Advocacy Priority: Blanket Sales Tax Exemption for Charitable Nonprofits

Updated February 13, 2024

Did you know? Most 501(c)(3) nonprofits are NOT exempt from paying sales tax in Maine.

In most other states across the country, and in New England, nonprofits are exempt!

Nonprofits maintain and promote the public good throughout our state. We provide many essential, high-impact and community-based services. Through this work, nonprofits support government efforts to more effectively and efficiently support Maine people, thereby reducing the burden on the state’s taxpayers.

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. 

Why It Matters:

According to a recent study by Maine Revenue Services, a blanket sales tax exemption for 501(c)(3)s would benefit more than 5,000 charitable nonprofits across the state, providing a direct benefit to communities in every corner.

What is a Blanket Sales Tax Exemption for Charitable Nonprofits?

A blanket sales tax exemption for 501(c)(3) nonprofits would mean that every 501(c)(3) has the same treatment under Maine sales tax statute, and would be exempt from paying sales tax on tangible personal property or taxable services, if the tangible personal property or taxable services sold are to be used primarily for the purposes for which the nonprofit organization was organized. In simpler terms, it means an organization would be exempt from paying sales tax if they are purchasing something that would be used for their mission.

Where We Stand:

MANP strongly supports a blanket sales tax exemption for 501(c)(3) nonprofits. 

As a matter of principle, MANP opposes tax initiatives that would result in dividing 501(c)(3) organizations based on subject matter and philosophy – which is exactly what the current law does. If there were a blanket exemption, 501(c)(3)s would no longer be divided in this way. 

With a blanket sales tax exemption, 501(c)(3) organizations, all of which are recognized as charitable by the IRS, would all get the same treatment.

Recent Updates:

• Maine Revenue Services released a great report on this issue in January 2024.
  • “...this report recommends the Legislature simplify the structure of the current sales tax exemption statutes by creating a blanket exemption to allow all organizations who have been granted tax-exempt status by the IRS under section 501(c)(3) to be eligible for a sales tax exemption.”
    
    
• MANP is hosting Nonprofit Day at the State House on Thursday, February 15th with a focus on the blanket sales tax exemption issue.

Background:

Nonprofits are vital to Maine’s economy. In fact, we employ 1 in 6 Maine workers. However, much of our 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% have annual budgets less than $500,000 and 61% have annual budgets under $50,000. Every dollar makes a difference for these organizations.

Charitable nonprofits embody and sustain the fundamental social, cultural, and spiritual values of trust, compassion, justice and moral behavior that bind us together. For this reason, we as a society give them special status as tax-exempt entities. This exemption is good economic and social policy.

In general, 501(c)(3) nonprofits are exempt from income and property taxes. Many organizations therefore assume that they are also exempt from sales tax. In most states, and in every other state in New England, they are.

But in Maine, there is a patchwork system of sales tax exemptions which includes 100+ statutory exemptions. New exemptions are regularly added on a case-by-case basis, making it hard to understand which organizations are exempt, which are not, and what criteria are used to establish an exemption.

By definition, 501(c)(3) nonprofits offer a public benefit. By carving out different exemptions, the State creates an unfair system in which some nonprofits are exempt and others are not, despite having the same IRS tax status. 

At a time when nonprofits are facing a workforce shortage and declines in charitable giving, this is a critical opportunity to support the organizations at the heart of our communities.

The current sales tax exemptions include the largest organizations, including hospitals and schools, and creating a blanket sales tax exemption for charitable nonprofits would benefit the small, community-based organizations who do not have the time or resources to lobby the legislature for their own exemption.

Action Items:

1. Check this exemption list to see if your organization fits into any of the categories.

2. Email Mary Alice Scott (MAScott@nonprofitmaine.org) if your organization is NOT exempt and you'd like to get involved.

3. Contact your legislator and tell them that this is a priority for your organization.

4. SIGN ON TO THIS LETTER, and let your voice be heard! Sign Our Letter to Show Your Support (Deadline: Wednesday, February 21st at 5pm).