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Maine Won't Tax Remote Workers During Pandemic

Posted on Oct. 20, 2020

Maine will not tax telework in the state or impose sales or corporate income tax nexus during its COVID-19 state of emergency.

In an October 19 tax alert, Maine Revenue Services (MRS) clarified that employers should continue to calculate an employee’s withholding as if the Maine resident was still working out of state. The rules apply to employees suddenly teleworking in Maine because of the pandemic.

Similarly, employees teleworking in Maine during the pandemic will not constitute substantial physical presence and or trigger sales tax nexus for sales occurring in 2020 or corporate income tax nexus for 2020. The state has also automatically extended the filing deadline for corporate and franchise tax payers from October 15 to November 16, according to the alert.

MRS will also abate estimated income tax payment penalties due by residents who are working in the state because of the pandemic.

According to the alert, Gov. Janet Mills (D) will also introduce legislation in January 2021 to authorize a tax credit for income taxes paid to other jurisdictions if the other jurisdiction is imposing income taxes on income from employees teleworking in Maine because of COVID-19.

Nearby Massachusetts adopted a telework regulation on October 16 that imposes the state’s income tax on remote workers who now telework in another state amid the pandemic. The regulation applies income-sourcing rules calculating the days worked in the state between January 1 and February 29 and applies that throughout the year. Similar to Maine’s rules, Massachusetts will authorize a tax credit for income taxes paid to the state where the employee was previously working.

That rule lit a fire under New Hampshire Gov. Chris Sununu (R), who announced October 16 that the state — which does not have an income tax —  would be filing suit with the U.S. Supreme Court. The lawsuit was filed October 19. 

In addition to corporate and personal income tax nexus, Maine is also working on finalizing emergency rules for the educational opportunity tax credit, a credit for payments on student loans to Maine residents to obtain an associate or bachelor’s degree. The rules would extend the credit to individuals making payments on loans in deferment or forbearance. MRS stated that Mills intends to introduce legislation to extend these benefits to individuals who were working in Maine but became unemployed because of the pandemic.

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