SUMMARY: This rule describes the circumstances under which a foreign
corporation is subject to the income tax jurisdiction of Maine under 36
M.R.S.A., Part 8.
Outline of Contents:
.02 General rule for evaluation of corporate nexus.
.03 Activities establishing nexus.
A. Doing business.
B. Owning or using property.
.04 Exception for Certain Solicitation Activities (P.L. 86-272).
B. Scope of "solicitation."
C. De minimis activities.
D. Protected activities.
E. Unprotected activities.
.05 Other Exceptions.
B. Federal limitations (other
than P.L. 86-272).
C. Ownership of shares.
D. Maintenance of accounts.
.06 Imputed Activity.
A. Assessor. "Assessor" means the State Tax Assessor
or any designated agent.
B. Bureau. "Bureau" means the Maine Bureau of Revenue
Services, also known as "Maine Revenue Services."
C. Documentary evidence. "Documentary evidence" means
journals, books of account, invoices, expense reports, or other records
maintained by a taxpayer in the regular course of its business. Generally,
an affidavit or other document prepared in anticipation of, or in response
to a tax audit, examination, or litigation is not documentary evidence.
D. Employee. "Employee" means any individual who would
be considered an employee under the common law rules governing the employee-employer
relationship. An individual is presumed to be an employee of a foreign
corporation rather than an independent contractor if the foreign corporation
treats the individual as an employee for purposes of the payroll taxes
imposed by the Federal Insurance Contributions Act.
E. Foreign corporation. "Foreign corporation" means
a business entity formed under the laws of a jurisdiction other than
the State of Maine. A "foreign corporation" may be a "C"
corporation, a limited liability company, or other entity.
F. Missionary sales activity. "Missionary sales activity"
means the activity of generating retail demand for the products of a
manufacturer or distributor (and indirectly generating wholesale orders
for those products) by promoting the products to retailers who typically
order the products from a wholesaler or other middleman.
G. Office. "Office" means a permanent or temporary
location where a corporation makes sales or holds itself out to the
public as conducting business. The office of a corporation's sales representative
is generally not an "office" of the corporation for purposes
of this rule if the representative does not publicly hold him- or herself
out as doing business on behalf of the corporation at that location,
either by publishing the home address as a corporate business address
or through other actions.
H. Partnership. "Partnership" means any entity considered
to be a partnership under common-law rules, under the provisions of
the Uniform Partnership Act (including a Limited Liability Partnership
registered under the provisions of 31 M.R.S.A., Chapter 15), or under
the provisions of the Uniform Limited Partnership Act, 31 M.R.S.A. Chapter
11. "Partnership" also includes a Limited Liability Company
formed under the provisions of 31 M.R.S.A., Chapter 13 if the LLC is
recognized as a partnership by the Internal Revenue Service.
I. Sample or display area. "Sample or display area"
means a temporary location, such as a hotel room or space in a trade
show exhibit, where representatives of a foreign corporation exhibit
samples of the corporation's products, but do not make sales, approve
orders for sales, or conduct any of the activities listed at section
.03, subsection (B).
J. Samples. "Samples" means representative products
of corporation that are used in sales demonstrations or distributed
in limited quantities without charge in order to acquaint existing or
prospective customers with the corporation's products.
.02 General rule for evaluation of corporate nexus. A foreign
corporation is subject to Maine income tax if it conducts business activity
in Maine and has income properly apportionable to Maine pursuant to Title
36 M.R.S.A., chapter 821, regardless of whether it is authorized to do
business in this State. The State Tax Assessor construes Maine law to
assert the tax jurisdiction of Maine to the full extent permitted by the
Constitution and laws of the United States. In general, a foreign corporation
is subject to the tax jurisdiction of Maine if it engages in any of the
activities listed at section .03 of this rule, unless those activities
fall within the exceptions described in section .04, subsection
(D) (relating to Public Law 86-272), or in section .05 (other
.03 Activities establishing nexus. Except as provided below in
sections .04 and .05, a foreign corporation generally has
income tax nexus with Maine if it (a) does business in Maine; or (b) owns
or uses any part or all of its capital, plant, or other property in Maine
in a corporate capacity, as opposed to a strictly fiduciary capacity.
A. Doing business. Without limitation, a foreign corporation
does business in Maine if it engages in any of the following activities
in this state:
1. Maintains an office or other place of business;
2. Executes a contract;
3. Exercises or enforces contract rights;
4. Buys, sells or procures services or property; or
5. Employs labor.
B. Owning or using property. Without limitation, a foreign corporation
owns or uses property in Maine if it:
1. Owns property that is held by another person in this State under
a lease, consignment, or other arrangement;
2. Uses in this State property that it holds under a lease, license,
or other arrangement; or
3. Maintains a stock of goods in this State.
.04 Exception for Certain Solicitation Activities (P. L. 86-272).
A foreign corporation that does business in Maine or owns or uses property
in Maine is nevertheless not subject to the Maine income tax if its activities
in this State are all activities that are set forth in Public Law 86-272
(15 United States Code '381 et seq.). P.L. 86-272 precludes Maine from
imposing a tax on the income of a foreign corporation if the sole activity
of the foreign corporation in the State is the solicitation by the foreign
corporation's representatives (in the name of the foreign corporation
or in the name of a prospective customer) of orders for the sale of tangible
personal property, provided that the orders are sent outside of the State
of Maine for approval or rejection, and provided that the orders are filled
by shipment or delivery outside of Maine. Some examples of common solicitation
activities are found at subsection (D) below.
A. Limitations. P.L. 86-272 restricts a state's tax jurisdiction
with respect to sales solicitation activities only if the taxpayer's
activity is limited to solicitation of orders for the sale of tangible
personal property. P.L. 86-272 does not afford protection
in the following circumstances:
1. A combination of solicitation activities and non-solicitation
activities in Maine;
2. The solicitation of orders for the sale or provisions of services,
either standing alone or in combination with the solicitation of orders
for tangible property. Some examples of the sale of a mixture of services
and tangible personal property are photographic development and the
provision of architectural or engineering services; and
3. The solicitation of orders for the sale, lease, rental, license,
or other disposition of real property or intangibles.
B. Scope of "solicitation." Whether the activities
of a foreign corporation fall within the scope of "solicitation"
within the meaning of P.L. 86-272 is a factual determination. The examples
of activities provided at subsection (D) and (E) below
are intended as guidelines. They are not exhaustive and will not precisely
describe the activities of many foreign corporations. In applying the
guidelines to particular circumstances and activities of specific foreign
corporations, the Assessor will use the following rules of construction:
1. The term "solicitation" includes only actual requests
for purchases and activities that are entirely ancillary to requests
for purchases. An activity is entirely ancillary to the requesting
of purchases only if it serves no independent business purpose apart
from its connection to the soliciting of orders.
2. Activities conducted by a foreign corporation with respect to
a particular order generally do not constitute "solicitation"
if they occur after the order has been placed.
C. De minimis activities. Non-solicitation business activities
conducted by a foreign corporation in Maine will not subject the foreign
corporation to taxation if the activities, taken together, are de minimis.
De minimis activities are those that establish only a trivial additional
connection with this State. An activity regularly conducted within this
State pursuant to company policy or on a continuous basis will not normally
be considered trivial. Whether or not an activity consists of a trivial
additional connection with Maine is measured on both a qualitative and
quantitative basis. If the activity either qualitatively or quantitatively
creates a non-trivial connection with the State of Maine, the activity
does not qualify for the protection afforded by P.L. 86-272. Establishing
that the disqualifying activities account for a relatively small part
of the business conducted within this State is not determinative of
whether a de minimis level of activity exists. The relative economic
importance of the disqualifying in-state activities, as compared to
the protected activities, does not determine whether the conduct of
the disqualifying activities within the taxing State is inconsistent
with the limited protection afforded by P.L. 86-272. If the Assessor
believes that a taxpayer conducts in this State any activity listed
in subsection (E) below, the Assessor will require the taxpayer
to carry the burden of substantiating any claim that its activities
were de minimis. Documentary evidence will be given substantial weight
in establishing the nature and extent of the taxpayer's activities.
Affidavits or other evidence not contemporaneous with the events in
question will be given little weight.
D. Protected activities. The following in-state activities conducted
by a foreign corporation will not cause the loss of protection for otherwise
protected sales that occur in the State of Maine:
1. Soliciting orders for sales by any type of advertising;
2. Soliciting of orders by an in-state resident employee or representative
of the foreign corporation, so long as such person does not maintain
or use any office or other place of business in the state other than
an "in-home" office as described in subsection (E),
paragraph 20 below;
3. Carrying samples and promotional materials only for display or
for distribution without charge or other consideration;
4. Furnishing and setting up display racks and advising customers
on the display of the foreign corporation's products without charge
or other consideration;
5. Providing automobiles to sales personnel for their use in conducting
6. Passing orders, inquiries and complaints on to the corporation's
7. Missionary sales activities and advertising campaigns incidental
to missionary sales activities;
8. Coordinating shipment or delivery without payment or other consideration
and providing information relating thereto either before or after
the placement of an order;
9. Checking of customers' inventories without a charge therefor (for
re-order, but not for other purposes such as quality control);
10. Maintaining a sample or display room for an aggregate of 14 days
or fewer during the tax year, provided that no sales or other activities
inconsistent with mere solicitation take place;
11. Recruiting, training or evaluating sales personnel, including
occasionally using homes, hotels or similar places for meetings with
12. Mediating direct customer complaints with the sole purpose of
ingratiating the sales personnel with the customer and facilitating
requests for orders; and
13. Owning, leasing, using or maintaining personal property for use
in the "in-home" office or automobile of an employee or
representative, when the use of the personal property is limited to
the conducting of protected activities. Thus the use by a foreign
corporation's employee or representative of equipment such as a cellular
telephone, facsimile machine, photocopier or personal computer, when
limited strictly to the carrying on of protected solicitation and
activity entirely ancillary to such solicitation or permitted by this
rule, does not, by itself subject the foreign corporation to Maine's
income tax jurisdiction.
E. Unprotected activities. The following in-state activities
conducted by a corporation (assuming they are not de minimis -- see
subsection (C) above) will cause otherwise immune sales to lose
1. Making repairs or providing maintenance or service to the property
sold or to be sold;
2. Collecting current or delinquent accounts, whether directly or
by third parties, through assignment or otherwise;
3. Investigating credit worthiness;
4. Installation or supervision of installations at or after shipment
5. Conducting training courses, seminars or lectures for personnel
other than personnel involved only in solicitations;
6. Providing any kind of technical assistance or services, including,
but not limited to, engineering assistance or design services, unless
the purpose of such assistance or services is solely to facilitate
the solicitation of orders;
7. Investigating, handling, or otherwise assisting in resolving customer
complaints, other than mediating direct customer complaints with the
sole purpose of ingratiating sales personnel with the customer and
facilitating requests for orders;
8. Approving or accepting orders;
9. Repossessing property;
10. Securing deposits on sales;
11. Picking up or replacing damaged or returned property or stale
or unsalable inventory;
12. Hiring, training, or supervising personnel, other than personnel
involved only in solicitation;
13. Using agency stock checks or any other instrument or process
by which sales are made within this state by sales personnel;
l4. Maintaining a sample or display room in excess of two weeks (14
days) at any one location during the tax year;
15. Carrying samples for sale, exchange or distribution in any manner
for consideration or other value;
16. Owning, leasing, using, or maintaining any of the following facilities
a. Repair shop.
b. Parts department.
c. Any kind of office other than an in-home office as described
in subsection 20 below.
e. Meeting place for directors, officers or employees.
f. Stock of goods other than samples for sales personnel or goods
used entirely ancillary to solicitation.
g. Telephone answering service that is publicly attributed to the
company or to an employee or agent of the company.
h. Mobile stores, i.e., vehicles with drivers who are sales personnel
making sales from the vehicles.
i. Real property or fixtures to real property of any kind.
17. Consigning stocks of goods or other tangible personal property
to any person, including an independent contractor, for sale;
18. Conducting any activity not listed in subsection (D) above
that is not entirely ancillary to requests for orders, even if such
activity helps to increase orders;
19. Owning an interest in any partnership, grantor trust, or other
pass-through entity whose activities, if conducted directly by a foreign
corporation, would give Maine jurisdiction over the foreign corporation,
unless the activities of the pass-through entity are limited to solicitation
protected by P.L. 86-272;
20. Maintaining, by any employee or other representative, an office
or place of business of any kind, other than an in-home office located
within the residence of the employee or other representative that
(1) is not publicly attributed to the company or to the employee or
representative of the company in such capacity, and (2) is used solely
for soliciting and receiving orders from customers, for transmitting
such orders outside the state for acceptance or rejection by the corporation,
or for other activities protected by P.L. 86-272 or section (D)
of this rule. If the corporation maintains a telephone or other public
listing within the state either in its own name or in the name of
its employee or representative in such capacity, or if there is any
other indication through advertising or business literature that the
corporation or its employee or representative can be contacted at
a specific address within the state, the Assessor will normally view
the corporation's activities as exceeding the protection afforded
by P.L. 86-272. However, the normal distribution and use of business
cards and stationery identifying the employee or representative's
name, address, telephone and fax numbers and affiliation with the
company will not, by itself, be considered unprotected activity. The
maintenance of any office or other place of business in this state
that does not strictly qualify as an "in-home" office as
described above causes the loss of protection. For the purpose of
this rule, it is not relevant whether the corporation pays directly,
indirectly, or not at all for the cost of maintaining an in-home office;
21. Entering into a franchising or licensing agreement; selling or
otherwise disposing of franchises and licenses; or selling or otherwise
transferring tangible personal property pursuant to such franchise
or license by the franchiser or licensor to its franchisee or licensee
with the state.
.05 Other Exceptions.
A. General. A foreign
corporation is not subject to the Maine income tax if its contacts with
this State are limited exclusively to one or more of the activities listed
in subsection (B) through (D) below. The activities listed
below will not create jurisdiction even if they also fall within the scope
of activities that would otherwise create jurisdiction under section .04,
subsection (E) above.
B. Federal limitations
(other than P.L. 86-272). A foreign corporation's activities will
not subject it to the income tax jurisdiction of Maine if the constitution
or laws of the United States preclude the exercise of jurisdiction.
C. Ownership of shares.
A foreign corporation is not subject to the Maine income tax solely because
it owns shares of a corporation that does business in Maine.
D. Maintenance of accounts.
A foreign corporation is not subject to the Maine income tax solely because
of its depositing of funds or maintenance of securities brokerage accounts
with financial institutions, unrelated to the foreign corporation, that
do business in Maine.
.06 Imputed activity. For the purposes of determining whether
a foreign corporation is subject to Maine's tax jurisdiction, the activities
of the corporation's employees, agents, or representatives, however designated,
will be imputed to the corporation. An agent or representative may be
an individual, corporation, partnership or other entity. Activities conducted
in Maine on behalf of a foreign corporation by an independent contractor
that are more than de minimis in nature and that are significantly associated
with the foreign corporation's ability to establish and maintain a market
in Maine will be imputed to the corporation to the extent allowed by the
Constitution and laws of the United States.
AUTHORITY: 36 M.R.S.A., Section 112
EFFECTIVE DATE: October 2, 1994
LAST AMENDED: May 20, 2000