by Bill Ballas
In Republic, Plato remarked that “necessity is the mother of invention.” That pragmatism is evident today in Maine, and it may further cloud the tax-exempt status enjoyed by many 501(c)(3) organizations.
Specifically, Maine’s Governor, Paul LePage, recently submitted to the state’s legislature a budget for FY16/17 that levies a property tax on nonprofit hospitals, private colleges and summer camps. If the Governor’s wished-for budget becomes law, these nonprofits would pay property taxes on their holdings above $500,000 while receiving a 50% discount off the standard tax rate.
Mr. LePage believes Maine’s homeowners are unfairly subsidizing the 501(c)(3) orgs who will be most affected by the tax. According to the Wall Street Journal, 51.4% of Maine’s property taxes go to funding state and local government. The national average is 29.7%.
The Governor is using the FY16-17 budget as his tax reform plan. In it, he calls for $62 million in budget reductions for localities believing that it would reduce waste by forcing local governments to share more services. The tax on nonprofit property would help municipalities pay for police, fire, snow removal and other services.
Mr. LePage’s budget/tax overhaul also lowers the top individual and corporate tax rates, issues tax credits for low-income residents, and broadens the number of goods and services eligible for Maine’s sales tax.
Currently, all states exempt 501(c)(3) organizations from property taxes believing that they improve the quality of life for residents and provide services that government would otherwise have to offer. Some states, like Virginia, let municipalities choose which nonprofits should be taxed.
In many states, though, nonprofits voluntarily agree to pay municipalities for the services they use in exchange for their tax-exempt status. And, just three years ago, the mayor of Providence, RI got an agreement for voluntary payments from Brown University and other colleges.
According to the Lincoln Institute, more than 200 localities have negotiated payments with nonprofits in lieu of taxes. About 75% to 80% of these organizations are in the northeast, with the largest share being in Massachusetts and Pennsylvania. They add that Maine has a high-concentration of tax-exempt academic and medical institutions.
Opponents of Governor LePage’s property tax measure argue that it would cost the state more in lost services than it would generate through taxes. The Auburn Food Bank (Auburn, ME) said if the property tax were in effect today, it would owe $24,500 and be forced to reduce the amount of food it dispenses.
Foes of the tax add that the result will lead to staff layoffs at 501(c)(3) organizations, higher tuition and health care costs, reduced services to community members, and force many tax-exempt organizations to move to other states. Others wonder whether the property values placed by the state would be fair.
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