Understanding Maine’s New Sales And Use Tax Rules For Leases and Rentals: A Guide For Lessors

Posted on by Kat J

Maine Revenue Services recently released General Information Bulletin No. 114 to provide guidance regarding significant changes to the state’s sales and use tax rules as they apply to leases and rentals. These updates, which will take effect on January 1, 2025, reshape how lessors are required to handle sales tax on leases of tangible personal property.

For businesses and individuals involved in leasing and renting, understanding these new rules is essential to remain compliant with Maine’s tax regulations.

What Are The Current Rules?

Until the end of 2024, lessors (those leasing tangible personal property) must pay sales tax upfront when they purchase property that will be leased or rented out. The tax is calculated based on the full value of the property. This means that even if the property is rented over several years, the tax liability is borne by the lessor at the time of purchase.

This approach simplifies tax collection but creates a significant upfront cost for lessors, as they are paying taxes before they’ve even begun to collect lease or rental income.

Key Changes Effective January 1, 2025Starting on January 1, 2025, lessors in Maine will be able to purchase tangible personal property exempt from sales tax, provided they present a resale certificate. Here’s how it will work:

1. No Sales Tax on Initial Purchase: Lessors will no longer be required to pay sales tax when they purchase tangible personal property to lease or rent out. Instead, they will use a resale certificate to purchase the property exempt from sales tax.

2. Sales Tax on Lease Payments: Instead of paying the tax upfront, lessors will be responsible for collecting sales tax on each lease or rental payment they receive from their customers. This change aligns Maine’s rules more closely with how most other states handle sales tax on leases and rentals of tangible personal property.

3. Sourcing Rules for Taxation: The guidance also addresses sourcing rules, which determine how and where taxes are applied. The location of the leased or rented property, and potentially the location of the lessee, will play a role in determining where the tax is sourced.

What Does This Mean For Lessors?

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Surviving A SALT Audit: Preparation And Process

Posted on by Kat J

For businesses operating in multiple states, keeping up with State and Local Tax (SALT) compliance can feel like a never-ending puzzle. And when a notice for a  SALT audit lands in your in-box, with its deep dive into your tax filings and business activities, it can all seem too much to handle. But with the right preparation and plan and partners to assist you, it’s  possible to sail through the audit.

Understanding SALT Audits

In this article, we’re generally talking about a “SALT audit” as  a thorough review conducted by state or local tax authorities in a given state to verify that businesses have accurately reported and remitted taxes, which can include sales tax, use tax, or income tax . Audits can also be related to payroll taxes or personal property taxes, but our focus in this article is on the sales tax audit.

Each state has its own rules, meaning that businesses operating in multiple states must navigate a web of differing requirements. An audit usually begins with a formal notice from the state, followed by the auditor’s request for records. The process can span weeks or months, depending on the scope of your operations.

This article breaks down how to prepare for a SALT audit, including the key phases to ensure compliance and avoid costly penalties.

Here’s what you can find out:

  1. Self-Audit (Regular Internal Audit) – Before the audit
  • Organize Your Records: Ensure all tax and financial documents are accurate and complete.
  • Assess Your Risk: Identify potential issues in your sales and use tax processes and proactively review and correct tax records
  • Expert Assistance: Consult with a tax professional for guidance.
  1. Pre-Audit (Preparing for the Audit)

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