The Smart Money: The Governor's nonprofit tax plan

Posted Wednesday, January 21, 2015 in Analysis

The Smart Money: The Governor's nonprofit tax plan

by Gina Hamilton

Municipalities don’t typically tax nonprofits because they are “exempt” from property tax. That is we, as a state, decided at some point that the value of the services nonprofits provide — open space in the very hearts of cities, arts and enrichment, blood banks and disaster relief, education, providing food and shelter to the poor and homeless, emergency medicine or a safe place to give birth — outweigh the relative value to the towns in property tax.

Presumably, the towns would have to take up many of these functions themselves if the nonprofits couldn’t afford to remain in their communities.

Last week, it was unclear whether language in the governor’s tax reform plan would be a strong suggestion to the towns to replace revenue sharing funds, which are cut in the proposed budget, with taxation of large nonprofits, as opposed to raising property taxes on other property owners. Nonprofits with valuation under $500,000 will continue to be exempt, as will churches and houses of worship, and state-owned properties, such as state parks.

The value above $500,000 would no longer exempt under the governor’s plan, and would be taxable at 50 percent.

Michael Allen, who served as chair of the Nonprofit Tax Review Task Force in 2013, and who was appointed this week to the position of Deputy Finance Commissioner, clarified Tuesday that the language, if passed, will actually require towns to assess and tax nonprofits.

Alex Willette, director of Legislative Affairs and Commmunications in the Department of Administrative and Financial Services, confirmed that under the current budget language, towns will not have a choice in whether or not to tax the nonprofit entities within their town limits.

Most likely, the reason is that other taxpayers within the towns have the right to equal protection under the law, including taxation law. But private citizens and for-profit businesses are not currently providing required services to the towns for free or greatly reduced rates, nor are they opening up space for hiking, biking, kayaking, and other activities.

There are two ways a nonprofit could be taxed. One is called the “just use value” of the property; that is, how the property is currently being used, as opposed to the “highest and best use value” of the property, otherwise known as the “fair market value,” which is how the property could be used if its current use ends. Most residences and forprofit businesses are taxed under the higher valuation. It is unclear yet which use code would be applied to the nonprofits.

For example, The Basin, a 1,910- acre parcel owned by the Nature Conservancy, lies in the town of Phippsburg. It was a very valuable gift at the time, and had a transfer value of $9 million-$11 million in 2006. The Basin itself is a sheltered bay, accessible by water from New Meadows River from the north and Sebasco Harbor from the south, which makes it a very desirable spot for developers. The property lies on the southeast side of the water. It has since been improved with roads and signage and trails, so it is probably worth a little more than the transfer value today, according to the Nature Conservancy.

If the value of the land is judged to be “just use,” the property taxes on the parcel would be about what the Nature Conservancy is currently paying to the town in lieu of taxes.

However, on the open market, if the land were to be developed, the land’s value would soar, and Phippsburg’s share of the property tax holdings of the Nature Conservancy would be considerable, nearly $1,470,000 per year.

Thomas Abello, senior policy advisor for state government affairs for the Nature Conservancy, said that if a “highest and best use” valuation is taken, the Conservancy would have to reassess some of its future conservation plans for the state of Maine.

“We can put some of the land in open space and some in tree growth,” he said, “and that would keep the costs down for this parcel. But there is a limit to how much a single entity can shelter that way. We might not be able to accept other parcels because we wouldn’t be able to afford the property taxes on them.”

The Nature Conservancy is the largest conservation organization operating in Maine. Other local land trusts that may be affected in the Mid-coast include the Kennebec Estuary Land Trust, the Brunswick- Topsham Land Trust, the Maine Coast Heritage Trust, the Freeport Conservation Trust, the Phippsburg Land Trust, the Harpswell Heritage Land Trust, the Audubon sanctuaries in Freeport and Georgetown, Friends of Merrymeeting Bay, the Pownal Land Trust, the Durham Community Land Trust, the Androscoggin Land Trust, Chewonki Foundation Lands, the Appalachian Mountain Club and the Appalachian Trail Conservancy, the Sheepscot Valley Conservation Association, the Damariscotta River Association, and the Boothbay Region Land Trust. There are other statewide land trusts with property in the Mid-coast dedicated to small farms, woodlots or forest land.

In addition to property conservation and management, the groups also offer education, lectures, guided hikes, geocaching, birding trips and other community opportunities.

The property tax issue would chill Maine’s push to conserve sensitive habitat and keep shorefront properties open across the state. But land trusts are only one part of the equation.

Bowdoin College in Brunswick gives a gift to the town in lieu of taxes. Its recent valuation of $150 million means that the town would increase its funding from Bowdoin by more than $1.8 million. Bowdoin chipped in $400,000 for a stormwater project last year, and paid $223,000 in taxes for property not exempt from taxation. Bowdoin is also one of the town’s largest employers, and provides services to the community.

For example, Bowdoin allows local residents to audit courses for free, attend local concerts and museums, and provides student community services. One of Brunswick’s largest preschools is on campus, and Bowdoin makes grants to community organizations yearly through its Common Good Grant. Also, students participate as volunteers in community service on Common Good Day in September. The College and the Town also work together to swap and rehabilitate land.

Mid Coast Hospital is another large nonprofit in Brunswick, and is second in employment numbers only to BIW in Bath, regionally. In Bath, excluding the land trusts, the larger nonprofits with property ownership are the Maine Maritime Museum, Hyde School, Sagadahoc Preservation Inc., and the Chocolate Church.

Some of the local libraries are nonprofit corporations whose main income derives from assessments from the towns. While Curtis Memorial Library gets most or all of its income from the town of Brunswick and would likely simply have it rebated, it is difficult to know how entities like Patten Free Library would fund their estimated $23,000 tax bill, since five towns pay into the library for its use.

Other large regional nonprofits include The United Way of Midcoast Maine and the YMCA in Bath, the American Red Cross and Habitat For Humanity in Topsham, Sweetser, St. John’s School, Southern Maine Community College, University of Maine, Mid Coast Hunger Prevention Program, and Tedford Shelter in Brunswick, Chewonki Foundation and Morris Farm in Wiscasset, and Wolfe’s Neck Farm Foundation, Merriconeag Waldorf School, Pine Tree Academy and the YMCA in Freeport. Some of the historical societies own property that would be in excess of the half-million-dollar limit. Many of Maine’s iconic summer camps are nonprofit and their land valuations alone would likely fall north of the mark, even if the camps are barely making ends meet nowadays.

There are still a lot of moving pieces on the nonprofit question. The Legislature has examined the issue before and rejected it before, and the budget is still before the Appropriations Committee.

blog comments powered by Disqus