The Maine Legislature recently enacted legislation that repeals the sales tax on certain kinds of services and replaces it with a new Service Provider Tax (pdf). The new law imposes a 5% service provider tax became effective July 1, 2004 on the "Rental of furniture and audio equipment pursuant to a rent-to-own contract" as well as certain other services.

All of the services taxed under the new law, except private non-medical institution services, are currently subject to the 5% Maine sales tax. Thus on July 1 the tax on these services  changed from a sales tax to a service provider tax. This change should be transparent to purchasers of these services, who will simply pay a 5% service provider tax instead of a 5% sales tax. Providers of the services taxed under the new law that are subject to sales tax under current law will, however, experience some changes in the way the tax is administered.

Application of the tax
The major change in this legislation is that the tax is imposed on the provider not the consumer. However, the provider can pass this tax along to the consumer if they wish. If a provider includes this tax on a customer's bill, it must be shown as a separate line item and identified as a “service provider tax”.

Returns Beginning with the July 2004 reporting period, registered service providers will be required to file service provider tax returns. Service provider tax return forms will be mailed to all registered service providers in late July and each reporting period thereafter. The return is due no later than the 15th of the month following the end of the reporting period. Businesses that make both sales of services subject to the service provider tax and retail sales subject to sales tax will be required to file both returns.

Billings during the month Ordinarily the invoice date governs the sale date. Sales occurring before July 1st will be subject to the 5% sales tax, whereas sales occurring on or after July 1st will be subject to the 5% service provider tax. Sales of any of the above mentioned services will be subject to the 5% service provider tax if billed on or after July 1st, or in the case of rentals, if the rental is entered into on or after July 1st.

Maine will be providing seminars for business owners around the state this month. The schedule is below.