Maine budget proposal includes controversial tax changes for large nonprofits
In a recent story from the Wall Street Journal I learned that the unthinkable is being proposed in Maine that could have serious ramifications for nonprofits in the state and indeed may set a worrying precedent in general if approved. Taxation is a thorny topic at the best of times but efforts to reduce the tax burden on private citizens shouldn’t result in new taxes on charities but that’s exactly what is being proposed in Maine by Governor Paul LePage in his new budget plan.
Whether it could actually happen or not is open to debate but the proposal is that property-tax exemption for nonprofits in Maine could be revoked for colleges, hospitals and large charities that operate within the state. To my mind it would an outrageous change considering that so much of the work carried out by nonprofits in the United States fills in the gaps that the state itself doesn’t provide suitably, if at all, and the tax change might be an operational disaster for charities operating in Maine.
Governor LePage has built the case on the idea that nonprofit organizations rely on a number of local services while simultaneously increasing property taxes for other businesses and families. It should be pointed out that the proposal is even seeing the light of day to help cover shortages that could be caused by proposed tax cuts for families and businesses in the state. It seems that there is some thin moral ice being stepped upon by forwarding such a plan and the implications would resonate across the country should the plan pass.
Whether it stands a chance to pass remains in the balance at this time, historically such proposals have always stalled before becoming law but whether that will be the case for LePage’s idea will be an interesting test for the state legislature. According to the Wall Street Journal it has become a hot topic particularly in the Northeast in no small part due to the number of centres for academics and medical research in the region.
It will also be telling to observe the response to the budget plan in terms of organised strategy which already has the Maine Independent Colleges Association preparing to lobby against the measure. To the author of this piece it would represent a traumuatic change to the nonprofit sector and in all likelihood result in other states looking to emulate what Maines accomplishes if the tax code is changed in such a fashion. Tellingly such losses are very difficult to recoup at a later time and could have impacts that force a number of organizations to either cease operations or consider relocation to another state entirely if feasible.
As you’ll see on the above graphic taken from an excellent report by www.nonprofitmaine.org the state has a diverse and vibrant nonprofit profile. You also can’t help but notice that about one third of public charities are quite small in relative terms with annual expenditures below $500,000. In addition one worker in every seven in the state is employed by a nonprofit. The full report is available at the link above and is well worth a read.
Certainly a story that we will have to revisit in the weeks ahead as we learn what Maine decides to do with the proposed budget.
___________________________________________________
Miratel Solutions is a Toronto call centre, eBusiness, and letter shop mail house specializing in professional fundraising services including inbound telephone fundraising, outbound telephone fundraising, online fundraising, lottery fundraising services, donation processing and receipting and direct mail fundraising services. We are committed to our CSR business values in all our business decisions and advancing the missions of the nonprofits we proudly serve.
Tim, thank you for reporting on this important story. State governments around the nation have often sought to grab money from nonprofit organizations. In my state of Pennsylvania, the government attempted to adopt a plan cleverly referred to as “payment in lieu of taxes.” Ha! The government was not even brave enough to call taxes by their rightful name! Anyway, I helped lead an effort to defeat the measure and, instead, we got the legislature to adopt Act 55 which defined, and protected, organizations of purely charitable purpose.
In reality, the Maine plan does not really involve a tax on nonprofit organizations. Yes, the nonprofits would have to pay the tax, but they would only be a conduit. The money will actually come from individual citizens who will see their hospital bills and college tuition increase as these organizations try to find the revenue necessary to cover the increased tax expense. So, why doesn’t the governor just increase taxes on individuals directly? It’s because he knows that such a measure would be very unpopular. Instead, he has chosen to disguise his tax increase on individuals by pretending that it will be large charities that will pay the tax. I hope the good people of Maine are smart enough to understand what the governor is really doing and that they shut him down on this.
By the way, so your readers don’t jump to a false conclusion, I want to point out that Gov. Paul LePage is a Republican. Democrats do not have a monopoly on seeking tax increases.
Thanks so much for your interesting comments Michael, a fitting addendum to the story in many ways.
Your comments about a conduit for deferred costs really strike a chord especially, no matter how much politicians want to mask their motivations the reality is as a society we need to find a way to fund vital services across the spectrum and it simply isn’t happening in this age of austerity. I intentionally didn’t mention the party of the Governor but did note it. I come from the perspective of seeking a far more compassionate and equitable society and don’t see either party moving in that direction unfortunately, which is perhaps why the efforts of nonprofits are even more vital in the States than at any point in the past.
Thanks for reading, I do appreciate your added insight.