The Maine Legislature has now passed, and the Governor has signed into law, changes to when the rental and leasing of equipment, including trucks and truck tractors are taxed. The changes were initially proposed in LD 2000 and later in Part H of the Governor’s supplemental budget LD 2214. The two laws were both passed containing identical language with respect to the taxation of leased or rented equipment. The new laws will take effect 1/1/25.
Historically in Maine, the lessor has always paid sales or use tax on equipment and then has imbedded that tax to the lessee as part of the rental or lease agreement in order to recoup their cost. This method of taxation made Maine one of only two states that do not tax based on the lease or rental stream. Proponents of the bills, including Maine Revenue Services, wanted to bring Maine in line with the almost all other states that tax on the lease or rental stream.
Maine Motor Transport Association’s approach from the start was to “first do no harm” should the laws pass. While we favor consistency in taxation with other states that some of our Members conduct business in, we wanted to ensure that the new laws did not pick winners and losers involved with leasing, buying, selling, or renting equipment.
We advocated for a three-year refund period for those lessors who had paid the use or sales tax up front in order that they could recover as much tax that they had previously paid on equipment they were now leasing. The Legislature listened, but ultimately settled for a two-year refund for equipment purchased between 1/1/23 and 1/1/25 as a compromise over not allowing a refund at all.
Our support for the new laws in the end was bolstered by the fact that many more of our Members would now be eligible for the INTERSTATE SALES TAX EXEMPTION (36 M.R.S.A. § 1760(41-A)) who were previously not eligible. Prior to the law changes, lessees were not eligible for this exemption as are those who purchase their equipment and placed the vehicle into Interstate commerce within the first 30 days and utilize them 80% of the time in Interstate commerce for the first two years. The new laws, however, define lease/rental as a sale, so now lessees who otherwise qualify for the exemption will be eligible.
The new laws have also removed language that treated the taxation on those who rented trucks or vans from a lessor that is not primarily engaged in the rental of automobiles differently than those who rent trucks. Formerly the rental of light trucks and vans with a GVW under 26,000 pounds for a period of less than 1 year was charged the 10% sales tax rate if you rented/leased from someone primarily engaged in the rental of automobiles and at 5.5% for those who leased or rented from a person not primarily engaged in the rental of automobiles. The new laws will now tax the short-term rental of “automobiles” for a period of less than 1 year at 10% and the short-term rental of vehicles not fitting the definition of “automobile” at 5.5%.
The significant changes for our membership from our perspective are:
- Changes the tax on leased equipment from an up-front USE/SALES tax to a tax on the rental/lease stream;
- Provides for a refund on items purchased between 1/1/23 and 1/1/25. The amount of the refund is limited to the sales or use tax collected and remitted to the State on property leased on or after 1/1/25 and before 1/1/27;
- Claims for a refund must be aggregated and filed between 1/1/27 and 3/31/27;
- The bills removed language which taxed the rental of trucks or vans (for a period less than 1 year) with a GVW under 26,000 by a person primarily engaged in the rental of automobiles differently than the same vehicles rented by someone not primarily engaged in the rental of automobiles;
- The definition of “Automobile” remains unchanged: “Automobile” means a self-propelled 4-wheel motor vehicle designed primarily to carry passengers and not designed to run on tracks. “Automobile” includes a pickup truck or van with a gross vehicle weight rating of 10,000 pounds or less.
- Automobiles, vans, and light trucks are taxed at 10% if rented/leased for a period of less than 1 year;
- Rental/Leases of trucks and equipment remain at 5.5%;
- Leases/Rentals of vehicles used in INTERSTATE commerce may now be eligible for the INTERSTATE SALES TAX exemption (36 M.R.S.A. § 1760(41-A)) if they otherwise qualify under that exemption, as leases/rentals are now defined as a sale. Previously leased vehicles were not eligible for the INTERSTATE SALES TAX EXEMPTION unless the lease qualified a lease in lieu of purchase.
We understand that some of the changes may have impact on many of our Members. Please feel free to contact either Brian or Tim if you have questions regarding the changes.