An Act to Support Maine Businesses by Establishing a Pass-through
Maine Legislature, Session 132, LD 0191
Committee: Taxation
Sponsors: HASENFUS
Amends: 36 MRSA §5190

Legislative Document
No. 191
H.P. 124
House of Representatives, January 14, 2025
An Act to Support Maine Businesses by Establishing a Pass-through 
Entity Tax and Tax Credit
Reference to the Committee on Taxation suggested and ordered printed.
ROBERT B. HUNT
Clerk
Presented by Representative HASENFUS of Readfield.
Cosponsored by Representative: DUCHARME of Madison, Senator: HICKMAN of Kennebec.
Be it enacted by the People of the State of Maine as follows:
Sec. 1.  36 MRSA c. 814-A is enacted to read:
CHAPTER 814-A
PASS-THROUGH ENTITY TAX
§5186.  Definitions
As used in this chapter, unless the context otherwise indicates, the following terms 
have the following meanings.
1. Affected business entity.  "Affected business entity" means a partnership or an S 
corporation, but does not include a publicly traded partnership, as defined in the Code, 
Section 7704(b), that has agreed to file an annual return pursuant to section 5187 reporting 
the name, address, social security number or federal employer identification number and 
such other information required by the assessor of each member whose distributive share 
of partnership income derived from or connected with sources within this State is more 
than $500.
2.  Electing pass-through entity.  "Electing pass-through entity" means a pass-through 
entity that elects to pay taxes pursuant to section 5187.
3.  Member.  "Member" means:
A. A shareholder of an S corporation;
B. A partner in:
(1) A general partnership;
(2) A limited partnership; or
(3) A limited liability partnership; or
C.  A member of a limited liability company that is treated as a partnership or an S 
corporation for federal income tax purposes.
4.  Partnership.  "Partnership" has the same meaning as in the Code, Section 
7701(a)(2) and federal regulations adopted pursuant to that section. "Partnership" includes 
a limited liability company that is treated as a partnership for federal income tax purposes.
5.  Pass-through entity.  "Pass-through entity" has the same meaning as in section 
5195, subsection 18.
6.  S corporation.  "S corporation" means a corporation or a limited liability company 
that is treated as an S corporation for federal income tax purposes.
7.  Tax year.  "Tax year" means the tax year of an affected business entity for federal 
income tax purposes.
§5187.  Pass-through entity taxation election
1.  Election.  For tax years beginning on or after January 1, 2025, a partnership or S 
corporation may elect to become an electing pass-through entity in a tax year.  A separate 
election must be made for each tax year.
2.  Imposition and calculation of tax.  Notwithstanding any provision of law to the 
contrary, a tax is imposed on an electing pass-through entity. The tax is the sum of each 
member's distributive share of Maine taxable income as calculated under this Part, 
multiplied by the highest rate of tax applicable to the individual under section 5111.  
3.  Carry-forward.  If the tax calculated pursuant to subsection 2 results in a net loss 
for the electing pass-through entity, the net loss may not be carried forward to subsequent 
tax years.
4.  Filing of return.  A nonresident individual who is a member of an electing pass-
through entity may not be required to file an income tax return pursuant to this chapter for 
a tax year if the member's only source of Maine income for that tax year is from an electing 
pass-through entity and the electing pass-through entity files and pays the tax due under 
this chapter.
5.  Report of pro rata share.  An electing pass-through entity shall report to each of 
its members, for each tax year, the member's pro rata share of the tax imposed pursuant to 
this chapter.  
6.  Report of credit.  A subsidiary pass-through entity shall report to a parent electing 
pass-through entity the amount of the credit under this section the subsidiary allocates to 
the parent electing pass-through entity. 
7.  Treatment of indirect credit.  A parent electing pass-through entity may not claim 
the credit under this section against the pass-through entity tax reported on its own return 
but shall flow through the indirect credit to its members.
8.  Amount of credit.  A member of an electing pass-through entity is entitled to a 
credit equal to 90% of the member's share of the tax paid pursuant to this chapter.  If the 
amount of the credit authorized by this subsection exceeds the member's tax liability 
imposed pursuant to this chapter, the excess amount is refundable to the member.  A 
member claiming a credit pursuant to this subsection may not deduct from that member's 
Maine taxable income those amounts of Maine income taxes paid by the member on that 
member's distributive share of income from the electing pass-through entity.  
9.  Effect of taxes paid in and credit from other jurisdictions.  A member that is 
subject to the tax imposed by this chapter as a resident or part-year resident of the State is 
entitled to a credit for the direct member's or indirect member's pro rata share of taxes paid 
to another state or to the District of Columbia on income of any partnership or S corporation 
of which the person is a member if the taxes paid to another state or to the District of 
Columbia result from a tax that the director of taxation for that state or the District of 
Columbia determines is substantially similar to the tax imposed pursuant to this chapter.  
A credit must be calculated in a form and manner prescribed by that director of taxation 
consistent with the provisions of this section.  If the amount of the credit authorized by this 
subsection exceeds the member's tax liability for the tax imposed pursuant to this chapter, 
the excess amount is not refundable and may not carry forward.  
10.  Timing. An affected business entity that is required to file a return under this 
chapter shall pay, on or before the 15th day of the 3rd month following the close of each 
tax year, to the assessor the tax as determined under this chapter.
§5188.  Rules
The bureau may adopt rules to implement this chapter.  Rules adopted pursuant to this 
section are routine technical rules pursuant to Title 5, chapter 375, subchapter 2-A.
Sec. 2.  36 MRSA §5190, as amended by PL 2019, c. 380, §1, is further amended to 
read:
§5190.  Entity not taxable
A partnership is not subject to the tax imposed by this Part except as provided in chapter 
814-A. Persons carrying on business as partners  are liable for the tax imposed by this Part 
only in their separate or individual capacities.  This section does not apply to the taxes 
imposed by chapters 819 and 827 or the tax imposed on partnership audit adjustments 
pursuant to subchapter 2.
Sec. 3.  Application. This Act applies to tax years beginning on or after January 1, 
2025.
SUMMARY
This bill establishes, for tax years beginning on or after January 1, 2025, a pass-through 
entity tax on the income of partners and shareholders of S corporations to permit certain 
entities to elect to pay Maine income tax at the entity level.  The effect of this is to allow a 
member of a pass-through entity a credit of 90% of the member's share of Maine income 
taxes paid as a pass-through entity.