ROCKLAND, Maine — The Rockland Festival Corporation repaid the state a little more than $73,000 earlier this year after it learned that it had failed to ever collect state sales taxes at the annual Maine Lobster Festival.
Festival organizers learned of the longtime error last fall when it changed accountants and accounting software, first-year President Brian Plourde said Friday.
Plourde said that the festival, which just marked its 68th year, had never collected sales taxes on the souvenirs, such as T-shirts, or on the seafood that it sold until this year’s event.
The festival’s new accountant last year asked where the organization’s retail sales tax certificate was, and that is when the officers learned that they had been under the incorrect assumption that nonprofit organizations did not have to collect sales taxes and pay those to the state.
As soon as the error was brought to their attention, festival officials contacted a tax attorney who notified the Maine Bureau of Revenue Services. The attorney advised the festival corporation that it could be liable for as much as six years in back sales taxes as well as interest and penalties.
Plourde said the state worked very well with festival officials to reach an agreement where the organization would repay three years worth of back sales taxes and interest. The state waived penalties of $6,500. The back sales taxes totaled $64,931 and the interest another $8,182.
The state is not able to discuss an individual tax case because of confidentiality even when the taxpayer identifies himself, David Heidrich Jr., assistant director of communications for the Maine Department of Administrative and Financial Services, said Monday afternoon.
“Maine Revenue Services doesn’t believe that the situation you’ve outlined is a common problem. Despite this, we are always interested in ensuring that our laws are applied equitably to all taxpayers and will be reviewing how seasonal festivals collect and remit sales tax further,” Heidrich said.
He declined to comment further.
Plourde said festival officials organizers pointed out to state officials that the organization is run by volunteers and that not one of them is a tax lawyer.
“We pleaded ignorance, which was the truth,” he said.
Festival officials also conveyed to state revenue officials that money collected by the volunteer organization went back to the community in the form of donations. The festival, for example, donated $50,000 to the Thomaston Fire Department in 2013 for the purchase of a new utility truck. The festival’s other large donations over the years have included money to pay for the purchase of land overlooking Harbor Park named Mildred Merrill Park, money for a new Rockland ambulance and paving of Harbor Park.
The $73,000 was a sizeable amount of money to pay, he acknowledged.
“Anytime you have to write a check for $73,000, it’s a crunch,” Plourde said.
Board member Chuck Kruger said that the unexpected expense would reduce the amount that the organization would be able to donate to the community this year. Donation amounts have yet to be determined this year, he said.
The festival had annual revenues of $434,000 in 2013, according to its income tax filing. The Rockland Lobster Festival’s 2013 income tax return shows that it had expenses of $388,000 and paid out $73,000 in contributions.
Festival officials wanted the delinquent tax payments paid off before this year’s festival was held and succeeded in doing that, Plourde, the organization’s president, said. The festival began charging 5.5 percent on souvenirs and 8 percent on food for the 2015 event that ran from July 29 through Aug. 2.
There is no sales tax on admission tickets or entertainment.
In addition to the unexpected sales tax costs, the festival this year also had to pay for disposal of the gray water created with the cooking of lobsters and washing of dishes. In the past, festival organizers simply allowed that water to be dumped go on the ground, but city and Maine Department of Environmental Protection officials said the gray water needed to be contained and then disposed of properly at the city’s sewage treatment plant. The additional cost of that endeavor to festival organizers was not immediately available Monday.
Kruger questioned whether that made sense, pointing out that nearly all of the festival’s gray water was from cooking lobsters in seawater. He said that water used to be dumped on rocks near the harbor so that it would cool before re-entering the harbor.
Festival organizers also had to pay $14,250 to the city this year to lease city waterfront properties for the event. This was the second consecutive year that the city refused to waive the cost of renting the properties, including Mildred Merrill Park — the land that the festival organization fully financed for the city to buy in February 1996.