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Rep. Joseph Perry, D-Bangor, is the House chair of the Legislature’s Taxation Committee. Rep. Meldon “Micky” Carmichael, R-Greenbush, is the ranking Republican member of the Taxation Committee.
The current state law regarding sales tax exemptions is unusual, unfair, confusing and inefficient. Most other states, and other states in New England, already have a blanket sales tax exemption for 501(c)(3) nonprofits, and it makes sense to do it that way.
It makes sense for every 501(c)(3) organization to receive the same treatment when it comes to sales tax. The Internal Revenue Service recognizes that they are all doing work for the public good; Maine should recognize that, too.
Instead, Maine’s current exemption system wastes valuable time by state administrators and the Legislature; and it unfairly divides 501(c)(3) organizations, despite the IRS recognizing each of those organizations as having a public benefit.
The myriad of current specific exemptions are not logically aligned in terms of why one group receives exemption while others don’t. If you look through the statutory language of the exemptions list, you’ll see that many of the exemptions are confusing, arbitrary or extremely narrow.
Some veterans groups are exempt, while others are not. Some organizations working on housing are exempt, while others are not. Organizations that provide shelter for domestic violence victims are exempt, but organizations that provide resources for sexual assault victims are not. Why? There is no rubric or reason.
Adding exemptions in this patchwork way has made for a confusing and unfair system. The current process is also skewed toward larger nonprofits that have the capacity to work the legislative system. Small organizations are focused on accomplishing work in their communities, and we’ve heard from multiple nonprofits that have said they just don’t have the capacity to fight for an individual exemption through the legislative process — the only way they can currently get added to the exemption list.
Nonprofits maintain and promote the public good throughout our state. Through this work, nonprofits support government efforts to more effectively and efficiently support Mainers, thereby reducing the burden on the state’s taxpayers.
Nonprofits are also vital to Maine’s economy. In fact, nonprofits employ 1 in 6 Maine workers. However, much of their work is done through the mobilization of more than 400,000 volunteers each year. A necessity, since most Maine nonprofits are very small, lean and community based: 88 percent have annual budgets less than $500,000 and 61 percent have annual budgets under $50,000. Every dollar makes a difference for these organizations.
Tax exemption recognizes the important partnership between nonprofits and government and ensures that every dollar earned and spent by a nonprofit is dedicated to the mission and people it was created to serve.
While the decline in revenues may concern some, the fiscal note can’t communicate the impact those dollars will have when they are able to be reinvested into communities by the nonprofits who work in every corner of the state. Charitable nonprofits provide essential services in communities in every Maine county. They are able to leverage private donations to supplement government efforts in supporting Mainers. Because of their grassroots, community-based nature, they can often do so more effectively and efficiently, thereby reducing the burden on taxpayers.
Donations to nonprofits declined in 2022 (only the fourth time in 40 years) while inflation and a workforce shortage are driving costs up. Unlike for-profit businesses, nonprofits can’t raise prices when costs go up. If the funding isn’t there, programs and services get cut, and communities suffer. When nonprofits are forced to cut back on staffing and services, the need in those communities remains — which can increase government costs.
Maine Revenue Services recently issued a report on this topic, demonstrating that more than 5,000 nonprofits across the state would benefit from a blanket exemption for 501(c)(3) nonprofits. We recognize that as legislators, we have a lot to focus on; a benefit of a proposal that is part of the governor’s supplemental budget is that it would have a positive impact on so many critical priorities of the moment, from mental health and crisis intervention, to public safety and disaster preparedness and relief, to housing, to youth development, and so much more.
Now is the ideal opportunity to fix this inefficient, convoluted policy that puts some community organizations at an unfair disadvantage despite committing their time and resources to the strengthening of Maine communities — just like their exempted peers.