AUGUSTA, Maine — Legislators won’t pursue a controversial measure to impose taxes on nonprofit organizations, which could generate up to $100 million in new tax revenue for municipalities, if they follow the recommendation of a task force that has been studying the issue for the past two months.
Members of the Nonprofit Tax Review Task Force told the Legislature’s Appropriations Committee on Thursday that new taxes on nonprofit organizations, which for the most part are tax-exempt in Maine, “is neither a feasible nor desirable recommendation.”
The concept of taxing nonprofits came up in late May when Sen. Patrick Flood, R-Winthrop, a member of the Appropriations Committee, suggested new temporary taxes on large nonprofit organizations that would have benefitted local governments to $100 million. The discussion came as lawmakers were struggling to balance the state budget.
Flood’s original proposal would have allowed the assessment of income taxes on nonprofit organizations with annual receipts of at least $200,000 and total assets in excess of $500,000. The tax would have applied to private schools, private colleges, hospitals, nonprofit groups and charitable foundations. Flood’s proposal would have put a 2-percent tax on those organization’s assets in excess of $250,000. The proposals would not have affected state universities, local government entities, public schools and religious organizations.
A day later, Flood scuttled his own proposal in favor of taking more time to study the concept, which is what led to Thursday’s task force report.
In addition to coming out against Flood’s concept, the task force also recommended limiting future discussions in the Legislature around letting municipalities assess service charges on nonprofit organizations for services such as fire and police protection, road maintenance and other services provided by towns and cities.
A bill to do just that, LD 936, An Act to Authorize Municipalities to Impose Service Charges on Tax-exempt Property Owned by Certain Nonprofit Organizations, will be considered in the legislative session that begins in January. The task force recommends limiting the scope of the bill by applying it only to organizations of a certain size and limiting payments to towns to a certain percentage.
Brenda Peluso, director of public policy and operations for the Maine Association of Nonprofits, said her organization opposes both measures because they would reduce nonprofit organizations’ ability to serve the public, though she said she understands why towns and cities want to derive some income from what are currently tax-exempt entities.
“If you tax nonprofit organizations then there’s less money for them to provide public services. On the other hand, both municipalities and nonprofits are public service entities,” she said. “For us, taxing a nonprofit is like taking money out of one pocket and putting it in another, and it’s really not increasing the money available to serve the public.”