The Mechanics of Attribution: Tax Due Attributable to That Company in the Maine Research Expense Tax Credit Framework

Tax due attributable to that company refers to the specific portion of a unitary group’s total Maine income tax liability allocated to an individual member corporation based on its proportional share of the group’s Maine-apportioned sales. In the context of the Research Expense Tax Credit, this figure serves as the primary benchmark for determining how much of a credit generated by an entity can be utilized to offset its own tax burden before any excess may be shared with other group members.

The functional significance of this attribution mechanism is rooted in the complex interplay between Maine’s “water’s edge” combined reporting requirements and the specific statutory limitations of the Research Expense Tax Credit under 36 MRSA § 5219-K. While Maine law generally treats a unitary business—an affiliated group of corporations with functional integration and centralized management—as a single economic unit for the purpose of calculating income, the application of tax credits often requires a return to the individual corporate entity. This “entity-first” approach ensures that the tax benefit remains primarily linked to the legal entity that actually incurred the qualified research expenses (QREs), thereby preventing the arbitrary shifting of tax attributes between unrelated corporate activities.1 The determination of “tax due attributable to that company” is not merely a formality but a rigorous calculation involving the group’s total tax liability and the individual member’s Maine sales factor.4 This calculation dictates the capacity for credit utilization, the potential for intra-group sharing, and the eventual carryforward of unused credits.

The Statutory Foundation of the Maine Research Expense Tax Credit

The Research Expense Tax Credit was established by the Maine Legislature in 1995 to foster innovation and technological advancement within the state’s borders.6 Unlike many state-level incentives that are subject to periodic sunset reviews, this credit is a permanent fixture of Title 36, Section 5219-K.1 The credit is designed to lower the after-tax cost of research and development, thereby reducing the financial risk associated with such investments.6

The credit is bifurcated into two primary components: an incremental credit for qualified research expenses and a credit for basic research payments. The first component allows for a credit equal to 5% of the excess of qualified research expenses over a “base amount”.1 The base amount is defined as the average annual expenditure on qualified research in Maine over the preceding three taxable years.1 The second component provides a 7.5% credit for basic research payments made to qualified organizations, such as universities or scientific research institutes, for research conducted within Maine.1

Credit Calculation Parameters

The law dictates that for the purposes of calculating the credit, Maine adopts the definitions set forth in the Internal Revenue Code (IRC), Section 41.1 However, these definitions are strictly limited to activities conducted and expenditures incurred within the State of Maine.1 This geographic limitation is the state’s primary safeguard to ensure that its tax expenditures directly support the local economy.

The Concept of the Unitary Business and Combined Reporting

A deep understanding of the phrase “tax due attributable to that company” requires an exploration of Maine’s unitary business principle. Maine Revenue Services (MRS) defines a unitary business as a business activity characterized by unity of ownership, functional integration, centralization of management, and economies of scale.3 When an affiliated group of corporations meets these criteria, and at least one member has nexus with Maine, the group is required to file a combined report.2

The combined report serves as the foundation for determining the taxable income of the unitary business as a single entity.3 Under this “water’s edge” methodology, the group aggregates the income and deductions of its members (excluding those not required to file a federal return) to arrive at a combined federal taxable income.2 This figure is then adjusted for state-specific modifications under 36 MRSA § 5200-A and apportioned to Maine using a single sales factor.3

Apportionment and Individual Liability

While the group files a single combined return (Form 1120ME with Form CR attached) to report its aggregate Maine income tax liability, the law requires that this liability be apportioned back to the individual members that have Maine nexus.4 This is where the attribution process occurs. If the group elects to file separate returns based on the combined report, each member’s individual tax liability is determined by its specific share of the total calculated liability.4

The apportionment factor for a member of a unitary business is calculated by taking the member’s own Maine sales (plus a portion of Maine sales from non-nexus entities in the group) and dividing it by the group’s total sales everywhere.3 The resulting “tax due attributable to that company” represents the legal tax obligation of that specific entity, providing the ceiling for how much of its own R&D credit it can initially use.1

Detailed Analysis of Attribution and Credit Sharing

The specific language of 36 MRSA § 5219-K(4) provides the roadmap for how corporations filing combined returns must handle R&D credits.1 The statute mandates that a credit generated by an individual member corporation “must first be applied against the tax due attributable to that company”.1 This requirement creates a prioritized hierarchy for credit utilization.

The Initial Application: Entity-Level Limitation

Before a credit can be shared or carried forward, it must be tested against the generating company’s attributable tax. For corporations, the law imposes a specific limitation formula: the credit may offset 100% of the first $25,000 of the corporation’s tax due, plus 75% of the tax due in excess of $25,000.1

This formula ensures that even highly innovative companies with substantial credits continue to pay a minimum portion (25% of the liability above the first $25,000) of their income tax to the state.12 The “tax due attributable to that company” is the denominator for this calculation. If Company A has $100,000 of attributable tax, its maximum credit utilization for the year is $81,250 ($25,000 + 75% of $75,000).

Intra-Group Sharing of Excess Credits

One of the most valuable aspects of the Maine R&D credit for unitary businesses is the ability to share excess credits. If a member corporation has a credit amount that exceeds its own capacity to use it—either because its credit is larger than its attributable tax or because it is limited by the $25,000 + 75% rule—it may apply that excess against the tax due of another group member.1

However, this sharing is not unrestricted. The other group member can only use the shared credit to the extent that it has remaining tax liability available under its own $25,000 + 75% limitation.1 This ensures that the consolidated group cannot bypass the statutory haircut on large tax liabilities by merely shifting credits to other members. The “attributable” nature of the tax remains the governing constraint throughout the sharing process.

Maine Revenue Services Guidance and Regulatory Framework

The administration of the Research Expense Tax Credit is overseen by Maine Revenue Services, which provides guidance through formal rules and instructional bulletins. These documents clarify the practical application of the statutes and offer interpretations of complex filing scenarios.6

Rule 810: Combined Reporting Standards

Rule 810 is the primary regulatory document explaining the standards for determining Maine income tax for unitary businesses.3 It specifies that the combined report (Form CR) must include, both in the aggregate and by corporation, the federal taxable income, state modifications, and sales values.3 This granular reporting is necessary because MRS uses the individual data to verify the “tax due attributable to that company”.19

The rule also emphasizes that the separate federal taxable income of each member must be adjusted for eliminations and deferrals.3 These adjustments can significantly impact the final attributable tax for a member, particularly if there are high volumes of intercompany transactions that are removed from the calculation.3

Rule 801: Apportionment and Sourcing

Rule 801 explains how a business with activity both within and without Maine must apportion its income.15 A central issue in determining attributable tax is the sourcing of sales. For tax years beginning on or after January 1, 2022, Maine has modernized its nexus laws, implementing economic thresholds for property, payroll, and sales.5

The “tax due attributable to that company” is directly affected by these thresholds. If a member corporation does not meet the nexus requirements, its sales may still be included in the group’s total everywhere sales, but it will not have an “attributable” tax liability in Maine against which it could use R&D credits.5

Comparative Analysis: Section 5219-K vs. the Super Credit

The Research Expense Tax Credit (Section 5219-K) should be viewed in comparison to the “Super Credit for Substantially Increased Research and Development” (Section 5219-L).9 While the R&D credit is based on a rolling three-year average, the Super Credit was designed for companies that significantly expanded their research presence beyond their 1997 levels.9

The Super Credit has even more restrictive attribution and sharing rules. It is limited to 50% of the taxpayer’s tax due after other credits are applied and cannot be used to reduce the current year’s liability below the previous year’s tax due.9 Like the standard R&D credit, the Super Credit requires that the benefit first be applied against the “tax due attributable to that company” before any sharing can occur among members of a combined return.17 This underscores the state’s consistent policy of tethering tax incentives to specific legal entities.

Illustrative Example: Unitary Group R&D Credit Allocation

To demonstrate the application of these rules, consider a unitary business group consisting of three corporations: Prime Corp, Delta Corp, and Zeta Corp. All three have Maine nexus and file a single combined return.

Phase 1: Total Group Tax and Attribution

The group determines its combined Maine net income and calculates a total Maine tax liability of $300,000. This liability is then attributed to the members based on their Maine sales.

Phase 2: Credit Utilization for Prime Corp

Prime Corp conducted extensive research in Maine and generated a $150,000 R&D credit. Prime must first apply this credit against its attributable tax of $120,000.

1. Prime’s Limitation: 100% of first $25,000 + 75% of excess ($95,000).
2. Calculation: $25,000 + ($95,000 * 0.75) = $25,000 + $71,250 = $96,250.
3. Prime uses $96,250 of its credit against its $120,000 liability.
4. Prime’s Net Tax Due: $23,750 ($120,000 – $96,250).
5. Prime’s Excess Credit: $150,000 – $96,250 = $53,750.

Phase 3: Sharing Excess with Delta Corp

Prime Corp now shares its $53,750 excess credit with Delta Corp. Delta has an attributable tax of $120,000 and has not generated any credits of its own.

1. Delta’s Limitation: Same as Prime’s ($96,250).
2. Delta uses the full $53,750 of Prime’s excess credit.
3. Delta’s Net Tax Due: $66,250 ($120,000 – $53,750).
4. Remaining Excess Credit: $0.

Final Group Tax Summary

This example illustrates that the “attributable” tax for Prime Corp acted as the initial gatekeeper for the credit. Even though Prime had $150,000 in credits, it could only use $96,250 for itself due to the statutory formula applied to its attributable liability. The remainder was shared, effectively reducing the group’s total cash outflow.1

Economic Impact and OPEGA Evaluation Statistics

The Research Expense Tax Credit represents a significant tax expenditure for the State of Maine. In 2022, the Office of Program Evaluation and Government Accountability (OPEGA) conducted a comprehensive review of the program’s performance and outcomes.6

The report indicated that approximately 175 taxpayers utilize the credit annually, resulting in an estimated revenue loss to the state of $2.18 million in fiscal year 2023.7 Despite this expenditure, OPEGA found that Maine continues to rank poorly in national R&D performance measures.6

OPEGA’s conclusions suggested that the incremental structure of the credit—which only rewards spending above a three-year average—might discourage some businesses from participating, especially those with volatile R&D budgets.6 Furthermore, the lack of readily available data on jobs and investment associated with the credit makes it difficult to assess the actual return on investment for the state’s taxpayers.18

Future Outlook: Dirigo and Administrative Changes

The landscape of Maine business incentives is currently undergoing a period of transition. In 2025, the state will launch the Dirigo Business Incentives program, which offers capital investment credits that are refundable in certain circumstances.14 This shift toward refundability may signal a future move to make the R&D credit more accessible, as the current nonrefundable nature of the credit—coupled with the strict “attributable tax” limitation—can often trap credits as carryforwards for companies that are not yet profitable.6

Additionally, Maine Revenue Services has been proposing amendments to Rule 801 to clarify the “sourcing” of receipts from services.23 The debate over whether services are “received” or “acquired and experienced” in the state has significant implications for how tax is attributed to individual members of a unitary group.24 A change in these definitions could shift the attributable tax liability among affiliates, thereby altering their capacity to absorb R&D tax credits in future years.25

Conclusion

The determination of “tax due attributable to that company” is a pivotal element in the administration of Maine’s Research Expense Tax Credit, serving as the essential link between the state’s unitary filing requirements and its corporate innovation incentives. While the statute allows for the sharing of excess credits within a unitary group, the initial application must always be measured against the specific tax liability of the entity that generated the credit. This ensures a balanced approach that respects the economic unity of an affiliated group while maintaining a clear audit trail of which specific legal entities are performing research and receiving tax benefits. For corporate tax planners, a mastery of these attribution rules, combined with a thorough understanding of the 15-year carryforward provisions and the $25,000 + 75% limitation formula, is critical for maximizing the value of R&D investments in the State of Maine. As the state continues to refine its nexus and apportionment rules, the precision of these attribution calculations will remain a central focus for both compliance and strategic business development.

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