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.

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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Sales and use tax compliance can be daunting. Regulations vary by state and jurisdiction making them difficult to navigate, and to make matters even more complex, the rules are ever-changing.

For many people, the concept of sales tax is just a charge you see on your receipt. Expanding your knowledge base to understand the compliance side of sales tax is far from your idea of fun, however, it’s an essential aspect of conducting business.

The following is a basic outline of compliance, Sales and Use Tax 101, if you will, because, let’s face it, ‘You don’t know what you don’t know.’

What Is Sales Tax?

Sales tax is a tax imposed on the sale of goods and services, which is generally calculated as a percentage of the sale price. It is generally collected by the seller at the time of purchase and remitted to the state or local government.

Sales tax is a jurisdictional tax, which means that each state or jurisdiction has its own set of sales tax rates and rules. The amount of sales tax collected is based on the sales tax rate in the jurisdiction where the sale was made, or where the customer is located.

There are four types of Sales Tax: Sellers Privilege, Consumer Levy, Gross Receipts, and Transaction Tax, and each type is imposed differently, whether on the Seller or Purchaser or on the transaction itself.

What Is Use Tax?

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