With nonprofit tax, even winners may be losers
Although Boothbay and Boothbay Harbor may appear likely to benefit from Gov. Paul LePage’s proposal to end municipal revenue sharing and allow communities to tax certain nonprofit organizations, many believe the proposal would result in a net loss to the community.
Under LePage’s proposal, Maine would cease to share collected taxes with towns, and instead towns would be able to tax nonprofit organizations, other than churches, at one-half the tax rate for property valued greater than $500,000, with the first $500,000 exempted from taxation.
Revenue sharing
Maine towns and cities rely heavily upon property tax to fund local programs. Using data from the U.S. Census and the Lincoln Institute of Land Policy, the Wall Street Journal ranked Maine fifth in the nation for local reliance on property tax to fund essential services.
In Maine, over 50 percent of local government’s funding comes from property tax revenues, while the national average is around 30 percent.
Municipal revenue sharing was instituted by the Maine legislature in 1971 as a way to reduce municipalities’ reliance on property tax and to relieve individuals’ property tax burden.
Since 1972, there have been numerous adjustments to the municipal revenue share and accounting methods. Currently, the state is mandated to share 5 percent of its income, sales, use and franchise taxes with towns.
Maine’s total revenue shared with towns increased steadily from 1972 to 2008 and has decreased steadily since then, as former Gov. John Baldacci and LePage and the legislature have dipped into the municipal revenue share pot.
In 2013, LePage proposed doing away entirely with municipal revenue sharing, but was only able to enact another cut in sharing.
Last year, according to Maine Municipal Assocation (MMA), Maine provided about $62,000,000 of the mandated $158,000,000 to towns and cities across the state.
Over the last 10 years, Boothbay and Boothbay Harbor have, like other Maine communities, seen their revenue share shrink.
According to the Maine Office of the State Treasurer data, Boothbay’s revenue share in 2004 was $145,900; in 2009, $126,452 and in 2014, $57,598.
Boothbay Harbor’s revenue share has fallen from $126,343 in 2004 to $42,117 in 2014.
The state projects 2015 revenue shares will be about $55,000 for Boothbay and $40,000 for Boothbay Harbor.
For a sense of revenue sharing significance to these two towns, Boothbay’s total tax commitment was $8,272,978 in 2014, and the Harbor’s was $6,524,122.
Shifting burden to nonprofits
Under the governor’s nonprofit tax proposal, some municipalities would gather more income, while others would gather less than with revenue sharing. The proposal also appears likely to fall short of replacing the full value of the legislated 5 percent municipal revenue share.
“This doesn’t replace revenue sharing; it’s very uneven among towns,” Sen. Chris Johnson said. “Roughly a third of towns in the state will not have these taxable nonprofits in their communities.”
“We are now estimating that no more than 75 communities statewide will raise approximately $37,500,000 in property tax revenue under the governor’s proposal (Maine’s 2014 ‘short’ revenue share was $62,000,000) and over 400 towns will not have any appreciable access to this new proposed revenue source,” MMA reported in its Jan. 30 Legislative Bulletin.
Based on information gathered to date, MMA concluded that the municipalities likely to recoup more in nonprofit taxes than revenue sharing will be oceanfront communities, like Bar Harbor, Kennebunkport and Damariscotta.
Boothbay and Boothbay Harbor fall into that group of coastal communities, where proposed nonprofit taxes would exceed revenue sharing. Based on their 2014 tax assessment, eight of the roughly 40 Boothbay and Boothbay Harbor nonprofit organizations would be taxed under the governor’s proposal.
Using the 2014 tax rates and town tax assessment data for these organizations, the proposed nonprofit tax would result in roughly $165,000 in new tax revenues for Boothbay and about $143,000 for Boothbay Harbor.
Boothbay Town Manager Jim Chaousis said the governor’s proposal would “help make Boothbay whole” relative to revenue share losses.
“Revenue sharing was a small step in adding progressivity in taxation by using a consumption tax,” Chaousis wrote in an email. “The loss of revenue sharing is not ideal, but the governor addresses a larger issue with his budget, the current trend of exempt properties. Case law in the last decade has allowed most organizations that apply for exemption to obtain it.”
“Although these organizations provide positive public benefit, they also utilize local government services without contributing their fair share.”
Others in the community think nonprofits do contribute their fair share, and the governor’s proposal will only result in a redistribution of the community‘s resources.
“From the perspective of the community, nonprofits would turn over money they raised in the community to benefit the community,” Sen. Johnson said. “So they will have to do more fundraising and raise more money. It’s really another burden shifted onto the community.”
In Boothbay and Boothbay Harbor, the proposed nonprofit tax would affect Bigelow Laboratory, Boothbay Region Land Trust, Boothbay Region YMCA, Coastal Maine Botanical Gardens, Lincoln County Healthcare, the Opera House at Boothbay Harbor, the Boothbay Harbor Memorial Library and the Grand Schooner Banks Museum (the steward of Ram Island Light).
Looking at 2014 assessments and tax rates, Bigelow Laboratory, which just completed a major expansion in East Boothbay, and Lincoln County Healthcare in Boothbay Harbor would be hardest hit, with tax bills over $100,000.
The Boothbay Region Land Trust and Boothbay Region YMCA would see tax bills in the $30,000 range. Coastal Maine Botanical Gardens, which attracted 100,000 visitors this year and has plans to double its facilities, would be taxed about $17,000 at its current assessed value.
Nonprofits’ assessments may also end up higher. If nonprofits were taxed, their tax value would probably be revisited, Chaousis said.
“Municipalities are going to be reluctant to admit that their exempt property lists are rudimentary, but they are,” he said. “If the law was changed, municipalities would apply significant effort to make sure these are equitable numbers.”
Some think nonprofits should not be taxed because they serve as an adjunct to local government, providing services that government and the private sector do not.
“The YMCA lessens the tax burden because of all the services it provides,” YMCA Director Andy Hamblett said. “There is a role for government, the private sector and the nonprofit in a Democracy. Nonprofits are one of the successes of this nation.”
“Nonprofits are an integral part of our community that offer much needed services that support people in ways that municipal government sometimes can't reach,” Boothbay Town Manager Tom Woodin said. “They also solidify our sense of community by partnering and fostering cooperation between the municipal, the private and the public sectors."
Local nonprofits say if they were taxed, the additional tax burden would trickle down to the community, through lost services or increased fees. Nonprofits provide services, such as community trails and recreation centers, that in other communities are funded by towns, Land Trust Executive Director Nick Ullo said.
“The only reason we are here is to benefit the public. We’re not about making profits, we don’t have stockholders,” Ullo said. “Our bottom line is serving our mission. It’s a simple fact that if more resources go to property tax, there will be lost services on this peninsula.”
Related:
Boothbay selectmen discuss Lepage tax proposal
