Tax flexibility

Governor Paul LePage has introduced his biennial budget with a goal of reducing Maine’s personal income tax rate. He has proposed a variety of ways to make up the difference in revenue, both with a rate increase and a broadening of the sales tax, as well as reductions in expenditures such as municipal revenue sharing.

To provide towns with a way to make up for that loss of revenue from the state without a major change to the property tax rate, the governor has proposed giving communities the option to levy taxes on property owned by large nonprofit organizations.

Churches and government facilities would not be affected. The first $500,000 in property value of other institutions would be exempt.

Even with this exemption, the list of potentially affected institutions on Mount Desert Island would be very long, including libraries, the MDI Hospital, The Jackson Laboratory, the Mount Desert Island Biological Laboratory, College of the Atlantic, Masonic Lodges, the Maine Sea Coast Mission, the MDI YMCA, the YWCA of MDI, Harbor House, Neighborhood House, Camp Beech Cliff and more.

Towns with high property tax valuations, such as Bar Harbor and Mount Desert, already receive relatively modest amounts of revenue sharing funds. They could choose not to tax the nonprofits were the governor’s proposal adopted. But others may have no choice.

The Maine Municipal Association estimates that as many as 350 towns have no large nonprofits to tax. What will they do?

The philosophical discussion of the reasons nonprofit organizations are exempt from taxes in the first place is now front and center. In many cases, these organizations offer valuable services in their host communities that government otherwise would be called upon to provide. Most nonprofits also lack resilience to find new revenue streams to cover any major increases in costs, such as paying taxes.

There undoubtedly will be considerable discussion in the legislature on the wisdom of taxing nonprofits. That discussion should be broadened to consider, once again, another approach to funding service center towns, an optional local sales tax on meals and lodging.

One of the new tax plan’s stated goals would reduce the total tax burden on average Mainers by having those with more disposable income, primarily tourists, shoulder a larger share of that burden.

Nobody likes to advocate for tax increases; however, the proposed state budget commences a major realignment of who pays and how much. While a reduction in income tax will benefit many Mainers and attract more folks to consider retiring to Maine, those on fixed incomes would find any hike in property taxes difficult to absorb.

Towns now have only that one major revenue generating tool – taxing property.

If the state is going to ask communities to shoulder a larger share of the tax burden, the option of a local sales tax on meals and lodging should be considered.

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