CRAFTY TAX CHANGES

No one likes the taxman, but some artisans and collectible dealers are prematurely outraged at the Maine Revenue Service for a change in tax law regarding the state’s smallest businesses. The law, meant to cut down on fraud among those entities allowed to purchase items without paying sales tax, won’t cost honest crafters anything and is expected to put an additional $1.8 million into the state’s coffers.

Under the new rule, which goes into effect Aug. 15, a business with less than $10,000 in gross sales will no longer qualify for what is known as a “resale certificate.” The certificate allowed such businesses, typically part-time artisans, to avoid paying sales tax on items they purchased to make craft items that are ultimately resold. However, small businesses that manufacture crafts or other items typically qualify for a manufacturer’s exemption from the Maine Revenue Service. This exemption also gives these businesses a sales-tax exemption.

Businesses that do not qualify as a manufacturing entity, antique and collectable dealers, for example, will be affected by the law change because they must now pay sales tax on items they purchase for resale. However, they can apply to the revenue service for a refund. Requiring this extra step adds paperwork and effort, but is meant to give the state another opportunity to weed out fraudulent purchases. As Rebecca Wyke, the state’s finance commissioner, says, if someone has a certificate that says they are in the food business and they try to buy a wide-screen television without paying sales tax, it should raise eyebrows.

Currently, there are 60,000 businesses in Maine that have resale certificates. Thousands of them have not sold any items in years but are still making purchases tax free. This means the state is losing tax revenue on purchases that should be taxed because they do not meet the resale criteria.

There is also confusion about wholesale purchases, which will be untouched by the law change. Businesses with less than $10,000 in annual sales will still qualify for a “sellers certificate,” the document many suppliers require to sell items to craftspeople at a wholesale price.

Artisan and other microbusinesses will still be able to buy raw materials at the wholesale price, many will still pay no sales tax and those that do can apply for a refund. The only downside of the rule change is the paperwork. One bit of red tape that should disappear, however, is the requirement that businesses list on their refund form each item that is purchased and re-sold. The revenue service is currently revising this section of the rule to make it less cumbersome.

The overdue tightening of resale regulations is appropriate and once the overly burdensome requirements are removed, the new law should have minimal effect on legitimate businesses.