Proposed amendment would let businesses pay tax on owners’ income

A pass-through business may choose to pay Maine tax on its owners’ income. The choice is available to partnerships other than publicly traded partnerships and to S corporations, but not entities taxed under chapter 819. A qualified owner is a direct individual, trust, or estate owner; tax-exempt organizations are excluded. The business must make the choice on a timely filed annual return; it becomes final after the filing deadline, including extensions. An owner may claim a refundable credit for 90% of the tax reported for that owner only if the business paid the tax and provided the required information. The tax provisions apply to tax years beginning on or after January 1, 2026.

A business that elects the pass-through tax must make estimated payments for its nonresident owners. These rules cover nonresident qualified members of an electing business. The return-filing exception is limited to nonresidents who meet the separate conditions for individuals or for trusts and estates. The payment for each nonresident owner is 10% of the tax amount the business must report for that owner. A nonresident individual may skip a Maine return only if all Maine income comes from electing businesses, those businesses file and pay, and the credit plus estimated payment covers the individual’s and spouse’s Maine tax. Different conditions apply to nonresident trusts and estates, including limits on distributions to beneficiaries. The estimated-payment rule applies to tax years beginning on or after January 1, 2026. The business must report each payment within 30 days after its Maine return is due, without counting any filing extension.

The State Controller would transfer $28 million into a stabilization fund and later transfer $28 million back to the General Fund. The transfers are between the General Fund and the Pass-through Entity Tax Stabilization Fund. The fund is intended to stabilize the General Fund’s revenue impact from the pass-through tax. The first transfer is due on or before June 30, 2027. The return transfer is due on or before June 30, 2028.