February 24, 2020
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Not all nonprofits are created equal in LePage’s plan to tax them

Ashley L. Conti | BDN
Ashley L. Conti | BDN
Gov. Paul LePage addresses the chamber during the 2015 State of the State address Tuesday at the State House in Augusta.

AUGUSTA, Maine — Nearly a month after Gov. Paul LePage released his 2016-17 biennial budget proposal, lawmakers, lobbyists and the public are still working to understand some of the provisions it contains.

One issue that continues to cause confusion is LePage’s proposal to allow municipalities to collect property taxes from large nonprofit organizations, which would make Maine the first state in the nation to do so.

What’s the proposal again?

To soften the financial impact on municipalities because of LePage’s proposal to eliminate municipal revenue sharing, he favors allowing cities and towns to collect property taxes from large institutions, such as hospitals, museums and private schools, but at a lower rate than what for-profit businesses and homeowners pay. A nonprofit organization with property valued at more than $500,000 would be subject to the tax but would pay taxes on the portion of its value above $500,000 and only at 50 percent of its host municipality’s property tax rate.

Would it be mandatory?

Yes. And in a way, no. LePage’s budget proposal would eliminate the exemption on nonprofits paying property taxes. Under the Maine Constitution, tax laws must be applied uniformly. In other words, it’s illegal for Bangor to tax its nonprofits if neighboring Brewer is not. However, there’s a loophole: Many Maine municipalities have been writing annual checks to local nonprofit organizations, such as animal shelters and food banks, for generations. If a town’s voters or elected officials decide they don’t want to burden a local nonprofit, they simply could appropriate the property tax revenue back to the organization.

What constitutes a nonprofit organization?

First and foremost, it’s an entity that has attained nonprofit status from the federal government. In relation to LePage’s proposal, there has been some question about whether an organization that owns several parcels in a given municipality would be subject to the new property taxes. Geoff Herman, the Maine Municipal Association’s legislative liaison, said his organization’s understanding is that if a nonprofit’s properties are worth more than $500,000 in aggregate, that organization would be subject to the taxes.

There’s another level of complication

A smattering of organizations across Maine had their tax exempt status conferred to them by an act of the Legislature, as opposed to the majority of organizations that attained exemption at the town level. Because of a provision added to the Maine Constitution in 1978, the state is required to reimburse towns 50 percent of their lost revenue for properties that were exempted by the Legislature. How many organizations we’re talking about here and how they would fit into new taxes on large nonprofits is unknown, Herman said.

How much money would taxing large nonprofits earn for towns and cities?

This is the core question in this debate, and there is disagreement about whether that total would equal or surpass the cut in municipal revenue sharing, which currently — and in the first year of LePage’s 2016-2017 budget — equals about $62 million statewide. Because nonprofits are not currently taxed, their property value is not assessed for taxes. That lack of data makes it impossible to calculate a hard number. The LePage administration estimates it could generate between $60 million and $90 million, but the Maine Municipal Association has a much lower number — around $35 million.

Does the MMA know something that the administration doesn’t?

Maybe. The organization conducted a survey recently, to which 43 municipalities responded by calculating how much they would gain under LePage’s plan. From that data, the MMA extrapolates that about 75 of Maine’s 490 municipalities would see significant financial gains. However, Herman estimates the 43 towns and cities that responded to the survey are home to some 75 percent of the tax-exempt properties in the state. Collectively, those communities — which for the most part are Maine’s largest — would come out about $1 million ahead of the current revenue sharing system, according to MMA’s analysis. Smaller communities would not fare so well.

Are LePage and the MMA headed for war over tax reform?

If they are, LePage fired some shots Tuesday during the State of the State address when he said the MMA is more interested in preserving local government structures — and spending levels — than it is in easing the burden on taxpayers. The governor quipped that the organization should be called the “Maine Middleman Association.” Herman said the MMA has advocated for at least five major tax reform attempts since 1998 and so far hasn’t taken a stance on LePage’s proposed tax reform. The MMA also was instrumental in implementing tax relief measures, including the circuit breaker, homestead exemption and unfunded mandate law. However, he said the association in general believes that state and local governments should seek to balance revenues from what he calls a three-legged stool: approximately one-third from sales taxes, one-third from property taxes and one-third from income taxes.

Herman said the MMA will advocate for that balance in the months to come, which if achieved would do so by unraveling LePage’s overall goal of deep cuts to income tax collections.

“Our issue is just that there are definite human impacts if that tax burden is appropriated disproportionately among the types of taxes,” Herman said. “A lot of information is going to be conveyed about this in the next four to five months, and I generally trust that the Legislature and general public will do the right thing.”


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