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PUBLIC LAWS OF MAINE
First Special Session of the 118th

CHAPTER 404
H.P. 1282 - L.D. 1819

An Act to Modernize Maine's Financial Institution Franchise Tax

Be it enacted by the People of the State of Maine as follows:

     Sec. 1. 36 MRSA §111, sub-§3, as amended by PL 1985, c. 535, §1, is further amended to read:

     3. Person. "Person" means an individual, firm, partnership, association, society, club, corporation, financial institution, estate, trust, business trust, receiver, assignee or any other group or combination acting as a unit, taxable entity, the State or Federal Government or any political subdivision or agency of either government.

     Sec. 2. 36 MRSA §5206, as amended by PL 1985, c. 783, §§33 and 34, is further amended to read:

§5206. Franchise tax on financial institutions

     A tax is imposed for each calendar year or fiscal year ending during that calendar year upon the franchise or privilege of doing business in this State of every taxable entity as defined in section 5206-B, subsection 4 financial institution that has Maine net income or Maine assets and that has a substantial physical presence in this State sufficient to satisfy the requirements of the due process and commerce clauses of the United States Constitution. The tax shall be is the sum of the following:

     1. Franchise tax on Maine net income. One percent of the financial institution's Maine net income for those taxable entities, as defined in section 5206-B, subsection 3.;

     2. Franchise tax on Maine assets. Eight cents per $1,000 of the financial institution's Maine assets, for those taxable entities, as defined in section 5206-B, subsection 2.; and

     3. Credit against tax. In each taxable year in which a financial institution sustains a book net operating loss, a credit shall must be allowed against the franchise tax on assets under subsection 2. The credit shall must be computed by multiplying the book net operating loss by the applicable franchise tax rate imposed by subsection 1. The total amount of any such credit allowed shall may not exceed the franchise tax on assets due under subsection 2. In any tax year in which there is excess credit, the excess credit shall must be carried forward for no more than the next 5 tax years and can may be applied against the tax computed under subsections 1 and 2.

     Sec. 3. 36 MRSA §5206-A, as repealed and replaced by PL 1983, c. 842, §3, is repealed.

     Sec. 4. 36 MRSA §5206-B, as amended by PL 1995, c. 628, §§36 and 37 and affected by §39, is repealed.

     Sec. 5. 36 MRSA §§5206-D and 5206-E are enacted to read:

§5206-D. Definitions

     As used in this chapter, unless the context otherwise indicates, the following terms have the following meanings.

     1. Affiliated group. "Affiliated group" means a group of 2 or more financial institutions in which more than 50% of the voting stock of each member corporation or financial institution is directly or indirectly owned by a common owner or owners, either corporate or noncorporate, or by one or more of the member financial institutions.

     2. Billing address. "Billing address" means the location indicated in the books and records of the taxpayer on the first day of the taxable year or on a later date in the taxable year when the customer relationship began as the address where any notice, statement or bill relating to a customer's account is mailed.

     3. Borrower or credit card holder located in this State. "Borrower or credit card holder located in this State" means:

     4. Commercial domicile. "Commercial domicile" means the place from which trade or business is principally managed and directed.

     5. Compensation. "Compensation" means wages, salaries, commissions and any other form of remuneration paid to employees for personal services.

     6. Credit card. "Credit card" means a credit, travel or entertainment card.

     7. Credit card issuer's reimbursement fee. "Credit card issuer's reimbursement fee" means the fee a taxpayer receives from a merchant's bank because one of the persons to whom the taxpayer has issued a credit card has charged merchandise or services to the credit card.

     8. Financial institution. "Financial institution" means:

     9. Loan. "Loan" means any extension of credit resulting from direct negotiations between the taxpayer and its customer, or the purchase, in whole or in part, of the extension of credit from another. Loans include participations, syndications and leases treated as loans for federal income tax purposes. Loans do not include properties treated as loans under the Code, Section 595; futures or forward contracts; options; notional principal contracts such as swaps; credit card receivables, including purchased credit card relationships; noninterest-bearing balances due from depository institutions; cash items in the process of collection; federal funds sold; securities purchased under agreements to resell; assets held in a trading account; securities; interests in a REMIC or other mortgage-backed or asset-backed security; and other similar items.

     10. Loan secured by real property. "Loan secured by real property" means that 50% or more of the aggregate value of the collateral used to secure a loan or other obligation, when valued at fair market value as of the time the original loan or obligation was incurred, was real property.

     11. Located in the State. For purposes of the receipts factor in section 5206-E, subsection 2, "located in the State":

     12. Maine assets. "Maine assets" means a financial institution's total end-of-year assets required to be reported pursuant to the laws of the United States on Internal Revenue Service Form 1120, Schedule L multiplied by the fraction obtained pursuant to section 5206-E.

     13. Maine net income. "Maine net income" means, for any taxable year, a financial institution's net income or loss per books, as required to be reported pursuant to the laws of the United States on Internal Revenue Service Form 1120, Schedule M, Line 1 and apportioned to this State under section 5206-E.

To the extent that a financial institution derives income from a unitary business carried on by 2 or more members of an affiliated group, "Maine net income" is determined by apportioning, in accordance with section 5206-E, that part of the net income of the entire group that derives from the unitary business.

     14. Merchant discount. "Merchant discount" means the fee or negotiated discount charged to a merchant by the taxpayer for privilege of participating in a program when a credit card is accepted in payment for merchandise or services sold to the card holder.

     15. Participation. "Participation" means an extension of credit in which an undivided ownership interest is held on a pro rata basis in a single loan or pool of loans and related collateral. In a loan participation, the credit originator initially makes the loan and then subsequently resells all or a portion of it to other lenders. The participation may or may not be known to the borrower.

     16. Principal base of operations. With respect to transportation property, "principal base of operations" means the place of more or less permanent nature from which the property is regulated, directed or controlled. With respect to an employee, the "principal base of operations" means the place of more or less permanent nature from which the employee regularly starts the employee's work and to which the employee customarily returns in order to receive instructions from an employer, communicates with the employer's customers or other persons or performs any other functions necessary to the exercise of the employee's trade or profession.

     17. Regular place of business. "Regular place of business" means an office at which the taxpayer carries on its business in a regular and systematic manner and that is continuously maintained, occupied and used by employees of the taxpayer.

     18. State. "State" means a state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, any territory or possession of the United States or any foreign country.

     19. Syndication. "Syndication" means an extension of credit in which 2 or more persons fund that credit and each person is at risk only up to a specified percentage of the total extension of credit or up to a specified dollar amount.

     20. Taxpayer. "Taxpayer" means a financial institution as defined in subsection 8.

     21. Transportation property. "Transportation property" means vehicles and vessels capable of moving under their own power, such as aircraft, trains, water vessels and motor vehicles, as well as any equipment or containers attached to those vehicles and vessels, such as rolling stock, barges or trailers.

     22. Unitary business. "Unitary business" means a business activity that is characterized by unity of ownership, functional integration, centralization of management or economies of scale.

§5206-E. Apportionment

     Except as otherwise specifically provided, a financial institution that is taxable both in and outside this State shall apportion its net income as provided in this section. A financial institution is considered taxable in a state if in that state the financial institution is subject to a net income tax, a franchise tax measured by net income, a franchise tax for the privilege of doing business or a corporate stock tax or that state has jurisdiction to subject the financial institution to a net income tax regardless of whether, in fact, the state does or does not tax the financial institution.

     1. Formula applicable. All of a financial institution's net income or loss per books, as required to be reported pursuant to the laws of the United States on Internal Revenue Service Form 1120, Schedule M, Line 1, is apportioned to this State by multiplying the income by a fraction, the numerator of which is the property factor plus the payroll factor plus 2 times the receipts factor and the denominator of which is 4.

     2. Receipts factor. The receipts factor is a fraction, the numerator of which is the receipts of the taxpayer in this State during the taxable year and the denominator of which is the receipts of the taxpayer in and outside this State during the taxable year. The method of calculating receipts for purposes of the denominator is the same as the method used in determining receipts for purposes of the numerator. The receipts factor includes only those receipts described in this subsection that are included in the computation of the apportionable income base for the taxable year.

     3. Property factor. The property factor is a fraction, the numerator of which is the average value of real property and tangible personal property rented to the taxpayer that is located in the State during the taxable year, the average value of the taxpayer's real and tangible personal property owned that is located in the State during the taxable year and the average value of the taxpayer's loans and credit card receivables that are located in the State during the taxable year, and the denominator of which is the average value of all such property located in and outside this State during the taxable year.

     4. Payroll factor. The payroll factor is a fraction, the numerator of which is the total amount paid in this State during the taxable year by the taxpayer for compensation and the denominator of which is the total compensation paid both in and outside this State during the taxable year. The payroll factor includes only that compensation that is included in the computation of the apportionable income tax base for the taxable year.

     5. Variations. If the apportionment provisions of this section do not fairly represent the extent of the taxpayer's business activity in this State, the taxpayer may petition for, or the State Tax Assessor may require, in respect to all or any part of the taxpayer's business activity:

     Sec. 6. 36 MRSA §5220, sub-§5, as repealed and replaced by PL 1987, c. 402, Pt. A, §190, is amended to read:

     5. Certain taxable corporations. Every taxable corporation or taxable entity which that is required to file a federal income tax return. A taxable corporation or taxable entity which that is a member of an affiliated group and which that is engaged in a unitary business with one or more other members of that affiliated group shall file, in addition, a combined report, in accordance with section 5244. The State Tax Assessor may allow 2 or more taxable corporations or taxable entities which that are members of an affiliated group and which that are engaged in a unitary business to file a single return on which the aggregate Maine income tax liability of all those corporations or entities is reported.

     Sec. 7. 36 MRSA §5220, sub-§6, as enacted by PL 1987, c. 504, §35, is amended to read:

     6. Certain taxable entities. Every taxable entity, as defined by section 5206-B, subsection 4, which that is required to file a federal income tax return. The State Tax Assessor may, in his discretion, allow 2 or more taxable entities which financial institutions that are members of an affiliated group to file a consolidated return.

     Sec. 8. 36 MRSA §5222, sub-§5, as amended by PL 1985, c. 535, §21, is further amended to read:

     5. Corporations and taxable entities. The income tax return of a taxable corporation or the franchise tax return of a taxable entity shall financial institution must be made and filed by an officer of the corporation or entity financial institution.

     Sec. 9. 36 MRSA §5231, sub-§1-A, as enacted by PL 1989, c. 871, §19, is amended to read:

     1-A. Federal extension. When a taxable corporation or taxable entity a financial institution subject to the tax imposed by chapter 819 is granted an extension of time within which to file its federal income tax return for any taxable year, the due date for filing the taxpayer's income tax or franchise tax return with respect to the tax imposed by this Part is automatically extended for an equivalent period plus 30 days.

     Sec. 10. Application. This Act applies to tax years beginning on or after January 1, 1997.

Effective September 19, 1997, unless otherwise indicated.

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