Maine Nonprofit Law E-Bulletin – April 2015

In this Issue:

  • Property Tax Exemption Update
  • Maine Charitable Deduction Update
  • E-Bulletin Information

Property Tax Exemption Update

The good news is that the Governor’s proposal to weaken the property tax exemption for charitable organizations appears to be on the ropes. The Taxation Committee unanimously rejected the plan earlier this month, after a February hearing in which not a single municipality testified in favor of the scheme. However, that’s not the end of the story altogether, as legislators on both sides of the aisle are still considering other bills that would affect different kinds of charities.

One bill, L.D. 565, was unanimously rejected by the Taxation Committee and appears unlikely to pass. This bill would have established service charges on organizations owning properties valued at over $1 million in a municipality and that paid relatively high salaries to its executives. In practice, the service charges in this bill would have applied primarily to larger charitable organizations such as hospitals and universities. Another bill, L.D. 724, would authorize municipalities to create municipal fire districts to charge service charges as an alternative to property tax revenue for fire protection. The State and Local Government Committee issued a divided report and the bill appears unlikely to reach the House floor for a vote. Yet another bill, L.D. 1148, targets land trusts for property taxation, but there does not appear to be widespread support for this approach.

Although none of the above bills appears to have legs, members of the Taxation Committee have stated an intention to come up with their own bill that would encourage or require some level of property taxation for nonprofit organizations. This could be through service charges or PILOTs (payments in lieu of taxation) or some other mechanism. Nonprofit volunteers and staff are encouraged to be in touch with their legislators, especially if they sit on the Taxation Committee, to impress upon them the many ways in which nonprofits contribute to the economy and provide public benefit.

Maine Charitable Deduction Update

Meanwhile, the fate of the Maine itemized charitable contribution deduction is still up in the air. It’s been quite a roller coaster on this issue. Here’s a quick catch-up for those of you just tuning in: For many years, any federally itemized charitable contribution deductions automatically flowed through to a taxpayer’s Maine income tax return. Thus, if someone claimed $5,000 in charitable giving on her federal Form 1040, she could also claim a $5,000 deduction on her Maine tax return. However, in 2013 the Legislature voted to impose a $27,500 cap on all itemized deductions, including the mortgage interest deduction and the charitable giving deduction, retroactive to January 2, 2013. This meant that many Mainers, especially homeowners, could no longer claim the full amount of their charitable deductions on their Maine tax returns. Due to a groundswell of opposition from Maine’s charitable community, in 2014 the Legislature backtracked and passed LD 1664, which carved the charitable giving deduction out of the overall cap starting in 2017. Problem solved!

Well, not so fast… The Governor’s proposed budget would repeal L.D. 1664 and go even farther by eliminating all itemized deductions, including the charitable deduction. If approved, the elimination of the charitable deduction will impact an estimated 142,000 Mainers (almost one quarter of residents) who report deductions, according to the Maine Philanthropy Center. The Maine Association of Nonprofits is advocating against the Governor’s proposal, and the latest news (as of April 10) is that the Taxation Committee was divided on the issue. Six Committee members recommended adopting the Governor’s proposal to eliminate itemized deductions, while another six recommended retaining the itemized deductions, but lowering the current cap from $27,500 to $15,000 and carving out charitable giving. The issue is now before the Appropriations Committee, before going to the full House and Senate floors. At the same time, the Democrats in the Legislature have issued a taxation plan that would eliminate the itemized deduction entirely, but the details are thin and it’s unclear if there would be any carve out for charitable deductions.

E-Bulletin Information

I send the Maine Nonprofit Law E-Bulletin 3 or 4 times per year to provide updates and analysis on legal and policy matters respecting Maine nonprofit organizations. I do my best to keep the messages brief, timely, and useful to nonprofit staff, board members, volunteers, advisors, and donors. At the same time, no one may rely on these E-Bulletins as legal advice, and I encourage you to consult a qualified attorney for advice on any particular situation.

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CIRCULAR 230 DISCLOSURE: Any federal tax advice contained in this communication or attachment is not to be used for the purpose of avoiding penalties under the Internal Revenue Code or promoting, marketing or recommending any transaction or matter addressed in this communication.