credited to the purchaser. “Breakage” is the excess collection provided by the bracket system when applying tax. This most commonly occurs when there are multiple sales of minimal amounts. For instance, assume a sales tax rate of 5% and three separate sales of 65 cents, 85 cents and 45 cents. The tax collected in each case is 4 cents, 5 cents and 3 cents, respectively. Collectively, the total gross sales amounted to $1.95 and tax of 10 cents. When the retailer reports the gross sales for the month, the retailer computes tax on $1.95 to arrive at tax due of 10 cents. The extra collection of 2 cents is referred to as “breakage” and is retained by the retailer.

Bad Debts charged off

The tax paid on sales represented by accounts charged off as worthless may be credited against the tax due on a subsequent report filed within 3 years of the charge-off, but, if any such accounts are thereafter collected by the retailer, a tax shall be paid upon the amounts so collected. § 1811-A

Note: This is not a refund provision. If a retailer has a bad debt which includes sales tax, the tax may be credited to the retailer. The amount must be deducted on a sales and use tax return filed within three years from the date the amount was actually charged off on the books of the retailer. Credit for charge-offs cannot be taken later than the 15th day of the 37th month after the uncollectible amount was charged off on the books of the retailer.

The amount to be deducted must actually be charged off as uncollectible on the books of the retailer. On audit, deductions for bad debts will be disallowed unless there is evidence that this has been done. No deduction is allowable for expenses incurred in attempting to collect any account receivable, or for that portion of a recovered amount that is retained by or paid to a third party as compensation for services rendered in collecting the account.

The deduction may be made only with respect to taxable sales that were originally reported as taxable by the retailer, and on which tax has been paid by the retailer to the State. If the sales tax rate in effect at the time of the sale is different from the rate in effect at the time that the credit is claimed, the deduction must be adjusted to reflect the rate that was in effect when the sale was made.

In support of deductions for uncollectible accounts retailers must maintain adequate and complete records showing:

Date of the original sale.
Name and address of the purchaser.
Amount the purchaser contracted to pay.
Amount on which the retailer paid tax to the State.
All payments and other credits applied to the account of the purchaser
Evidence that the uncollectible amount on which tax was paid to the State actually has been charged off.

If a retailer subsequently collects any account that has been charged off as worthless, and for which credit has been taken, the amount collected must be included in the return filed for the period in which the collection occurred. The tax on that amount must be paid with that return, based on the tax rate that was in effect at the time of the original sale. If the tax rate in effect at the time of collection is different from the tax rate in effect at the time of the original sale, the amount of the collection and the date of the original sale should be noted in the retailers records.

SPECIAL REFUNDS

In addition to the many exemptions within the law, there are also refund provisions which, in effect, are exemptions; the major difference being that tax must be paid on all purchases and refunds sought directly from Maine Revenue Services. The only exception is with commercial farmers and fishermen.

Fish Passage Facilities

Taxes on the sale or use of materials used in the construction of fish passage facilities in new, reconstructed or redeveloped dams, when the fish passage facilities are built in accordance with plans and specifications approved by the Department of Inland Fisheries and Wildlife or the Department of Marine Resources, shall be refundable.

The State Tax Assessor shall refund sales or use tax paid on these construction materials upon the submission by a person of the following:

1. Certification concerning construction. A certification from the Department of Inland Fisheries and Wildlife or the Department of Marine Resources that the fish passage facilities were constructed in accordance with approved plans and specifications; and

2. Application for tax rebate. An application for a tax rebate which shall state at a minimum the construction materials purchased, its manufacturers, its cost, the use of which the purchaser has made of the materials and the seller from whom the purchase was made, and shall be accompanied by a copy of the purchase invoices. § 2014

Sales tax paid on materials used in the construction of fish passage facilities in dams qualifies for refund provided the Department of Inland Fisheries and Wildlife or the Department of Marine Resources has certified the construction.

Rental Vehicle

Excise Tax Reimbursement

1. Report. Annually, on or before September 1st, a vehicle owner or rental company engaged in the business of renting automobiles for a period of less than one year, in order to claim an excise tax reimbursement, shall file a report with the State Tax Assessor. The report must include the information required by the State Tax Assessor to determine the taxpayer's excise tax reimbursement entitlement. The State Tax Assessor may extend the September 1st filing deadline for a period not to exceed one year for good cause.

2. Reimbursement. The State Tax Assessor shall determine the reimbursement to be paid to a taxpayer filing a return pursuant to subsection 1. The reimbursement is the amount that is the smaller of:

A. The amount determined by computing the total excise tax credit entitlement during the most recently completed period from July 1st to June 30th for which a taxpayer has filed a return pursuant to subsection 1. An excise tax credit accrues for each vehicle excise tax paid in the prior completed period for which the associated Maine registration was surrendered prior to the expiration of the associated 12-month excise tax period, unless the excise tax was credited to another registration, in which case the 12-month period continues to run in association with the replacement registration. The amount of the credit is equal to the amount of the excise tax paid in order to register the original vehicle multiplied by a fraction, the numerator of which is the number of complete months short of 12 months during which the registration was surrendered and the denominator is 12; or

B. Three-tenths of the amount of tax paid to the State by the taxpayer resulting from the tax on the rental of automobiles for a period of less than one year during the most recently completed period from July 1st to June 30th.

3. Treasurer of State; notification. Upon the determination of the reimbursement amount to be paid to a vehicle owner or rental company, the State Tax Assessor shall inform the Treasurer of State of the determination and the Treasurer of State shall make the reimbursement. These reimbursements must be accounted for and paid as sales and use tax refunds. Unless the reimbursement is paid before November 1st of the year in which the report required in subsection 1 is filed or within 60 days of the filing of that report, whichever is later, interest at the rate provided in section 186 must be paid for the period of time that transpires after the deadline before payment is made. § 2015

Those persons who are engaged in the business of renting automobiles on a short term basis (less than one year) may be eligible for a sales tax refund if a vehicle's registration is surrendered before the year has ended. The refund is the equivalent of the unused portion of any excise tax paid on the automobile's surrendered registration. For instance, if the excise tax paid on an automobile was $400 and the vehicle's registration was surrendered after 9 months, the rentor may be eligible for a refund of $100 (25% of $400).

Contractors of real property for qualified Pine Tree Zone business

Pine Tree Development Zone businesses; reimbursement of certain taxes

1. Terms defined. As used in this section, the terms "qualified Pine Tree Development Zone business" and "qualified business activity" have the meanings given to them in Title 30-A, section 5250-I. For the purposes of this section, "primarily" means more than 50% of the time during the period that begins on the date on which the property is first placed in service by the purchaser and ends 2 years from that date or at the time the property is sold, destroyed or otherwise permanently removed from service by the purchaser, whichever occurs first.

2. Reimbursement allowed. A reimbursement is allowed as provided in this section for a tax paid pursuant to this Part with respect to the sale or use of tangible personal property that is physically incorporated in and becomes a permanent part of real property that is owned by or sold to a qualified Pine Tree Development Zone business and that is used directly and primarily by that business in one or more qualified business activities.

3. Claim for reimbursement. Claims under this section for reimbursement of taxes are controlled by this subsection.

A. A claim for reimbursement under this section must be filed by the contractor or subcontractor with the State Tax Assessor within 3 years from the date on which the tangible personal property was incorporated into real property. The reimbursement claim must be submitted on a form prescribed by the assessor and must be accompanied by a statement from a qualified Pine Tree Development Zone business certifying, under penalties of perjury, that the personal property with respect to which the tax was paid by the claimant has
been placed in use directly and primarily in a qualified business activity. All records pertaining to such certification and to the transactions in question must be retained for at least 6 years by the contractor or subcontractor, by the qualified Pine Tree Development Zone business and by the person, if any, that sold the real property in question to that business. The reimbursement claim must be accompanied by such additional information as the assessor may require. If a sales or use tax is included in the contractor's or subcontractor's contract price, the contractor or subcontractor shall file, at the request of the qualified Pine Tree Development Zone business, a claim for reimbursement in accordance with this section and pay the reimbursement to the qualified Pine Tree Development Zone business.

B. If, by agreement between the contractor or subcontractor and the qualified Pine Tree Development Zone business, the contractor or subcontractor assigns its right to claim and receive reimbursement, the qualified Pine Tree Development Zone business must file a claim for reimbursement in accordance with this subsection. A reimbursement may not be issued to a qualified Pine Tree Development Zone business under this paragraph unless the contractor or subcontractor has previously submitted to the bureau a certificate, signed by the contractor or subcontractor, releasing the contractor's or subcontractor's claim to the reimbursement. The certificate must be in a format prescribed by the assessor.

4. Limitations. The following are the limitations on reimbursements made pursuant to this section.

A. Reimbursements made by the assessor pursuant to this section are limited to taxes paid in connection with sales of tangible personal property that occur within a period of 10 years from the date the qualified Pine Tree Development Zone business receiving the property is certified pursuant to Title 30-A, section 5250-O or by December 31, 2018, whichever occurs first.

B. Reimbursement pursuant to this section of taxes paid in connection with the sale of tangible personal property subsequently attached to real property may not be made when those real property improvements:

(1) Are owned by more than one person prior to their acquisition by the qualified Pine Tree Development Zone business whose certification accompanies the reimbursement claim pursuant to subsection 3; or

(2) Have been used for a business purpose by a person other than the qualified Pine Tree Development Zone business whose certification accompanies the reimbursement claim pursuant to subsection 3.

5. Audit. The assessor has the authority to audit any claim filed under this section. If the assessor determines that the amount of the claimed reimbursement is incorrect, the assessor shall redetermine the claim and notify the claimant in writing of the redetermination. If the claimant has received reimbursement of an amount that the assessor concludes should not have been reimbursed, the assessor may issue an assessment for that amount within 3 years from the date the
reimbursement claim was filed or at any time if a fraudulent reimbursement claim was filed. The claimant may seek reconsideration, pursuant to section 151, of the redetermination or assessment.

6. Payment of claims. The State Tax Assessor shall determine the benefit for each claimant under this section and certify to the State Controller the amount to be transferred to the Pine Tree Development Zone reimbursement reserve account established, maintained and administered by the State Controller from General Fund undedicated revenue within the sales tax category. The assessor shall pay the certified amounts to each approved applicant qualifying for the benefit under this section within 30 days after receipt of a properly completed claim. Interest is not allowed on any payment made to a claimant pursuant to this section.
§2016

The PTDZ tax credits and benefits are available to certified businesses engaged in qualified activity for tax years beginning on or after January 1, 2004. Effective July 1, 2005, contractors and sub-contractors are eligible for reimbursement of sales and use tax paid on tangible personal property affixed to realty owned by or to be sold to a qualified Pine Tree Development Zone business. To obtain certification, the business must apply to the Department of Economic and Community Development (“DECD”) and meet the requirements for qualified business activity. In general, in order to be certified, a business must be engaged in a targeted business sector (manufacturing, financial services, selected technologies); must intend to expand the base level of employment with qualified employees; and the qualified employees must be new fulltime employees who are hired by a Pine Tree Development Zone business for work directly in one or more qualified business activities. Contractors should refer to Instructional Bulletin #52 for further information about this program and procedures to claim reimbursement.

Contractors of real propertyfor qualified community wind power generators

Qualified community wind power generator; reimbursement of certain taxes

1. Definitions. As used in this section, unless the context otherwise indicates, the following terms have the following meanings.

A. "Primarily" means more than 50% of the time during the period that begins on the date on which the property is first placed in service by the purchaser and ends 2 years from that date or at the time the property is sold, destroyed or otherwise permanently removed from service by the purchaser, whichever occurs first.

B. "Qualified community wind power generator" has the meaning given to it in section 5219-AA.

2. Reimbursement allowed. A reimbursement is allowed as provided in this section for a tax paid pursuant to this Part with respect to the sale or use of tangible personal property that is physically incorporated in and becomes a permanent part of real property that is owned by or sold to a qualified community wind power generator and that is used directly and primarily by the qualified community wind power generator.

3. Claim for reimbursement. Claims under this section for reimbursement of taxes are controlled by this subsection.

A. A claim for reimbursement under this section must be filed by the contractor or subcontractor with the State Tax Assessor within 3 years from the date on which the tangible personal property was incorporated into real property. The reimbursement claim must be submitted on a form prescribed by the assessor and must be accompanied by a statement from a qualified community wind power generator certifying, under penalties of perjury, that the personal property with respect to which the tax was paid by the claimant has been placed in use directly and primarily by the qualified community wind power generator. All records pertaining to such certification and to the transactions in question must be retained for at least 6 years by the contractor or subcontractor, by the qualified community wind power generator and by the person, if any, that sold the real property in question to that business. The reimbursement claim must be accompanied by such additional information as the assessor may require. If a sales or use tax is included in the contractor's or subcontractor's contract price, the contractor or subcontractor shall file, at the request of the qualified community wind power generator, a claim for reimbursement in accordance with this section and pay the reimbursement to the qualified community wind power generator.

B. If, by agreement between the contractor or subcontractor and the qualified community wind power generator, the contractor or subcontractor assigns its right to claim and receive reimbursement, the qualified community wind power generator must file a claim for
reimbursement in accordance with this subsection. Reimbursement may not be issued to a qualified community wind power generator under this paragraph unless the contractor or subcontractor has previously submitted to the bureau a certificate, signed by the contractor or subcontractor, releasing the contractor's or subcontractor's claim to the reimbursement. The certificate must be in a format prescribed by the State Tax Assessor.

4. Limitations. Limitations on reimbursements made pursuant to this section are governed by this subsection.

A. Reimbursements made by the State Tax Assessor pursuant to this section are limited to taxes paid in connection with sales of tangible personal property that occur within a period of 5 years from the date the qualified community wind power generator receiving the property is certified pursuant to section 5219-AA or by December 31, 2011, whichever occurs first.

(1) Are owned by more than one person prior to their acquisition by the qualified community wind power generator whose certification accompanies the reimbursement claim pursuant to subsection 3; or

(2) Have been used for a business purpose by a person other than the qualified community wind power generator whose certification accompanies the reimbursement claim pursuant to subsection 3.

5. Audit. The State Tax Assessor has the authority to audit any claim filed under this section. If the assessor determines that the amount of the claimed reimbursement is incorrect, the assessor shall redetermine the claim and notify the claimant in writing of the redetermination. If the claimant has received reimbursement of an amount that the assessor concludes should not have been reimbursed, the assessor may issue an assessment for that amount within 3 years from the date the reimbursement claim was filed or at any time if a fraudulent reimbursement claim was filed. The claimant may seek reconsideration, pursuant to section 151, of the redetermination or assessment.

6. Payment of claims. The State Tax Assessor shall determine the benefit for each claimant under this section and certify to the State Controller the amount to be transferred to the qualified community wind power generator reimbursement reserve account established, maintained and administered by the State Controller from General Fund undedicated revenue within the sales tax category. The assessor shall pay the certified amounts to each approved applicant qualifying for the benefit under this section within 30 days after receipt of a properly completed claim. Interest is not allowed on any payment made to a claimant pursuant to this section. §2017

Beginning October 1, 2006, tax credits and benefits are available to certified businesses engaged as a qualified community wind power generator. Contractors and sub-contractors are eligible for reimbursement of sales and use tax paid on tangible personal property affixed to realty owned by or to be sold to a certified wind power generator. To obtain certification, the entity must apply to the Public Utilities Commission and meet certain requirements. In general, in order to be certified, the entity must construct a community wind power generator with a capacity of not more than 10 megawatts that is powered entirely by wind energy and the entity will own title or controlling interest in that generator. The entity must also demonstrate that construction of this generator would not be possible but for the tax credits and benefits available under this program. Contractors should contact Maine Revenue for further information about this program and procedures to claim reimbursement.

Advanced communicationstechnology infrastructure in ConnectME zones

Reimbursement of certain taxes relating to advanced communications technology infrastructure

1. Definitions. As used in this section, unless the context otherwise indicates, the following terms have the following meanings.

A. "Advanced communications technology infrastructure" has the same meaning as in Title 35-A, section 9202.

B. "Authority" has the same meaning as in Title 35-A, section 9202.

C. "Qualifying ConnectME zone" means a geographical area that is eligible for tax reimbursement under this section because the authority has determined that the area is an unserved or underserved area.

2. Reimbursement allowed. Following final adoption of rules under subsection 7, but in no event earlier than July 1, 2007, a reimbursement is allowed as provided in this section for taxes paid pursuant to this Part with respect to machinery and equipment purchased for use by a person to develop an advanced communications technology infrastructure in a qualifying ConnectME zone.

3. Claim for reimbursement. A claim for reimbursement under this section must be filed with the assessor within 3 years from the date on which the machinery and equipment was purchased. The purchaser shall submit the reimbursement claim on a form prescribed by the assessor and must include a statement from the authority certifying that the machinery and equipment is being used primarily to develop an advanced communications technology infrastructure in a qualifying ConnectME zone. The purchaser and the authority shall retain all records pertaining to such certification and to the purchases
in question for at least 6 years. The reimbursement claim must be accompanied by such additional information as the assessor may require.

4. Reimbursement limit. The authority may not certify for reimbursement under this section a total amount in excess of $500,000 in any state fiscal year.

5. Audit. The assessor may audit any claim filed under this section. If the assessor determines that the amount of the claimed reimbursement is incorrect, the assessor shall redetermine the claim and notify the claimant in writing of the redetermination. If the claimant has received reimbursement of an amount that the assessor concludes should not have been reimbursed, the assessor may issue an assessment for that amount within 3 years from the date the reimbursement claim was filed or at any time if a fraudulent reimbursement claim was filed. The claimant may seek reconsideration pursuant to section 151 of the redetermination or assessment.

6. Payment of claims. Within 30 days after receipt of a properly completed claim under this section, the assessor shall inform the State Controller of the certified amounts that are to be reimbursed to the claimant. The State Controller shall make the reimbursement and shall account for and pay it as a sales and use tax refund. Interest is not allowed on any payment made to a claimant pursuant to this section.

7. Rulemaking. The authority in cooperation with the assessor shall develop rules as necessary to administer this section. Rules adopted pursuant to this section are major substantive rules as defined in Title 5, chapter 375, subchapter 2-A.

8. Repeal. This section is repealed January 31, 2009. §2017

A reimbursement is allowed for sales and use tax paid by a person with respect to machinery and equipment purchased for use by that person to develop an advanced communications technology infrastructure in a qualifying ConnectME zone. The effective date of this provision is unknown since it requires the final adoption of certain rules. The effective date will be July 1, 2007 if the rule(s) are in place by that date. Otherwise, the date of final adoption of the rule(s) will be its effective date. Contact should be made with Maine Revenue for further information about this program and procedures to claim reimbursement.

Certain Supplies and Equipment used out-of-state

When a business which operates from fixed locations within and without this State purchases supplies and equipment in this State, places them in inventory in this State, and subsequently withdraws them from inventory either for use at a location of the business in another taxing jurisdiction or for fabrication, attachment or incorporation into other tangible personal property for use at a location of the business in another taxing jurisdiction, without having made use other than storage or such fabrication, attachment or incorporation within this State, it may request a refund of Maine sales tax paid at the time of purchase, provided it maintains inventory records by which the acquisition and disposition of such supplies and equipment purchased can be traced. No refund shall be made where the taxing jurisdiction to which the supplies and equipment are removed levies a sales or use tax. Such refunds must be requested in accordance with section 2011. § 2012

This section contains a number of qualifications in order to obtain a refund of tax paid. To summarize, if a business has a fixed location in Maine and in New Hampshire and purchases supplies and equipment in Maine, pays a tax and subsequently removes them to their place of business in New Hampshire for use in New Hampshire, a refund can be obtained.

Sales and use taxes are trust funds

All sales and use taxes collected by a person pursuant to Part 3, all taxes collected by a person under color of Part 3 which have not been properly returned or credited to the persons from whom they were collected, all taxes collected by or imposed on a person pursuant to chapter 451 or 459, all fees collected pursuant to chapter 719 and all taxes collected by a person pursuant to chapter 827 constitute a special fund in trust for the State Tax Assessor. The liability for the taxes or fees and the interest or penalty on taxes or fees is enforceable by assessment and collection, in the manner prescribed in this Part, against the person and against any officer, director, member, agent or employee of that person who, in that capacity, is responsible for the control or management of the funds or finances of that person or is responsible for the payment of that person's taxes. An assessment against a responsible individual pursuant to this section must be made within 6 years from the date on which the return on which the taxes were required to be reported was filed. An assessment pursuant to this section may be made at any time with respect to a time period for which a return has become due but has not been filed. § 177(1)

Sales and use tax collected by the retailer is held in trust for the State Tax Assessor. This money, therefore, is to be remitted to the Assessor and is not to be used by the retailer for any other purpose. Collection of taxes that have not been paid is also enforceable against any responsible individual of the business.

Section 177(6) also requires payment of the trust fund tax incurred, and interest and penalties, at the time a business is purchased. Failure to do so will make the purchaser personally liable for any outstanding trust fund debt, and interest and penalties, unless the purchaser has obtained a receipt or certificate from the State Tax Assessor stating that the taxes have been paid or that no trust fund taxes, interest or penalties are due.

In an effort to maintain compliance, the statute provides for interest and penalties to be imposed in various situations. The statute provides powers to the State Tax Assessor to conduct audits but it also provides rights to the taxpayer as well.

INTEREST

Any person who fails to pay any tax, other than a tax imposed pursuant to chapter 105, on or before the last date prescribed for payment is liable for interest on the tax, calculated from that date and compounded monthly. The rate of interest for any calendar year equals the highest prime rate as published in the Wall Street Journal on the first day of September of the preceding calendar year or, if the first day of September falls on a weekend or holiday, on the next succeeding business day, rounded up to the next whole percent plus 3 percentage points. For purposes of this section, the last date prescribed for payment of tax must be determined without regard to any extension of time permitted for filing a return. A tax that is upheld on

administrative or judicial review bears interest from the date on which payment would have been due in the absence of review. Any tax, interest or penalty imposed by this Title that has been erroneously refunded and is recoverable by the assessor bears interest at the above rate from the date of payment of the refund. Interest accrues automatically, without being assessed by the assessor, and is recoverable by the assessor in the same manner as if it were a tax assessed under this Title. If the failure to pay a tax when required is explained to the satisfaction of the assessor, the assessor may abate or waive the payment of all or any part of that interest.

Except as otherwise provided in this Title, and except for taxes imposed pursuant to chapter 105, interest, at the rate determined by the assessor for underpayments pursuant to this section, must be paid on overpayments of tax from the date the return listing the overpayment was filed, or the payment was made, whichever is later. § 186

Each fall the assessor determines the interest rate for the upcoming calendar year. Interest is compounded monthly. In order to stop interest from accruing, both the base tax and interest must be paid. The following are the rates in effect for the past few years:

Calendar Year	Rate
1999 through 2001	9%
2002	8%
2003	7%
2004 (Jan-June) 2004 (July – Dec)	6% 7%
2005	8%
2006	10%
2007 & 2008	12%

PENALTIES

Failure to file return

Any person who fails to make and file any return required under this Title at or before the time the return becomes due is liable for one of the following penalties if the person's tax liability shown on such return or otherwise determined to be due is greater than $25.

A. If the return is filed before or within 30 days after the taxpayer receives from the assessor a formal demand that the return be filed,or if the return is not filed but the tax due is assessed by the assessor before the taxpayer receives from the assessor a formal demand that the return be filed, the penalty is $25 or 10% of the tax due, whichever is greater.

B. If the return is not filed within 30 days after the taxpayer receives from the assessor a formal demand that the return be filed, the penalty is 100% of the tax due. The 30-day period provided by this paragraph is extended for up to 120 days if the taxpayer request an extension in writing prior to the expiration of the 30-day period.

C. If the return is not filed and the assessor issues a jeopardy assessment pursuant to section 141, subsection 2, paragraph D, the penalty is 100% of the tax due.

This subsection does not apply to any return required pursuant to chapter 459 and administered pursuant to the International Fuel Tax Agreement. § 187-B(1)

Failure to pay

The following penalties apply.

A. Any person who fails to pay, on or before the due date, any amount shown as tax on any return required under this Title is liable for a penalty of 1% of the unpaid tax for each month or fraction of a month during which the failure continues, to a maximum in the aggregate of 25% of the unpaid tax.

A-1. Any person who fails to make and file any return required under this Title at or before the time the return becomes due against whom the assessor has made an assessment of tax pursuant to section 141 and who has not paid the tax on or before the date specified in that assessment is liable for a penalty of 1% of the unpaid tax for each month or fraction of a month during which the tax remains unpaid, calculated retroactively from the original due date of the unfiled return, to a maximum in the aggregate of 25% of the unpaid tax.

Any person who fails to pay a tax assessment for which no further administrative or judicial review is available pursuant to section 151 and the Maine Administrative Procedure Act is liable for a penalty in the amount of 25% of the amount of the tax due if the payment of the tax is not made within 10 days of the person's receipt of notice of demand for payment as provided by this Title. This penalty must be explained in the notice of demand and is final when levied.

This subsection does not apply to taxes due pursuant to chapter 459 and administered pursuant to the terms of the International Fuel Tax Agreement. § 187-B(2)

If an existing debt is liquidated by use of an acceptable and successful repayment schedule that was initiated before or within the 10 days prescribed on the notice of demand for payment, the additional 25% charge for failure to pay will not be invoked.

Negligence and Fraud

Any person who files a return under this Title that results in an underpayment of tax, any portion of which is attributable to negligence or intentional disregard of this Title or rules issued pursuant to thisTitle, but is not attributable to fraud with intent to evade the tax, is liable for a penalty in the amount of $25 or 25% of that portion of the underpayment, whichever is greater. Any person who files a return under this Title that results in an underpayment of tax, any portion of which is attributable to fraud with intent to evade the tax, is liable for a penalty in the amount of $75 or 75% of that portion of the underpayment, whichever is greater. For the purposes of this section, the term "negligence" means any failure to make a reasonable attempt to comply with the provisions of this Title.

This subsection takes effect July 1, 1993. § 187-B(3-A)

Substantial understatement

Any person who files a return under this Title that results in an underpayment of tax, any portion of which is attributable to a substantial understatement of tax, without negligence or intentional disregard of this Title or rules or regulations issued under this Title and without fraud with intent to evade the tax, is liable for a penalty of $5 or 1% of that portion of the underpayment, whichever is greater, for each month or fraction of a month during which the failure to pay that portion of the underpayment continues, to a maximum in the aggregate of $25 or 25% of the underpayment, whichever is greater.

There is a substantial understatement of tax if the amount of the understatement on the return or returns for the period covered by the assessment exceeds 10% of the total tax required to be shown on the return or returns for that period or $1,000, whichever is greater. For purposes of calculating whether an understatement is substantial and the amount of any substantial understatement that is subject to penalty under this subsection, the amount of any understatement is reduced by that portion of the understatement that is attributable to the tax treatment of any item by the taxpayer if there is or was substantial authority for such treatment. This subsection takes effect July 1, 1993. §187-B(4-A)

Insufficient funds

Any person who makes payment of an amount due under this Title by means of a check or electronic funds transfer that is returned unpaid by the bank on which it is drawn because of insufficient funds or the closing or nonexistence of the account on which it is drawn is liable for a penalty of $20 or 1% of the payment amount, whichever is greater. § 187-B(5)

Penalties not exclusive

Each penalty provided by this section is in addition to any interest and other penalties provided by this section and other law, except as otherwise provided in this section, and interest may not accrue on the penalty. This section does not apply to any filing or payment responsibility pursuant to Part 2. The penalties imposed by subsections 1 and 2 accrue automatically, without being assessed by the State Tax Assessor, and each penalty imposed by this section is recoverable by the State Tax Assessor in the same manner as if it were a tax assessed under this Title. § 187-B(6)

Waiver or abatement of penalties

For reasonable cause, the State Tax Assessor shall waive or abate any penalty imposed by subsection 1; subsection 2, paragraphs A and B; and subsections 4-A and 5-A; or by the terms of the International Fuel Tax Agreement. Reasonable cause includes, but is not limited to, the following:

A. The failure to file or pay resulted directly from erroneous information provided by the Bureau of Revenue Services;

B. The failure to file or pay resulted directly from the death or serious illness of the taxpayer or a member of the taxpayer's immediate family;

C. The failure to file or pay resulted directly from a natural disaster;

D. A return that was due monthly was filed and paid less than one month late and all of the taxpayer's returns and payments during the preceding 12 months were timely;

E. A return that was due other than monthly was filed and paid less than one month late and all of the taxpayer's returns and payments during the preceding 3 years were timely;

F. The taxpayer has supplied substantial authority justifying the failure to file or pay; or

G. The amount subject to a penalty imposed by subsections 1, 2 and 4-A; and subsection 5-A is de minimis when considered in relation to the amount otherwise properly paid, the reason for the failure to file or pay and the taxpayer's compliance history.

The burden of establishing grounds for waiver or abatement is on the taxpayer.

For purposes of this section, the term “person” includes an individual, corporation or partnership or any officer or employee of a corporation, including a dissolved corporation, or a member or employee of a partnership who, as the officer, employee or member, is under a duty to perform the act in respect of which a violation occurs. § 187-B(7)

Remedies not exclusive

Each remedy provided in this Title is not exclusive and is in addition to all other remedies prescribed in this Title for the enforcement and collection of any tax imposed by this Title. § 188

AUDITS

Whenever necessary to the administration of this Title, the assessor may make, or cause to be made by an employee, an examination or investigation of the place of business, books and other documents and any other relevant personal property of any person who the assessor has reason to believe is liable for any tax imposed by this Title.

At the conclusion of an audit, the assessor or an agent shall conduct an audit conference with the taxpayer and shall give the taxpayer a written summary of the audit findings, including the legal basis for the audit findings and adjustments, along with copies of relevant bureau audit workpapers. § 112(4)

The assessor is authorized to name any of the assessor's employees as agents to collect any tax imposed under this title. § 112(6)

ASSESSMENTS

Unless otherwise provided, any amount of tax which a person declares on a return filed by him with the State Tax Assessor to be due to the State shall be deemed to be assessed at the time the return is filed and shall be payable on or before the date prescribed for filing the return, determined without regard to any extension of time granted for filing the return. When a return is filed, the State Tax Assessor shall cause it to be examined and may conduct such audits or investigations as he believes necessary to determine the correct tax liability. If he determines that the amount of tax shown on the return is less than the correct amount, the State Tax Assessor shall assess the tax due the State. No such assessment shall be made after 3 years from the date the return was filed or the date the return was required to be filed, whichever is later. At any time within the appropriate assessment period prescribed by this section, the State Tax Assessor may make asupplemental assessment if he finds that any previous assessment is imperfect or incomplete in any material aspect. § 141(1)

Exceptions to statute of limitations

A. An assessment may be made within 6 years from the date the return was filed if the tax liability shown on the return is less than ½ of the tax liability determined by the State Tax Assessor and the additional liability is attributable to information which was required to be reported but was not reported in the return.

B. An assessment may be made at any time with respect to a time period for which a fraudulent return has been filed.

C. An assessment may be made at any time with respect to a time period for which a return has become due but has not been filed. If any person failing to file a return fails to produce, within 30 days after notice, information that the State Tax Assessor believes necessary to determine tax liability for the period involved, the State Tax Assessor may assess an estimated tax liability based upon the best information otherwise available. In any proceeding for the collection of tax for the period involved, that estimate shall constitute prima facie evidence of the tax liability. The 30-day period provided by this paragraph is extended for up to 90 days if the taxpayer requests an extension in writing prior to the expiration of the 30-day period.

D. If the State Tax Assessor finds that the collection of tax for any reporting period will be jeopardized by delay, he may, upon giving notice of this finding to the person liable for the tax, demand an immediate return with respect to that period or immediate payment of the tax declared to be in jeopardy, or both, and may terminate the current reporting period and demand an immediate return and payment with respect to that period. Assessments for periods as to which jeopardy has been declared are immediately payable and proceedings for collection may be commenced at once. The person liable may stay collection by petitioning, in accordance with section 151, for reconsideration of the assessment and by depositing with the State Tax Assessor, within the time period specified in section 151, a bond or other security in the amount of the assessment with respect to which the stay of collection is sought. Any finding by the State Tax Assessor of jeopardy or of tax liability as to which immediate payment is demanded under this paragraph is presumed to be correct, and the burden of showing otherwise shall be upon the taxpayer.

E. The time limitations for assessment specified in this section may be extended to any later date to which the State Tax Assessor and person liable for tax agree in writing. § 141(2)

Taxpayer Bill of Rights

The assessor shall prepare a statement describing in simple and nontechnical terms the rights of a taxpayer and the obligations of the bureau during an audit. The statement must also explain the procedures by which a taxpayer may appeal any adverse decision of the assessor, including the informal conference and judicial appeals. This statement must be distributed by the bureau to any taxpayer contacted with respect to the determination or collection of any tax, excluding the normal mailing of tax forms. § 112(7-A)

Reconsiderations

Any person who is subject to an assessment by the State Tax Assessor or entitled by law to receive notice of a determination of the assessor and who is aggrieved as a result of that action may request in writing, within 30 days after receipt of notice of the assessment or the determination, reconsideration by the assessor of the assessment or the determination. If a person receives notice of an assessment and does not file a request for reconsideration within the specified time period, the assessor may not reconsider the assessment pursuant to this section and no review is available in Superior Court regardless of whether the taxpayer subsequently makes payment and requests a refund.

If a request for reconsideration is filed within the specified time period, the assessor shall reconsider the assessment or the determination. If the petitioner has so requested in the petition, the assessor shall hold an informal conference with the petitioner to receive additional information and to hear arguments regarding the protested assessment or determination. The assessor shall give the petitioner 10 working days' notice of the time and place of the conference. The conference may be held with less than 10 working days' notice if a mutually convenient time and place can be arranged. The reconsideration, with or without an informal conference, is not an "adjudicatory proceeding" within the meaning of that term in the Maine Administrative Procedure Act. If the requested reconsideration involves a denial or deemed denial of a refund claim, a refund claim with respect to which a conference has been requested under section 5280 or an assessment that is paid in full or part and the assessor fails to mail to the taxpayer a decision on the reconsideration within 9 months after the reconsideration request was filed, the taxpayer may elect but is not obligated to deem the request for reconsideration denied. The taxpayer elects to deem the reconsideration denied by filing in Superior Court a petition for review of the deemed denial. The deemed denial constitutes final agency action and is subject to court review as otherwise provided in this section. The taxpayer may not

make the deemed denial election after either the assessor's reconsideration decision has been received by the taxpayer or the expiration of 9 years following the filing of the reconsideration request, whichever occurs first. Notwithstanding any other provision of law, any claim for credit or refund of any tax imposed under this Title is deemed denied 10 years after it was filed if the claim has not previously been allowed or denied as final agency action. A deemed denial constitutes final agency action.

The assessor's decision on reconsideration must be mailed to the taxpayer or the taxpayer's designated representative by certified or registered mail and the decision must set forth briefly the assessor's findings of fact and the basis of decision in each case decided in whole or in part adversely to the taxpayer. The assessor's decision on reconsideration constitutes final agency action that is subject to review by the Superior Court in accordance with the Maine Administrative Procedure Act, except that Title 5, sections 11006 and 11007 do not apply. The Superior Court shall conduct a de novo hearing and make a de novo determination of the merits of the case. It shall make its own determination as to all questions of fact or law. The Superior Court shall enter such orders and decrees as the case may require. The burden of proof is on the taxpayer. §151

Collection Action

If any tax imposed by this Title is not paid on or before its due date and no further administrative or judicial review of the assessment is available under section 151, the assessor, within 3 years after administrative and judicial review have been exhausted, may give the taxpayer notice of the amount to be paid, specifically designating the tax, interest and penalty due, and demand payment of that amount within 10 days of that taxpayer's receipt of notice. The notice must include a warning that, upon failure of that taxpayer to pay as demanded, the assessor may proceed to collect the amount due by any collection method authorized by this Title. The notice must describe the procedures applicable to the levy and sale of property under section 176-A, the alternatives available to the taxpayer that could forestall levy on property, including installment agreements, and the provisions of this Title relating to redemption of property and the release of the lien on property created by virtue of the levy. If the taxpayer has filed a petition for relief under the United States Bankruptcy Code, the running of the 3-year period of limitation imposed by this section is

stayed until the bankruptcy case is closed or a discharge is granted, whichever occurs first. § 171, sub-§1

Service of the notice of demand for payment authorizes the State Tax Assessor to take collection actions as provided by law. These actions may include denial, suspension or revocation of certain licenses, liens, warrants to initiate court action, levies on wages, bank accounts or rights to receive money and seizure of cash, personal property or real estate.

As previously stated in the §187-B(2), if the tax so "demanded" is not paid or a successful repayment plan is not completed, an additional penalty of 25% is charged on the unpaid tax.

MANUFACTURERS

The following provides a condensed overview of the application of sales tax on manufacturers. For a more in-depth review, please see Instructional Bulletin #22.

The statute provides a variety of exemptions to manufacturers; the primary exemption being

Production

... an operation or integrated series of operations engaged in as a business or segment of a business that transforms or converts personal property by physical, chemical or other means into a different form, composition or character from that in which it originally existed.“Production” includes film production.

“Production” includes manufacturing, processing, assembling and fabricating operations that meet the definitional requisites, including biological processes that are part of an integrated process of manufacturing organisms or microorganic materials through the application of biotechnology.

“Production” does not include biological processes except as otherwise provided by this subsection, wood harvesting operations, the severance of sand, gravel, oil, gas or other natural resources produced or severed from the soil or water, or activities such as cooking or preparing drinks, meals, food or food products by a retailer for retail sale. The foregoing are examples of activities that are not included within the term “production.” § 1752(9-B)

The term “manufacturer” means an entity that is engaged in the production of tangible personal property for later sale or lease. The question of exactly what is and what is not “production” has great importance when considering the sales and use tax exemptions available to manufacturers.
In summary, in order for “production” to exist, a business must be engaged, in whole or in part, in the transformation of raw materials into a new and different product. Some common examples are:
• A paper mill converting wood chips into paper.
• A wood crafter converting lumber into finished furniture.
• A seamstress converting cloth material into a dress.

Production Begins..

Production commences with the movement of raw materials to the first production machine after their receipt and storage at production site (after receipt if the raw materials are not stored) . . . Rule 303

The point at which production begins depends on whether or not the raw materials used in the production process are stored. If the materials are stored, production begins with the movement of the materials from storage to the first production machine. If the materials are not stored, production begins with the movement of the materials from point of delivery to the first production machine.

For example, a manufacturer of furniture receives rough sawn lumber and stores this lumber in a warehouse. The first production machine for this manufacturer will likely be a planer. Production begins when the rough lumber is removed from storage and brought to the planer. If this movement to the planer is accomplished mechanically, the machine in question is considered to be used in production.

In another example, a manufacturer of plastic widgets stores its plastic pellets in storage tanks. The first production machine is machinery that melts down the pellets into a liquid form. Production begins when the plastic pellets move toward the melting machine. If this is accomplished through a piping system, for instance, production begins when the pellets leave the storage tank and the piping system is considered part of production.

Production ends ..

…and ends with the completion of the finished product, including any packaging operation. Rule 303

Production ends with the completion of the finished product before the product is stored for later delivery. This may include packaging operations – but only those that are part of a series of operations with the production line and the packaging is performed before the product is stored. Packaging operations that occur after the product has been placed in storage or that occur within the storage facility are not part of production.
For example, if a manufacturer of videotapes has within its production line a machine that inserts the tapes into a cardboard sleeve and shrink-wraps each individual tape, this packaging operation is part of production. In contrast, if the tapes are instead sent to a storage room and later shrink-wrapped into packages of 10 and inserted into cardboard boxes for shipping to customers, this later packaging operation is not part of production.

Exclusions from production

The acquisition of raw materials, the transportation of raw materials or goods in process between production sites, and administrative and distributive operations do not constitute production. Rule 303

"Production" does not include biological processes except as otherwise provided by this subsection, wood harvesting operations, the severance of sand, gravel, oil, gas or other natural resources produced or severed from the soil or water, or activities such as cooking or preparing drinks, meals, food or food products by a retailer for retail sale.§ 1752(9-B)

Machinery and equipment used in certain activities or operations is excluded from the definition of “production” for purposes of the Sales and Use Tax Law and as a result is taxable unless covered by a different exemption. Items used primarily in the following functions are not considered to be used in production and therefore generally do not qualify for exemption:

Acquisition of raw materials. Machinery or equipment used in the acquisition of raw materials, including wood-harvesting operations and severing sand, gravel, or other natural resources from soil or water.

Examples of taxable items: Cameras used by newspaper photographers to record images on film for later selection and use in newspaper production; chain saws used to harvest wood for subsequent milling; excavation equipment used to extract clay from which bricks are later formed.

Storage and handling (pre- and post-production). Machinery or equipment used in the storage or handling of exempt material prior to the movement of the materials between point of receipt or storage area and the first production operation, or after the completion of any in-line packaging operation.

Examples of taxable items: A crane used primarily to unload logs from trucks into storage piles, prior to movement of the logs to a debarker or pulp grinder; an ice machine used primarily to keep fresh food cold during delivery, rather than to chill or freeze food as a step in the processing; a forklift used primarily to move palletized product from the palletizer to a warehouse pending shipment.

Product transportation/distribution. Machinery or equipment used in the transportation of product on public ways between different production sites, or in the distribution of product to customers.

Examples of taxable items: A truck used to carry packaged product to customers.

Biological processes. Machinery or equipment used in connection with biological processes. A biological process is a natural process that occurs with little or no intervention from humans or machinery.

Examples of taxable items: Equipment used in the hatching of eggs or in the growing of crops. (But see Part II, Section I for information on an exception to this rule in the case of biotechnology.)

Activities by a retailer in connection with the preparation of food to be sold by the retailer. Machinery or equipment used by a retailer in the preparation of food to be sold by the retailer.

Examples of taxable items: Refrigerators, ovens and blenders used by a restaurant in the preparation of meals.

Administrative functions. Machinery or equipment used in administrative, personnel, security, inventory control, administrative record keeping, ordering, billing, or similar support functions.

Examples of taxable items: Computers used primarily for billing, payroll and business correspondence; telephone systems; security cameras.

Quality control. Machinery or equipment used for quality control purposes (other than as described in Part II, section A(4)(g)).

Maintenance/cleaning. Machinery or equipment used to clean, repair, or maintain real or personal property in the manufacturing facility (other than attachments to exempt machinery and equipment described in Part II, section A(4)(e) below).

Examples of taxable items: A floor polishing machine; welding equipment used to repair production piping; equipment used to sharpen the blades of saws used at a lumber mill; brooms and other cleaning supplies.

Safety/fire protection. Machinery or equipment used for fire protection or the protection and safety of workers or other persons (unless the equipment is attached to or incorporated into exempt nachinery and equipment).

Examples of taxable items: A plexiglass screen (not attached to exempt equipment) used to protect passing workers and visitors from flying debris; fire extinguishers and fire sprinkler systems; an emergency shower and eyewash station; security systems; standard safety clothing and other standard safety items worn by employees.

Non-specialized environmental controls (lighting, HVAC, etc.). General plant lighting, heating, ventilation, air conditioning, or similar environmental control designed for the comfort or convenience of employees. (See Part II, section A(4)(i) below regarding specialized environmental control items essential to a particular production process).

Examples of taxable items: A general building HVAC system used to cool and ventilate a room where wood workers assemble furniture; an office humidifier; thermostats used to control a boiler used primarily to heat a building.

Certain electrical equipment. Electrical equipment located prior to the last transformer at the manufacturing facility that steps electricity up or down to the voltage at which the electricity is primarily used by other exempt machinery and equipment, when the electricity has been purchased from or supplied by another person, except as provided in Part II, section (A)(4)(j) below.

Examples of taxable items: In a meat packing plant that receives 34.5KV electricity from the grid and steps the electricity down with its own transformer to 12KV, then transmits the electricity with its own wires to a second transformer that reduces the voltage to 480 volts for use at that voltage by its production machinery, the first transformer would be taxable (the second transformer would be exempt).

EXEMPTIONS

The Maine Sales and Use Tax Law provides the following categories of exemptions to manufacturers;

A. Machinery and Equipment Used in Production
B. Ingredients (Raw Materials)
C. Items that are Consumed or Destroyed
D. Fuel and electricity
E. Water Pollution Control Facilities
F. Air Pollution Control Facilities
G. Machinery and Equipment Used in Research

Machinery and Equipment

Sales of machinery and equipment:

For use by the purchaser directly and primarily in the production of tangible personal property intended to be sold or leased ultimately for final use or consumption, or in the production of tangible personal property pursuant to a contract with the United States Government or any agency thereof, or, in the case of sales occurring on or after June 30, 2007 in the generation of radio or television broadcast signals by broadcast stations regulated under 47 Code of Federal Regulations, Part 73. This exemption applies even if the purchaser sells the machinery or equipment and leases it back in a sale and leaseback transaction. This exemption also applies whether the purchaser agrees before or after the purchase of the machinery or equipment to enter into the sale and leaseback transaction and whether the purchaser's use of the machinery or equipment in production commences before or after the sale and leaseback transaction occurs; § 1760(31), A

“Machinery and equipment” means machinery, equipment and parts and attachments for machinery and equipment, but excludes foundations for machinery and equipment and special purpose buildings used to house or support machinery and equipment. § 1752(7-B)

Foundations referred to above, include permanent supports, such as those composed of concrete. Metal supports which can be dismantled and moved is considered part of the machinery or equipment which they support and would qualify for exemption if the machinery and equipment is otherwise exempt. Rule 303

exemption for production machinery and equipment found in §1760(31) sets forth a number of requirements. The item being purchased must fall within the statutory definition of “machinery and equipment.” The machinery or equipment in question must be (i) purchased for use by the purchaser; (ii) purchased for use primarily in production; (iii) purchased for use directly in production; and (iv) purchased for use in producing tangible personal property that is intended to be sold or leased ultimately for final use or consumption.

The term “machinery and equipment,” includes both new and used machinery and equipment as well as parts and attachments for such machinery and equipment. (All parts are included, including repair and replacement parts).
The statutory definition excludes foundations for machinery and equipment that are permanent supports, such as most foundations composed of concrete. (Foundations that can be dismantled and moved, such as many steel supports, are considered part of the machinery and equipment that they support.) Also excluded from “machinery and equipment”, are so-called “special purpose buildings” used to house or support machinery and equipment.

Examples of taxable items:
• Permanently affixed concrete pillars on which a piece of production machinery sets do not qualify as exempt machinery and equipment.
• A kiln that houses machinery and equipment used in the drying of finished lumber is a special purpose building and does ot qualify as exempt machinery and equipment (in contrast to the piping, controls and other equipment within the walls of the kiln, which does qualify as exempt machinery and equipment).

Examples of exempt items:
• Angle iron used to construct a support frame is exempt, provided the machinery or equipment it supports qualifies as production machinery or equipment.
• A movable concrete base is exempt, provided the machinery or equipment it supports qualifies as production machinery or equipment.

Use by purchaser

The purchaser of the machinery and equipment must also be the user of machinery and equipment in the production process in order to qualify for the exemption. Lessors of machinery and equipment under a true lease are not entitled to an exemption even though the lessee is using the machinery and equipment in production. The taxable “use” by the purchaser/lessor in this situation is the derivation of income through the leasing of the equipment. (But see the exception for “sale/leaseback” transactions , explained later in this section.)

In another example, if a subsidiary of the manufacturer purchases equipment and allows the parent manufacturer to use it in the manufacturer’s own production, the subsidiary does not enjoy the exemption since, as the purchaser, the subsidiary is not the user of the equipment in production.

Use primarily in production.

"Primarily," when used in relation to machinery or equipment used in production, means more than 50% of the time during the period that begins on the date on which the machinery or equipment is first placed in service by the purchaser and ends 2 years from that date or at the time that the machinery or equipment is sold, scrapped, destroyed or otherwise permanently removed from service by the taxpayer, whichever occurs first. § 1752(9-A)

If an item of machinery or equipment has multiple uses, it must be used in an exempt activity more than 50% of its time in operation in order to qualify as exempt production machinery. For instance, a forklift may be used not only to move work in process between production machines, but also to load delivery vehicles, or to move raw material from one storage location to another storage location. In this example, only the time used in moving the “work in process” would qualify as “use in production.” The amount of time in this function would need to exceed 50% of its total use in order for the forklift to be exempt as “primarily” used in production.

Use directly in production.

"Directly," when used in relation to production of tangible personal property, refers to those activities or operations which constitute an integral and essential part of production, as contrasted with and distinguished from those activities or operations which are simply incidental, convenient or remote to production. § 1752(2-A)

"Directly" excludes support operations, such as machine shops in which production equipment is maintained. Testing for quality control is directly in production only insofar as those testing devices are physically incorporated in machinery or equipment which is otherwise exempt. (Rule 303)

“Directly” is as including operations that are “integral and essential to production,” as contrasted with activities that are “simply incidental, convenient or remote to production.” For instance, a wood planer in a furniture manufacturer’s facility is clearly essential to the production of the finished furniture, while items in a machine shop used to maintain and repair production machinery are only “incidental” to production and are therefore not exempt. The term “directly” does not include support operations.

Machinery and equipment used in the following operations is therefore taxable:

•Administrative operations;
•Storage and warehouse operations;
• Maintenance operations (including not only those operations occurring in an area devoted solely to maintenance, but also maintenance activities occurring in the production area itself);
•Receiving and shipping operations;
• Heating and lighting, including in production areas (except as provided in (i) below);
• Safety and fire protection (including those activities required by state or federal agencies); and
• Transportation on public ways between production sites.

The following is a non-exclusive list of activities considered to be “directly” in production:

Acting on raw materials. The processing of raw material at the production site, or the holding of raw material as it is being processed.

Examples: A wood planer acting on rough lumber to plane and reduce thickness; machinery that mixes raw materials before the raw material is added to the production line; a printing press that acts upon paper and ink in producing a printed product for sale; a rock crusher that crushes rock which is then further processed in a kiln as a part of the manufacture of cement for sale; a freezer used to flash-freeze vegetables in the production of frozen vegetables for sale.

Processing or holding exempt materials. The processing of other exempt materials, or holding of such materials as they are being processed, so that they or the materials resulting from the processing can be used or reused in a production process or in connection with the operation of exempt machinery or equipment. As used in this Bulletin, “exempt materials” means work in process and materials the purchase of which by the taxpayer would be exempt in whole or in part under 36 MRSA §1760(9-D) (fuel and electricity used at a manufacturing facility), 36 MRSA §1760(9-G) (fuel oil or coal, the by-products from the burning of which become an ingredient or component part of tangible personal property for later sale), or 36 MRSA §1760(74) (property that becomes an ingredient or component part of, or that is consumed or destroyed or loses its identity in production of, tangible personal property) and may include without limitation raw materials, electricity, fuel, water, ice, steam, air, oil, gas, chemicals, gases, catalysts, grinding or blasting materials, reagents, lubricants, solvents, acids, printing plates, color separations, tagging materials and other substances and materials used in connection with the operation of exempt machinery and equipment.

Examples: A lime kiln that prepares chemicals for use in a kraft pulping process at a paper manufacturing facility; equipment that deionizes or demineralizes water for use by other exempt machinery and equipment; a chipper for wood used to fuel a boiler used to supply steam or electricity to saws and planers at a lumber mill.

Handling or moving exempt materials. The handling, moving or transmitting of exempt materials from one production machine to another; or between a storage area (or point of receipt if there is no storage) and the first production operation; or between a production operation and a temporary holding area prior to further production operations. (However, transportation of raw materials or work in process on public ways between different production sites is not considered an activity “directly” in production.)

Examples: A forklift used to move lumber from planer to sanding machine; a conveyor system that moves work in process from one production machine to another, or from a storage pile at the point of receipt to the first production machine; piping used to move oil from a storage tank to a boiler used to generate electricity to power the other exempt machinery and equipment at a potato processing plant; conveyors used to move lime from storage at the point of receipt to a lime kiln used to prepare chemicals for use in a kraft pulping process at a paper manufacturing facility.

Protection or temporary holding of exempt materials or work in process. Machinery and equipment that preserves, protects, or temporarily holds exempt materials (including work in process) between different production operations or that is used to temporarily hold exempt materials. “Temporary holding” as used in this Bulletin includes (1) equipment or functions designed to avoid delays in production resulting from reasonably anticipated fluctuations in rate of supply or use of the stored items, and (2) equipment such as a tank, chest or tower used to hold exempt material previously processed and awaiting delivery to other production equipment for further processing or use. An item of equipment is presumed to be for “temporary holding” if it holds work in process or exempt material only for periods of less than 24 hours.

Examples: Steel racks used in temporary holding of finished lumber that is to be sized and cut; a holding tank used in temporary holding of raw material between two production machines; racks or “skids” used by a printer in the temporary holding of pages of printed material pending printing of additional pages, inserts or covers needed to produce the final product; bins used in sorting and temporary holding of yarns produced by a fabric manufacturer for subsequent use in weaving fabric; a tank used to hold a 12-hour supply of an exempt process chemical for use in the event of an interruption of supply.

Removal of waste products from production machinery. Removal of waste or by-products from the immediate vicinity of exempt machinery and equipment, for the purpose of permitting that machinery and equipment to operate continuously.

Examples: A conveyor used to remove chips and sawdust from the planer; an ash grate for a boiler used to produce steam and electricity to power manufacturing equipment at the same facility; a blanket wash application system for a printing press; a dryer hood and exhaust fan used to remove excessive moisture from a production machine.

Control of exempt production machinery. Manually or automatically controlling, or monitoring for the purpose of manually or automatically adjusting or controlling, the operation of exempt production machinery.

Examples: Process control computers, such as a computer that controls the cuts of a band saw; a temperature gauge for a boiler that produces steam or electricity used by other exempt equipment; a valve used to control the flow of gas used in welding; a camera used to monitor the shape of the plume of flame in a kiln used in a production operation to ensure that the kiln is functioning properly.

Testing or monitoring. Testing or monitoring exempt materials (including work in process) if the equipment used for this purpose is physically attached to exempt machinery and equipment, or is used to test every item or batch of product or exempt material.

Examples: A moisture meter that verifies the moisture content of 100% of the lumber used in making furniture; a chart recorder used to monitor the pH of water to be used in process or work in process held within a tank; a color density meter used to determine whether each batch of product meets color specifications for top grade product; a full volume detector used to ensure that the product container is properly filled and sealed.

In-line packaging operations (pre-storage). Packaging operations that are part of a series of operations within the production line and that are performed before the final product is stored. (As noted in section I-C above, packaging operations that occur after the product has been placed in storage or that occur within a separate storage facility are not part of production.)

Examples: Machinery and equipment used to insert a videotape into a cardboard sleeve and shrink-wrap it; equipment used to sort and count product for packaging; equipment used to box, bottle, can, or label product.

Machinery and equipment that controls the production environment. Controlling the production environment by means of specialized plant lighting, ventilation, air purification or prevention of contamination, humidity or temperature regulation, or similar environmental control essential to a particular production process.

Examples: Air handling equipment used for a “clean room” in a computer chip manufacturing facility; equipment used to reduce contamination or to control temperature and humidity in a clean room; equipment used to monitor air quality in a clean room; air conditioning equipment connected or otherwise directed to computers used to control a manufacturing process; thermometers and humidity meters used to monitor the environment for process control computers or exempt electrical equipment.

Certain electrical equipment. The last transformer at the manufacturing facility that steps electricity up or down to the voltage at which the electricity is primarily used by other exempt machinery and equipment, and wiring, switches and other electrical equipment between that transformer and other exempt machinery and equipment; and machinery and equipment used to avoid electrical damage to such transformer or other exempt machinery and equipment or to ensure uninterrupted power supply to exempt machinery and equipment, including by means of providing back-up or emergency power or surge protection.

Examples: In a meat packing plant that receives 34.5KV electricity from the grid and steps the electricity down with its own transformer to 12KV, then transmits the electricity with its own wires to a second transformer that reduces the voltage to 480 volts for use at that voltage by its production machinery, the second transformer would be exempt.

Tangible personal property intended for sale or lease

... personal property which may be seen, weighed, measured, felt, touched or in any other manner perceived by the senses, but does not include rights and credits, insurance policies, bills of exchange, stocks and bonds and similar evidences of indebtedness or ownership. "Tangible personal property" includes electricity. § 1752(17)

To be eligible for exemption, machinery or equipment must be used in the production of tangible personal property that is intended to be sold or leased ultimately for final use or consumption.

The product being produced must also be sold or leased as tangible personal property. Machinery and equipment used to produce property that will be sold as real property, or that will be used by the producer rather than sold, does not qualify for exemption. (For more on this topic, see Instructional Bulletin No. 28, “Installing Tangible Personal Property in Real Property.”)

Examples:

• A cabinetmaker who produces and installs kitchen cabinets and passes title to the cabinets after installation, is selling real property, not tangible personal property. The cabinetmaker’s purchase of machinery and equipment thus does not qualify for exemption.
• A cabinetmaker who produces and installs kitchen cabinets and passes title to the cabinets before installation is engaged in selling tangible personal property. The cabinetmaker’s purchase of machinery and equipment would therefore qualify for exemption.
• A retailer that manufactures free-standing shelving units for its own use is not selling the shelves. The retailer’s purchase of machinery and equipment to build the shelves does not qualify for exemption.

Ingredients or component parts

Sales of tangible personal property, other than fuel or electricity, that becomes an ingredient or component part of … tangible personal property for later sale or lease, other than lease for use in this State, or the production of tangible personal property pursuant to a contract with the United States Government or any agency of the United States Government. § 1760(74)

An exemption is provided for tangible personal property, other than fuel or electricity, that becomes an ingredient or component part of the item being produced. This category includes all raw materials that get physically converted into, or physically attached to the finished product, including tags and labels.

Items that are consumed or destroyed

Sales of tangible personal property, other than fuel or electricity, … that is consumed or destroyed or loses its identity directly and primarily in either the production of tangible personal property for later sale or lease, other than lease for use in this State, or the production of tangible personal property pursuant to a contract with the United States Government or any agency of the United States Government. Tangible personal property is "consumed or destroyed" or "loses its identity" in that production if it has a normal physical life expectancy of less than one year as a usable item in the use to which it is applied. § 1760(74)

A. Tangible personal property which has a normal physical life expectancy of less than one year is exempt under the following circumstances:

1. Items that are integrated with and essential to the operation of production machinery and equipment that is used directly and primarily in production.
NOTE: Items under this category will normally include but not be limited to such items as abrasives, coolants, lubricants, filtering materials, etc.

2. Items which come in contact with, or are added to, the raw product during production, but which are later extracted or dissipated and do not become a component part of the tangible personal property produced.
NOTE: Items under this category will normally include but not be limited to such items as catalysts, chemicals, solvents, liquids, etc.

3. Items which come in contact with the products produced which are an integral and essential part of production.
NOTE: Items under this category will normally include but not be limited to abrasives, polishing agents, stencil materials, tagging materials, etc.

B. Tangible personal property is taxable under the following circumstances:

1. Items consumed or destroyed in areas before production begins and after production has ended as provided in §1752(9-B) of the law and §.01(A) of this rule.

2. Items consumed or destroyed in areas which are not "directly" in production as provided in §1752(2-A) of the law and §.01(C) of this rule.
NOTE: Items under this category will normally include but not be limited to the following:

a. Cleaning supplies, including floor sweeping compounds, soaps, etc., regardless of where used.

b. Steam used to heat buildings, including the production area.

c. Personal apparel used by employees, including aprons, gloves, hair nets, ear plugs, face shields or masks, etc.

d. Light bulbs, flash lights and batteries, used for lighting.

e. Chemicals or supplies of any kind used in quality control and research laboratories.

f. Supplies used in maintenance of production machinery and equipment, including abrasives, files, grinding oil, etc.

C. Tangible personal property is "consumed or destroyed" for the purposes of 36 M.R.S.A. §1752(11) when it has a normal life expectancy of less than one year, based upon the experience of the particular taxpayer, in the use to which it is applied. "Life expectancy" means physical life expectancy without regard to obsolescence. Rule 303

An exemption also applies to tangible personal property, other than fuel or electricity, that is consumed or destroyed or loses its identity in the production process. These are items that have a normal life expectancy of less than one (1) year in the use to which they are applied. An item that is obsolete only over a longer period of time is not considered “consumed or destroyed.”

Examples of items that are consumed or destroyed in the production process:
• Items that are essential to the operation of production machinery and equipment, such as lubricants;
• Items that come in contact with raw material but does not become part of the finished product, such as solvents.
• Items that come in contact with raw material and are no longer of use afterwards, such as sandpaper.

Examples of items that are not consumed or destroyed in the production process:
• Items that are consumed or destroyed before production begins, such as lubricants for a chain saw used to harvest trees to be manufactured into lumber;
• Items that are consumed or destroyed after production ends, such as lubricants for a forklift used primarily to move finished product from storage to trucks for shipment to customers.
• Items that are not used “directly” in production.

Fuel and Electricity

Ninety-five percent of the sale price of all fuel and electricity purchased for use at a manufacturing facility. § 1760(9-D)

"Manufacturing facility" means a site at which are located machinery and equipment used directly and primarily in either the production of tangible personal property intended to be sold or leased ultimately for final use or consumption or the production of tangible personal property pursuant to a contract with the United States Government or any agency thereof. It includes the machinery and equipment and all machinery, equipment, structures and facilities located at the site and used in support of production or associated with the production. "Manufacturing facility" does not include a site at which a retailer is primarily engaged in making retail sales of tangible personal property not produced by the retailer. § 1752(6-A)

95% of the cost of the fuel and electricity soldis exempt when purchased for use at a “manufacturing facility”, while the remaining 5% is subject to the general sales tax rate.

A manufacturing facility is a site where production machinery is located. This includes not only the machinery and equipment used directly in production, but all machinery, equipment, structures and facilities located at the site and used in support of production or associated with the production. Separate electric meters, fuel tanks or heating systems need not be maintained for the purpose of separating production areas from non-production areas.

A manufacturing facility does not include a site at which a retailer is primarily engaged in making retail sales of items that it does not produce itself. Thus, for example, a hardware store is not a “manufacturing facility,” and is not entitled to the 95% energy exemption, merely because it has a key cutting machine on the premises.

This partial sales tax exemption applies to all types of fuel, including #2 heating fuel, diesel fuel, oxygen, acetylene, and wood chips.

Water Pollution Control Facility

Sales of any water pollution control facility, certified as such by the Commissioner of Environmental Protection, and any part or accessories thereof, or any materials for the construction, repair or maintenance of a facility.

As used in this subsection, unless the context otherwise indicates, the following terms have the following meanings.

A. "Disposal system" means any system used primarily for disposing of or isolating industrial or other waste and includes thickeners, incinerators, pipelines or conduits, pumping stations, force mains and all other constructions, devices, appurtenances and facilities used for collecting or conducting water borne industrial or other waste to a point of disposal, treatment or isolation, except that which is necessary to the manufacture of products.

B. "Facility" means any disposal system or any treatment works, appliance, equipment, machinery, installation or structures installed, acquired or placed in operation primarily for the purpose of reducing, controlling or eliminating water pollution caused by industrial or other waste, except septic tanks and the pipelines and leach fields connected or appurtenant thereto.

C. "Industrial waste" means any liquid, gaseous or solid waste substance capable of polluting the waters of the State and resulting from any process, or the development of any process, of industry or manufacture.

D. "Treatment works" means any plant, pumping station, reservoir or other works used primarily for the purpose of treating, stabilizing, isolating or holding industrial or other waste. § 1760(29)

In order to qualify for this exemption, a facility must be certified by the Commissioner of the Department of Environmental Protection (DEP) as a facility that is engaged in disposing, isolating or treating of water-borne industrial or other waste. Once a facility has been certified by DEP, an exemption is allowed for any materials used in the construction, repair or maintenance of the facility, as well as for any machinery and equipment used primarily for reducing, controlling or eliminating water pollution. This includes, but is not limited to, thickeners, incinerators, pipelines or conduits, pumping stations, force mains and all other constructions, devices, appurtenances and facilities used for collecting or conducting water borne industrial or other waste. It does not include supplies other than maintenance materials and pollution control chemicals. It also does not include septic tanks and the pipelines and leach fields connected to septic tanks.

Air Pollution Control Facility

Sale of any air pollution control facility, certified as such by the Commissioner of Environmental Protection, and any part or accessories thereof, or any materials for the construction, repair or maintenance thereof.

As used in this subsection, unless the context otherwise indicates, the following terms have the following meanings.

A. "Facility" means any appliance, equipment, machinery, installation or structures installed, acquired or placed in operation primarily for the purpose of reducing, controlling, eliminating or disposing of industrial or other air pollutants.

Facilities such as air conditioners, dust collectors, fans and similar facilities designed, constructed or installed solely for the benefit of the person for whom installed or the personnel of such person, and facilities designed or installed for the reduction or control of automobile exhaust emissions shall not be deemed air pollution control facilities for purposes of this subsection.
§ 1760(30)

In order to qualify for this exemption, a facility must be certified by the Commissioner of Environmental Protection (DEP) as a facility that is engaged in reducing, controlling, eliminating or disposing of industrial or other air pollutants. Once a facility has been certified by DEP, an exemption is allowed for any materials used in the construction, repair or maintenance of the facility as well as for any machinery and equipment used primarily for reducing, controlling or eliminating air pollutants. This does not include machinery or equipment installed for the benefit of people, such as air conditioners, dust collectors, fans and similar items; nor does it include facilities designed or installed for the reduction or control of automobile exhaust emissions.

Research and Development

Sales of machinery and equipment for use by the purchaser directly and exclusively in research and development in the experimental and laboratory sense … "Research and development" does not include the ordinary testing or inspecting of materials or products for quality control, efficiency surveys, management studies, consumer surveys, advertising, promotions or research in connection with literary, historical or similar projects. § 1760(32)

As with the exemption for production machinery, this exemption has several requirements that must be satisfied:

• The item being purchased must be machinery and equipment;
• It must be used by the purchaser in research and development;
• It must be used directly in research and development; and
• The machinery or equipment must be used exclusively in research and development.

“Research and development” for the purposes of this exemption is limited to the experimental and laboratory sense of that term. It does not include the ordinary testing or inspecting of materials or products for quality control, efficiency surveys, management studies, consumer surveys, advertising, or promotions. It also does not include research done in connection with literary, historical or similar projects.

Contracts with U.S. Government

Sales of machinery and equipment:
For use by the purchaser directly and primarily … in the production of tangible personal property pursuant to a contract with the United States Government or any agency thereof …. § 1760(31), A

The exemptions mentioned in this section also apply to those entities engaged in the production of tangible personal property pursuant to a contract with the United States Government or any agency thereof.

Biotechnology

"Production" includes manufacturing, processing, assembling and fabricating operations that meet the definitional requisites, including biological processes that are part of an integrated process of manufacturing organisms or microorganic materials through the application of biotechnology. § 1752(9-B)

Although the term “production” as defined in §1752(9-B) excludes biological processes generally, it does include “biological processes that are part of an integrated process of manufacturing organisms or microorganic materials through the application of biotechnology.” As a result, the exemptions mentioned above also apply to entities engaged in biotechnological applications.

These applications include recombinant DNA techniques, biochemistry, molecular and cellular biology, immunology, genetics and genetic engineering, biological cell fusion techniques and new bioprocesses using living organisms or parts of organisms to produce or modify products, improve plants or animals, develop microorganisms for specific uses, identify targets for small-molecule pharmaceutical development, transform biological systems and useful processes and products or to develop microorganisms for specific uses.

… sales of machinery, equipment, instruments and supplies for use by the purchaser directly and primarily in biotechnology applications, including the application of technologies such as recombinant DNA techniques, biochemistry, molecular and cellular biology, immunology, genetics and genetic engineering, biological cell fusion techniques and new bioprocesses using living organisms or parts of organisms to produce or modify products, improve plants or animals, develop microorganisms for specific uses, identify targets for small-molecule pharmaceutical development, transform biological systems and useful processes and products or to develop microorganisms for specific uses. Equipment and supplies used for biotechnology include but are not limited to microscopes, diagnostic testing materials, glasswares, chemical reagents, computer software and technical books and manuals. "Research and development" includes testing and evaluation for the purposes of approval and compliance with regulatory standards for biotechnological products or materials. "Research and development" does not include the ordinary testing or inspecting of materials or products for quality control, efficiency surveys, management studies, consumer surveys, advertising, promotions or research in connection with literary, historical or similar projects. § 1760(32)

With respect to research and development in biotechnological applications, the exemption is not limited to machinery and equipment. It also includes instruments and supplies, such as microscopes and diagnostic testing materials.

Fuel oil and coal

Fuel oil or coal, the by-products from the burning of which become an ingredient or component part of tangible personal property for later sale. § 1760(9-G)

This exemption is for the use of fuel oil or coal in those situations where the by-products that result from the burning of the fuel or coal becomes an ingredient of tangible personal property being produced for sale.

OTHER ISSUES INVOLVING MANUFACTURERS

Leasing machinery and equipment

Generally speaking, the exemption for production machinery and equipment does not apply to machinery and equipment being leased. The exemption provided to a manufacturer does not extend to the lessor of equipment even though the equipment will be used in production. Furthermore, the lessor is generally liable for use tax on the cost of the equipment being leased.

The following are exceptions to this general application:

Sale/leaseback transactions.

A. ....This exemption applies even if the purchaser sells the machinery or equipment and leases it back in a sale and leaseback transaction. This exemption also applies whether the purchaser agrees before or after the purchase of the machinery or equipment to enter into the sale and leaseback transaction and whether the purchaser's use of the machinery or equipment in production commences before or after the sale and leaseback transaction occurs; and

B. To a bank, leasing company or other person as part of a sale and leaseback transaction, by a person that uses the machinery or equipment as described in paragraph A, whether the original purchaser's use of the machinery or equipment in production commences before or after the sale and leaseback transaction occurs.
§ 1760(31)

If machinery and equipment that qualifies for exemption is purchased by a manufacturer and subsequently sold to and leased back from a lessor, the sales/use tax exemption still applies. It is immaterial whether the original purchase and subsequent sale/leaseback transaction occur simultaneously or at some time in the future. It is also immaterial whether or not actual use of the machinery and equipment is made by the manufacturer before the sale/leaseback transaction occurs.

Lease “in lieu of purchase.” A lease that is determined by the State Tax Assessor to be a lease “in lieu of purchase” is a “sale” as defined in §1752(13). As a sale, machinery and equipment being purchased pursuant to a lease in lieu of purchase meets the requirement of “purchase by the user” and would be exempt provided it meets the other requirements of exemption. For more on this topic, see Maine Revenue Services Rule 316 (“Rental of Tangible Personal Property”).

Interim Rentals. Machinery and equipment being rented under the “interim rental” provision of the statute (§1758) is treated as a sale, with the lessor being the retailer, the rental payment being the sale price and lessee being the purchaser/consumer. An interim rental, therefore, meets the requirement of “purchase by the user” and is exempt provided it meets the other applicable requirements of the law.

Transportation

As noted above, machinery and equipment must be used “directly” in production in order to qualify for exemption. Thus transporting work in process between production machines is a qualifying activity. However, transportation of raw material to the production site, transportation of work in process on public ways between production sites and transportation of finished products to customers are all non-qualifying activities.

Certain vehicles used in interstate or foreign commerce may be exempt pursuant to §1760(41), depending upon the circumstances. For more information on this subject, see the “Exemptions” section of this guide and Maine Revenue Services Rule 318 and Instructional Bulletin No. 34.

By-products and recovered raw materials

The manufacturing process generally results in a certain amount of waste. In many situations this waste must be disposed of, but in certain manufacturing environments it can be recycled, sold as a by-product or used as an ingredient of another product.

Removing waste from a production machine is an activity that is considered “directly” in production. Machinery and equipment that handles or processes the product after that point may or may not qualify for exemption.

Examples of exempt activities involving by-products and recovered raw materials:
• Re-cycling the by-product or recovered raw material back into production. This activity is “directly” in production and machinery and equipment used primarily for this purpose is exempt.
• Using the by-product or recovered raw material as an ingredient in the production of another product. This activity is also considered “directly” in production and machinery and equipment used primarily for this purpose is exempt.

Example of a taxable activity involving by-products:
• Selling the by-product “as is.” In this case, removing the waste from the production machine is “directly” used in production, but machinery and equipment used after this point is not used directly in production since nothing more is done to the by-product to change its form, character, or composition.

Tangible Personal Property vs. Real Property

The purchase by a construction contractor of materials for the construction of real property (buildings, fixtures attached to buildings, etc.) or for incorporation into real property does not qualify for the machinery and equipment exemption.

Examples of such items are:
• Wires, conduits, outlets and other electrical items installed to facilitate the use of the building as a building rather than for purposes of a particular production process;
• Heating and air conditioning units (including ductwork) installed to facilitate the use of the building as a building, rather than for purposes of a particular production process such as that described in Part II, section A(4)(i);
• Special purpose buildings;
• Permanent foundations composed of concrete.

If machinery and equipment is purchased as tangible personal property before being incorporated into realty and, as tangible personal property, meets all of the other requirements of exemption, the machinery and equipment would qualify for exemption.
Since this type of arrangement between the contractor and the purchaser is the exception, rather than the norm, manufacturers are cautioned that proper contractual terms are necessary for correct application of the exemption. For more information on this topic, see Instructional Bulletin No. 28 (“Installing Tangible Personal Property in Real Property”).

Exempt Purchase Documentation

A manufacturer claiming that the purchase of tangible personal property qualifies for exemption must provide its vendor with a “Blanket Certificate of Exemption.” (See Sample Documents.) The manufacturer should indicate on this certificate the grounds for exemption by checking off the appropriate category. The vendor should retain this certificate in its file to document the exempt sale. If multiple purchases are made from one vendor, the certificate may act as a “blanket” certificate, covering all subsequent purchases of like items. Remember that it is the responsibility of the purchaser to understand all requirements of the law before claiming any exemption. If your business is audited, Maine Revenue Services need not prove that a purchase does not qualify for exemption; you must prove that it does.

Direct Pay Permit

Pursuant to Rule 308, certain manufacturers and utilities that commonly acquire a substantial amount of tangible personal property under circumstances making it impractical to determine at the time of purchase whether the use will be taxable or exempt, may qualify for a “direct payment permit” issued by Maine Revenue Services. This permit allows the manufacturer to purchase most items of tangible personal property without paying tax -- but the purchaser then becomes accountable directly to the State for payment of appropriate use tax. The direct pay permit must be provided to the vendor at the time of purchase to document the exempt sale and, as with the blanket certificate of exemption, need only be provided once to cover subsequent purchases of like items. See Rule 308 for more information and qualifications.

BUREAU INFORMATION

Sales Tax Reference guide