18-125 C.M.R. ch. 803, § 06 - Pass-through entity withholding for nonresident members

A. Withholding and filing requirements.

1. Annual filing. A pass-through entity that has nonresident members that realize Maine-source member income shall file an annual return reporting information about the entity, nonresident members subject to withholding, nonresident members exempt from withholding, and any other information required by the Assessor. The return is due no later than March 15 following the end of the calendar year. If an entity has no income tax withholding liability for the period and has been granted an extension for filing its federal information return (such as Form 1065 or Form 1120S), the due date for filing under this section is extended for an equivalent period of time.

2. Withholding amount. Unless modified pursuant to this rule or by the Assessor, either by ruling on a specific request or in published instructions, a pass-through entity must withhold Maine income tax from nonresident members' Maine-source member income at the rate of 8.93% in the case of a nonresident member taxed as a corporation. For all other nonresident members, the withholding rate is 7.15%.

3. Quarterly payments. An entity that is required to withhold more than $1,000 for the calendar year shall for each calendar quarter make estimated payments equal to 25% of the lesser of the following:

(a) 90% of the amount required to be withheld for the year, and

(b) The tax required to have been withheld for the prior calendar year, except that this subparagraph does not apply if the entity had a tax year of less than 12 months that ended during the preceding calendar year, the entity was not required to withhold for the prior calendar year, or the entity did not file a return under Section .06(A)(1), above, for the prior year.

The estimated payments for each calendar quarter are due on or before the following dates: April 30, July 31, October 31, and January 31 of the following year.

The Assessor shall prescribe the voucher required to be filed with the quarterly payments. Any remaining tax due must be paid by the due date of the annual return required in paragraph 1, without regard to any extension for filing. In the case of any underpayment of estimated tax, interest shall accrue at the rate provided in 36 M.R.S. §186 on the amount of the underpayment beginning with the due date of the installment and ending on the due date of the annual return or the date of payment, whichever is earlier. Interest and penalties also apply with respect to payments made after the due date of the annual return in accordance with the provisions of Title 36 of the Maine Revised Statutes.

B. Tiered pass-through entity structures.

1. A tiered-entity structure is one in which some or all of the ownership interest in one pass-through entity (lower-tier entity) is held by a second pass-through entity (upper-tier entity). A tiered-entity structure may have two or more tiers.

2. Unless exempt pursuant to this rule or by the Assessor, either by ruling on a specific request or in published instructions, a pass-through entity must withhold for its nonresident members, including members who are pass- through entities. To prevent multiple withholding on the same income, an upper-tier entity that recognizes distributive income is not required to withhold from nonresident member income generated by a lower-tier entity if the lower-tier entity has already withheld from that income. The upper-tier entity, however, must separately report to its members on Form 1099ME their proportionate distributive share of amounts withheld by the lower-tier entity.

3. Upon written application, and with the approval of the Assessor, a lower- tier entity may meet its withholding obligation for an upper-tier entity by directly withholding from the distributive income of the nonresident members of the upper-tier entity. If approval is granted, the lower-tier entity is required to report on Form 1099ME directly to the nonresident members the amounts withheld.

C. Exemptions.

1. Automatic exemptions. A pass-through entity is not required to withhold tax for a nonresident member if any of the following applies:

(a) The nonresident member's Maine-source member income from the entity will be less than $1,000 for the current year.

(b) The nonresident member is a tax-exempt entity under either Maine law or federal law (including IRAs, Keoghs, pension and profit- sharing plans, and other such organizations), unless the Maine- source member income of the tax-exempt entity is unrelated business income.

(c) The nonresident upper-tier pass-through entity realizes income from a lower-tier entity and the lower-tier entity has already withheld from that income.

(d) The entity is a publicly traded partnership that is treated as a partnership under Code § 7704.

(e) The nonresident member is a publicly traded partnership that is treated as a partnership under Code § 7704.

(f) The entity is prohibited under federal or state law from making distributions to members; the exemption applies only for years in which distributions are prohibited under federal or state law. Contractual restrictions on distributions, such as loan covenants or organizational documents, do not qualify an entity for this exemption.

(g) The entity is an out-of-state supplier of spirits sold to the Bureau of Alcoholic Beverages and Lottery Operations (BABLO) and its Maine business activities are limited to the activities described in 36 M.R.S. §5202-D(2).

2. Compliant taxpayer exemption. To be exempt under the compliant taxpayer exemption, each nonresident member must sign and submit to the entity a Nonresident Member Affidavit and Agreement to Comply with Maine Income Tax (Form 941AF-ME). The exempt status of each nonresident member submitting an affidavit must be reported on the Pass- through Entity Withholding Form 941P-ME filed for the calendar year. The nonresident member must not have been previously disqualified from this exemption and must continue to stay in compliance by submitting required returns.

3. Composite filing exemption. A composite filing is a simplified group income tax return filed by a pass-through entity on behalf of two or more participating eligible persons as defined in MRS Rule 805.01(D) (18-125 C.M.R., ch. 805.01(D)) that are nonresident members of such pass- through entity. To be allowed a composite filing exemption, the entity must collect a Nonresident Member Affidavit and Agreement to Participate in a Composite Filing of Maine Income Tax (Form 941CF- ME) from each nonresident member that is participating in the composite filing. The exempt status of each nonresident member participating in a composite filing must be reported on the Pass-through Entity Withholding Form 941P-ME filed for the calendar year. The entity must also make estimated payments on behalf of the composite filing group. The entity must file the composite return, including Schedule 1040C-ME, even if there is no tax liability for the group. Composite return requirements are outlined in MRS Rule 805 (18-125 C.M.R., ch. 805).

4. Requested exemptions. An exemption applies if the Assessor has determined in writing, and subject to any conditions that may be imposed, that the nonresident member's Maine-source member income is exempt from withholding.

5. Revocation of exemptions. The Assessor may revoke an exemption at any time. If an exemption is revoked, the entity will be notified in writing and must begin withholding immediately.

D. Partnership audits; federal adjustments report. A partnership with partners required to file a federal adjustments report under 36 M.R.S. §5196(1) and, in the reviewed year of the audit, with Maine-source member income of those partners subject to withholding in accordance with 36 M.R.S. §5250-B and this rule, must, within 180 days of the final determination date of the partnership-level audit, file an amended return for the reviewed year to report the additional pass-through entity withholding due determined in accordance with the provisions of 36 M.R.S. §5250-B and this rule as they were in effect for the reviewed year. The amended return under this subsection must exclude partners included in the amended composite return required by MRS Rule 805.07(B) (18-125 C.M.R., ch. 805.07(B)) for the same reviewed year. For purposes of this subsection, the final determination date is the date on which the partnership submits a request, for any relevant partner, for a modification pursuant to the Code § 6225(c)(2)(A) or (B).

Notes

18-125 C.M.R. ch. 803, § 06