In-State Inventory Creates Maine Nexus

On April 2, 2026, the Maine Supreme Judicial Court (“court”) ruled that an out-of-state liquor manufacturer and supplier had nexus with the state based on its ownership of alcohol at an in-state warehouse and the subsequent sale of the product to the Bureau of Alcoholic Beverage and Lottery Operations (“Bureau”).¹

The taxpayer was a Texas-based S corporation that complied with the state’s regulatory requirements for selling liquor in Maine. In Maine, a liquor distributor is required to ship its product to an in-state bailment warehouse operated by a state subcontractor. The Bureau then purchases the product from the supplier for sale to state-licensed stores, and the title to the product transfers to the Bureau upon its removal from the warehouse. Under this “delayed transfer of title provision,” the supplier maintains ownership of the liquor while in the warehouse.

The taxpayer, as a pass-through entity, never filed a pass-through entity withholding tax return or withheld Maine income tax for its partners/shareholders. On audit, the state tax assessor explained that pass-through entities that have nexus must withhold income tax on behalf of their partners or members. Pursuant to a state regulation, a corporation has nexus if it does business in Maine or owns property in the state.

The taxpayer argued that it lacked nexus because the transfer occurred when it sent its products from Texas via common carrier and that the state’s commercial code requires that title passes to the buyer once the seller completes its performance in the absence of a specific agreement. This argument was “undercut” by the taxpayer’s acknowledgement that to sell its product in the state it had to store its product in the state and that the transfer of title is delayed and, further, that it understood the regulatory scheme for selling liquor in the state. Thus, the state argued that nexus was established because the taxpayer owned a stock of goods at the in-state warehouse and sold its products from the warehouse.

Claims by the taxpayer that it fell under the protection of P.L. 86-272 were also rejected. “Activities that are ancillary to the facilitation of requesting sales remain protected.” However, the court ruled that was not the case here. The taxpayer complied with the state’s regulatory scheme to sell its product and not to facilitate future sales. The court also rejected the taxpayer’s claim that the state’s regulatory scheme―with the delay of transfer rule―was designed to prevent out-of-state sellers from claiming P.L. 86-272 immunity. The court cited the Heublein, Inc. decision, where the Supreme Court held that South Carolina’s alcohol regulatory scheme, which required entities to forfeit tax immunity to do business in the state, was permissible if it served a legitimate state purpose.² Like South Carolina, Maine has a legitimate purpose in regulating the sale and distribution of alcohol in the state.

Ryan’s Take and Action Steps

So much of recent nexus activity of note, whether in cases, rulings, regulations, or law, deals with economic nexus in its various forms, but businesses should remember that the presence of in-state inventory can also create nexus under a more traditional nexus analysis. Recently, in California, the Office of Tax Appeals (OTA) held that a third party that made online sales through Amazon had nexus based on inventory held in the state in an Amazon warehouse during the tax year.³ Yes, in this instance nexus was effectively created because of the requirements during the audit period regarding the transfer of title. Nevertheless, this decision serves as an additional reminder that the slightest presence of in-state inventory may create nexus and should prompt sellers to examine where their product is located and when title is transferred. If returns are not filed―and there is a potential nexus exposure―statutes of limitations remain open for those years.

If these issues are of concern to your business, please reach out to one of the Ryan specialists listed below.

¹ State Tax Assessor v. Fifth Generation, ME. Sup. Jud. Ct., No. Ken-24-490 (April 2, 2026).

² Heublein, Inc. v. S.C. Tax Comm’n, 409 U.S. 275 (1972).

³ In the Matter of the Appeal of Fishbone Apparel, Inc. OTA Case No. 230212546 (December 29, 2025, released March 2026).

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