Maine Charities Achieve Blanket Exemption from Sales/Use Tax

For years I have had to explain to my surprised nonprofit startup clients that they probably do not qualify for exemption from the Maine sales/use tax. As a result of patchwork and piecemeal lobbying efforts, only specific kinds of nonprofits such as churches and schools were exempt. Thanks to a budget initiative by Governor Mills that was supported by both sides of the Legislature, all Maine nonprofit organizations that have earned 501(c)(3) recognition with the IRS will be eligible for exemption starting January 1, 2025.

A few details to note:

* The exemption will not be automatic. An organization must apply for an exemption certificate using a form that has not yet been developed. I expect the form to be posted herein the coming months. It is likely that the form will require appending a copy of the organization’s 501(c)(3) determination letter, so if your organization can’t find this letter, or has one that is outdated due to a name change, you can request both the original letter and a current “affirmation letter”) from the IRS using Form 4506-B (make sure to check the box for “Affirmation Letter” if there has been a name change). In addition, many determination letters issued since 2014 are now posted online at the IRS Tax Exempt Organization Search (TEOS) www.irs.gov/teos, so you may not even need to use the Form 4506-B.

* In order to avoid abuses, the law requires that any exempt purchases by charities must be “used primarily for the purposes for which the nonprofit organization was organized.” So a nonprofit cannot use its exemption certificate to make purchases that are not for the organization’s charitable or educational programs.

* The law extends the exemption to all 501(c)(3) organizations, whether they are incorporated in Maine or not. So 501(c)(3) nonprofits from other states should be able to apply for an exemption certificate. Let’s hope that the form developed by Maine Revenue Services matches the breadth of the law.

* The exemption applies to purchases made by 501(c)(3)organizations. Purchases made from 501(c)(3)’s are another matter altogether. Depending on the circumstances, purchases from Maine nonprofits may or may not be exempt from sales/use tax. Sales of goods or services at an occasional event such as an annual fundraiser will usually qualify as a Casual and Infrequent Sale. Treatment of Casual and Infrequent Sales is discussed in detail in Maine Revenue Service’s Sales Tax Bulletin # 9. In contrast, if a nonprofit engages in repeated and successive sales of items to the public, these items are likely subject to the sales/use tax. In that case, the nonprofit must register as a retailer and collect and remit the tax to MRS, and the new law doesn’t change that posture.

* The exemption didn’t just happen by magic. The Maine Association of Nonprofits undertook a major lobbying effort to include this item in the Governor’s supplemental budget and across the finish line with the Legislature. Read more from MANP about the impact of the bill, next steps, and how to thank your legislators. And show MANP some love by joining as a member if your organization isn’t yet part of the MANP family.  

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‍Maine Nonprofit Employers With Five or More Employees Required to Offer Retirement Plans

To encourage employees to set up retirement plans, a few years ago the Maine Legislature passed a law that requires all Maine employers, including nonprofit organizations, having five or more employees to either offer their own plans or allow employees to set up accounts through a state-run program. This new law takes effect in 2024 via the Maine Retirement Investment Trust (MERIT) program, and it’s time to start paying attention if the program applies to your nonprofit.

Employers that offer their own plans to at least some employees must at the very least certify the organization as exempt. Those that do not offer any retirement plans must register to set up accounts for employees through MERIT. The registration deadline for employers with 15 or more employees just passed on April 30, although go ahead and register as soon as possible to avoid incurring penalties. The deadline for employers having 5 to 14 employees is coming up on June 30.

Once enrolled via MERIT, unless they opt out or choose a different rate, a covered employee will have 5% of their payroll wages contributed to a ROTH IRA, rising1% each year to a maximum of 10%. The employer is not required or allowed to match any such MERIT contributions.

Registration, exemption, and additional information at https://meritsaves.com/. You can also check out this helpful summary of the law.

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