- Each business that sells tangible personal property in Maine must obtain a retailer certificate (this is the sales tax ID registration process) and collect and remit sales tax from its customers;
- All retailers should determine whether they can qualify for a resale certificate, which will allow them to save the (generally) 5.5% sales tax they currently pay when purchasing goods; and
- All retailers must file a Maine sales and use tax return annually, even if they will not collect any sales tax (such as for sales to governmental entities like schools and school districts).
Sales Tax and Sales and Use Tax Return
Each business engaged in “retail sales” is a retailer that must register with State Tax Assessor. A retail sale is defined as any sale of tangible personal property in the ordinary course of business. Once the business registers as a retailer, it must periodically submit a report and remit all taxes it is required to collect from its customers. Every retailer with average annual sales and use tax liability of less than $50 need only file one sales and use tax return for each calendar year, by January 15. Retailers with greater annual sales must file more frequently, up to one return each month for retailers with monthly sales of at least $600.
Retailers within certain markets are not required to collect any sales tax because, for example, sales to governmental entities like schools and school districts are exempt from paying sales tax. For recordkeeping purposes, when any customer claims it is exempt from sales tax, you should ask for a copy of its Sales/Use Tax Exemption Certificate to keep with your records. Governmental entities are automatically exempt and are generally not issued exemption certificates. On each invoice, you should note the applicable exemption number for the customer claiming a sales tax exemption.
Purchases by Governmental Agencies Claiming a Sales Tax Exemption
Here is some additional guidance in dealing with purchases by governmental entities, based upon your method of billing:
- Direct billing. Sales that are billed directly to a governmental agency may be made tax-exempt without a purchase order or any additional documentation.
- Cash, personal check or personal bank card. Purchases paid for with cash or with a personal check, personal credit card or personal debit card may not be made tax-exempt unless the individual making the purchase presents a purchase order issued by the governmental agency that identifies the specific item or items to be purchased. You must retain a copy of the purchase order in your records and must identify the transaction on that document.
- Other credit or debit cards. Purchases paid for with a State of Maine Procurement Card that charges directly to the State of Maine may be made tax-exempt only if you retain documentation that identifies the governmental agency and the sale transaction date, sale price, item or items purchased and the complete card number.
No Sales Tax on Resale Transactions
Purchases of goods for resale should be exempt from the (generally) 5.5% Maine sales tax under the following circumstances:
- You must obtain a resale certificate from the State Tax Assessor.
- You must specifically state in the purchase order, whether written or oral, that the property is purchased for resale.
- The property purchased must be of the type or types ordinarily purchased for resale by the business, identified as such on the resale certificate issued to the purchasing business by the State Tax Assessor.
- The seller must obtain or have on file a copy of the business’ resale certificate that is valid on the date of the sale.
- The copy of the resale certificate must be signed by one of the business owners or an authorized individual.
If for some reason the business does not qualify to receive a resale certificate, a refund or credit is available for sales tax paid on goods actually purchased for resale. This refund or credit is taken on the sales and use tax return in the period in which the purchase is made.
“Use tax” is a substitute for sales tax when it does not apply or does not equal the same rate as the Maine sales tax rate. A purchase made out-of-state is the most common type of transaction subject to use tax. Some of the more commonly purchased taxable items from outside of Maine are office supplies. Many of the exemptions that apply to sales tax also apply to use tax, such as goods purchased for resale. This means that if you purchase your goods outside of Maine, you should be able to provide a copy of your resale certificate to the seller and avoid paying Maine sales and use tax to an out of state supplier.
In summary, if your business fits the retailer criteria, you should register with the State of Maine to obtain a retailer certificate. Next, you should collect sales tax and file a Maine sales and use tax return, at minimum annually. You should file a return even if you will not collect any sales tax because you may be dealing solely with governmental entities exempt from sales tax. Lastly, by obtaining a resale certificate to provide to the sellers from which you purchase goods for resale, you should be able to avoid paying the (generally) 5.5% Maine sales tax.
This information is provided as general advice. You should seek more specific counsel tailored to your business by consulting one of our qualified attorneys and your business tax professional.