New Maine Tax Legislation for 2012

This year’s short legislative session produced significant new tax laws dealing with all of Maine’s major taxes, as well as increased legislative oversight of Maine Revenue and dynamic fiscal analysis.  Below is a brief description of recently enacted Maine tax legislation, with links to the legislation itself.  In addition, a bill that makes further changes to Maine’s tax appeals process is currently pending before the Appropriations Committee.  That bill will be described in a subsequent alert.

Please contact any member of Pierce Atwood’s State and Local Tax Group if you have any questions about this legislation or other state and local tax issues.  We assist businesses and individuals with all aspects of state and local tax planning, litigation and legislation, and assist clients with economic incentives, credits and unclaimed property issues.

Legislation Highlights

• Compliance with Tree Growth requirements 
• Criminalizing “Tax-Zapper” software
• Sales tax exemption for “positive airway pressure” equipment
• Sales tax exemption of buses serving cruise ship passengers
• Taxation Committee oversight of Maine Revenue sales and use tax policy changes
• Prepaid wireless fees
• The elimination of filing requirements for S corporations and partnership
• Income tax conformity
• Dynamic fiscal note pilot project

Property Tax

Tree Growth Tax Law Compliance - LD 1138, An Act to Amend the Maine Tree Growth Tax Law and the Open Space Tax Law – Public Law 2011, Chapter 618;  LD 1470, An Act to Evaluate the Harvesting of Timber on Land Taxed under the Maine Tree Growth Tax Law – Public Law 2011, Chapter 619

Maine’s tree growth tax law, which provides for current use taxation of land used for commercial forestry, came under much legislative scrutiny this year.  Two new laws were enacted to deal with this topic, Chapters 618 and 619.

Chapter 618 imposes additional restrictions to be satisfied by owners seeking to classify their property under the Maine Tree Growth Tax Law.  Beginning August 1, 2012, when asked to provide evidence of compliance with a forest management and harvest plan, a landowner will be required to attest that the property is being used to grow trees to be harvested for commercial use or for other allowable purposes.  The Act creates a multi-step process for notifying a landowner of failure to comply with the Law, and imposes new penalties for such failure.  Property eligible for Tree Growth classification under the Law will now be reduced if it has a structure on it or if it is in a shoreland area. 

Chapter 618 also amends the Farm and Open Space Tax Law by creating an additional category for “managed forest open space land,” which is an area of forest for which the owner has submitted a forest management and harvest plan.  Managed forest open space is eligible for an additional 10 percent reduction in value under the alternative valuation method.

Chapter 619 tasks the Director of the Bureau of Forestry with conducting periodic random sampling of land enrolled under the Maine Tree Growth Tax law to ensure compliance with forest management and harvest plans.  Furthermore, upon request by a municipal assessor or the State Tax Assessor, the Director of the Bureau of Forestry also must provide assistance in evaluating whether a forest management and harvest plan satisfies the statutory requirements and whether a landowner’s harvesting complies with his or her plan. 

Sales and Use Tax

Tax-Zapper Crime - LD 1764, An Act to Reduce High-Technology Tax Evasion and Theft – Public Law 2011, Chapter 526

So-called “tax zapper” software has become a major problem in other states and countries.  To combat this new form of tax evasion, the Legislature has created a new tax crime related to “automated sales suppression devices” and “phantom-ware,” which are software programs that falsify electronic sales records, often through cash registers, to reduce a company’s tax obligations.  The possession, purchase, or ownership of an automated sales suppression device or phantom-ware is a Class D crime.  The manufacture, sale, installation or transfer of these programs is a Class C crime. 

Sales Tax Exemption for Positive Airway Pressure Equipment – LD 1903, An Act to Make Additional Supplemental Appropriations and Allocations and to Change to Certain Provisions of the Law for the Fiscal Years Ending June 20, 2012 and June 30, 2013 – Public Laws 2011, Chapter 655

The Legislature has created a new sales and use tax exemption for the sale or lease for personal use of “positive airway pressure equipment,” which is respiratory ventilation equipment used primarily in the treatment of sleep apnea.  

Sales Tax Exemption of Buses Serving Cruise Ship Passengers - LD 1735, An Act to Promote Jobs in the Motor Coach Industry by Providing a Sales Tax Exemption for Certain Buses –Public Law 2011, Chapter 501

Maine Revenue Services has historically taken the position that Maine’s interstate/foreign commerce exemption does not apply to transportation that both begins and ends in Maine.   This Act clarifies that buses with a capacity of at least 47 passengers will be exempt from sales tax if providing transportation pursuant to a contract between the bus company and a cruise provider for travelers on an interstate or foreign cruise while the cruise ship is in port.

Tax Committee Review of Maine Revenue Sales and Use Tax Policy Changes - LD 590, An Act to Codify the Review Practice of Certain Changes in the Application of the Sales and Use Tax Law – Public Law 2011, Chapter 503

Over the years, taxpayers have complained about enforcement initiatives or statutory interpretations implemented by Maine Revenue Services in the sales and use tax area that create revenue but have not been subjected to the legislative process.  The Legislature has responded to this by enacted Chapter 503.

To assist with legislative oversight, before implementing a significant change in policy, practice or interpretation of the sales and use tax law that would result in additional revenue, Maine Revenue Services must now consult with the Attorney General to determine if the change should be reviewed by the appropriate legislative committee.  The committee may then schedule a time for review and discussion of the proposed change.

Telecommunications

Prepaid Wireless Fees - LD 1799, An Act Regarding the Collection of Fees for Prepaid Wireless Service – Public Law 2011, Chapter 600

The Act imposes a “prepaid wireless fee,” which is the sum of: (1) a state Universal Service Fund fee; (2) a Telecommunications Education Access Fund fee; and (3) the statewide prepaid wireless telecommunications service E-9-1-1 surcharge. The Public Utilities Commission must determine by rule the amount of the state Universal Service Fund fee and the amount of the Telecommunications Education Access Fund fee to be collected from prepaid wireless telecommunications service consumers no later than October 1, 2012. The statewide prepaid wireless E-9-1-1 surcharge is currently imposed at a rate of 45¢ per retail transaction.

The Act further requires a seller of prepaid wireless telecommunications services to collect the prepaid wireless fee from a prepaid wireless consumer for each retail transaction occurring in Maine. The amount of the prepaid wireless fee must be separately stated on an invoice, receipt or similar document that is provided to the prepaid wireless consumer by the seller, when practicable.  If not practicable, the seller must make the information regarding the amount of the prepaid wireless fee available to the prepaid wireless consumer in another manner.

Income Tax

S Corporation and Partnership Information Returns – LD 1903, An Act to Make Additional Supplemental Appropriations and Allocations and to Change to Certain Provisions of the Law for the Fiscal Years Ending June 20, 2012 and June 30, 2013 – Public Laws 2011, Chapter 655

The Legislature eases the reporting burden for certain pass-through entities by eliminating the requirement that S corporations, partnerships, and LLCs taxed as partnerships file annual information returns setting forth their shareholders’ or partners’ respective shares of the corporation’s or partnership’s income and loss. 

Income Tax Conformity - LD 1748, An Act To Conform the Maine Tax Laws for 2011 to the United States Internal Revenue Code – Public Laws 2011, Chapter 530

Maine income tax law “piggybacks” on the Internal Revenue Code.  Continuing an annual ritual, the Legislature updated the definition of “Internal Revenue Code” for purposes of the tax laws to the Code as in effect on December 31, 2011, as opposed to December 31, 2010.  

General

Dynamic Fiscal Analysis Pilot - LD 114, Resolve, Directing the Department of Administrative and Financial Services, Bureau of Revenue Services To Develop a Pilot Project for a Tax Simulation Model for State Dynamic Fiscal Analysis, Resolve Chapter 114

Many creative legislative ideas that would spur the economy and produce more overall tax revenue, die in the process for lack of funding because the Legislature uses “static” fiscal analysis.  Static fiscal analysis looks only at the first layer of forecasted revenue loss or gain from a legislative proposal but not at the secondary revenue impacts from economic activity that would result from the proposal.  On the other hand, dynamic fiscal analysis attempts to measure the impact of overall economic activity that results from legislative changes.

The Legislature has now taken a small step in the direction of dynamic fiscal analysis by directing Maine Revenue Services to undertake a pilot project to develop and evaluate a tax simulation model for estimating the effect a change in the tax laws would have on state tax revenue as well as the impact on overall economic activity that may occur as a result of the tax law change.