Sales tax on invoices in Maine

In Maine, a contractor performing a construction contract is the last user of its materials: you pay sales or use tax when you buy them, and you add no sales tax to your customer’s bill, whether you charge a lump sum or time and materials.

Maine sales tax and your retailer certificate

Maine Revenue Services (MRS) requires every seller of tangible personal property or taxable services with a business location in Maine to register as a seller. MRS issues retailer certificates through the Maine Tax Portal: registration is free, each place of business needs its own certificate, and certificates aren’t transferable.

A retailer owes MRS the sales tax on its taxable sales for each reporting period, whether or not it collected the tax from its customers.

Construction contracts: no sales tax on the bill

MRS’s Instructional Bulletin No. 4 counts building, electrical, plumbing, heating, painting, masonry, carpentry, landscape and roofing contractors, among others, as contractors, and a construction contract as one for the repair, alteration, improvement, remodeling or construction of real property.

• Lump sum: in the bulletin’s example, a carpenter building a house for a lump-sum charge pays tax on the materials and adds no sales tax to the charge.
• Time and materials: an electrician adding outlets to a customer’s garage, billing time and materials with no written contract, pays tax on the materials and adds no sales tax either.
• Title passing before installation: you and your customer can arrange for title to the materials to pass before they’re incorporated into real property. A written agreement is preferred, but a business practice of invoicing all customers for time, materials and sales tax is enough evidence. You then register with MRS as a retailer, buy materials tax-free with a resale certificate, and bill sales tax on the materials’ sale price, as in the bulletin’s example of a plumber repairing a homeowner’s furnace.
• Gravel and other aggregate: if you only dump it in a pile or a fill, or truck-spread it, you’re selling tangible personal property, and sales tax applies to the sale price including your delivery charge. If you bulldoze, rake, grade or otherwise work it after delivery, you’re affixing it to real property, and you charge no sales tax.

Retail sales by contractors

You’re a retailer when you buy and sell materials and supplies at retail, or build and sell items such as cabinets or furniture without incorporating them into real property. Get a retailer’s certificate from MRS, buy those materials with a resale certificate, and collect sales tax from your retail customers.

Services: generally not taxed

The Business Guide to Sales and Use Tax says Maine doesn’t tax services in general, including real property services such as carpentry, landscaping and house cleaning. Only listed services are taxed. They include the services once covered by Maine’s service provider tax, now repealed, such as fabrication, cable and satellite television or radio, and telecommunications services.

• Fabrication: it’s taxable when your customer provides the materials and you produce and transfer an item of tangible personal property.
• Installation and repair: charges for installation or repair, other than of telecommunications equipment, aren’t part of the taxable sale price when they’re separately stated, even when sold with tangible personal property. In the Guide’s example, a $200 repair invoice that doesn’t separate the exempt part is taxable in full.
• Lawn care: a landscaper who mows lawns or applies fertilizer, weed killer or pesticides pays sales or use tax on those products and doesn’t charge its customer sales tax, even under a contract with an exempt organization.

Tax line on the invoice: separate, or “includes sales tax”

• Construction contracts: leave the tax line off. You bill sales tax only on the materials under a title-passing arrangement, or on aggregate sold as tangible personal property, as above.
• Taxable sales: Instructional Bulletin No. 39 says every retailer adds the tax to the sale price and may state it separately on bills and statements. If you don’t state it separately, your sales slip or invoice must say that the stated price includes sales tax.

Exempt organizations: materials only

Building materials permanently affixed to real property owned by or sold to a sales-tax-exempt organization, and used by it primarily in its exempt activity, are exempt. Such organizations include the federal government, the State of Maine, and Maine cities, towns and other political subdivisions. If you don’t have a resale certificate, buy those materials tax-free with form ST-A-119.

Trucks, tractors, scaffolding, machinery, equipment, tools, supplies and fuels you use on construction contracts stay taxable to you, even on an exempt organization’s job. If the seller doesn’t charge tax, report use tax directly to MRS.

Rates: statewide in the Business Guide

Maine Revenue Services’ Business Guide sets out statewide rates: the state rate on this page for retail sales of tangible personal property and taxable services, with higher rates for a few items such as prepared food. Use tax on purchases for use in Maine is generally at the state rate too.

Real property or personal property: the three-prong test

Whether an item becomes real property depends on all the facts. Instructional Bulletin No. 4’s test asks whether it’s physically attached to real property (an unattached item can count because of its size and weight), adapted to and usable with that part of the property, and affixed with the owner’s intention to make it permanent. In the bulletin’s examples, a service-station canopy and a garden shed on a concrete pad become real property once installed, while free-standing display cases stay tangible personal property.