Taxing Nonprofits Is Not Worth the Cost

Voters and legislators across Maine are just beginning to sort through Governor LePage’s ambitious new tax reform package. While many of the aspects of the budget are promising, the proposal to allow municipalities to tax large nonprofits is ultimately counterproductive and will put an unnecessary strain on Maine communities.

To start, the concept of taxing large nonprofits (defined as those with assessed values over $500,000) is an inadequate replacement for the proposed elimination of state revenue sharing with municipalities. The $64 million per year that would normally flow to localities would have to either be made irrelevant by streamlining municipal services, or replaced by new sources of revenue. Property taxes are consistently the most convenient target.

While churches and smaller nonprofits will avoid this new tax, more prominent community institutions such as food pantries, hospitals, private schools and museums would now be subject to it.

The rationale provided by the administration so far is unconvincing. Supposedly the tax will be implemented in order to compensate the municipality “for providing infrastructure and services that nonprofits use but don’t pay for”.

While it is true that large nonprofits, particularly Universities and Hospitals, consume a great deal of local municipal services, the idea that nonprofits are broadly a greater strain than a benefit to communities is simply not true. The cost of a few plows and road salt cannot compare to the nearly 500,000 outpatient visits and nearly 100,000 emergency room visits that have been handled by the Maine Medical Center alone.

The cost of some road paint and stop signs cannot possibly compare to the number of hungry families and homeless individuals who are served by the 9 food pantries located just in Bangor, never mind throughout the rest of the state.

Conservatives understand the detrimental effects of high income and corporate taxes, as reflected in the LePage budget proposal.  They should similarly understand what would happen to many of these community-minded non-profits if they are suddenly subjected to taxes they are not currently paying.

A nonprofit is not a mystical, separate entity that can conjure up additional revenue to meet higher expenses; it is comprised of people. Employees, volunteers, services and customers are what make up a nonprofit, and these will have to incur any increase in taxes and operating expenses, to the detriment of those the non-profit serves.

The result of those additional expenses are unclear, but easy to conceptualize.  Clare Whitney from the Good Shepherd Food Bank in Auburn estimated that 100,000 fewer free meals would be distributed if the property taxes were to be implemented on her organization.  We will likely see a reduction of services, costs cut among human capital (jobs, salary) in the non-profit and in the case of Universities and museums, higher tuition and gate fees.

Ultimately, the existence of nonprofits that provide largely privately funded services is a positive force in Maine communities. It reduces the financial burdens on state resources and often delivers these services more efficiently and in a local, more responsive manner.

Instead of pursuing this policy pathway, state leaders and municipalities should explore other avenues in addressing the transition away from revenue sharing. The robust effort to make Maine a more competitive and growth-oriented state is laudable and welcomed, but making nonprofits with already razor thin margins shoulder the burden is not the ideal way of going about it.