This Lobster is Taxable? – Wacky Tax Wednesday

True or False: The annual Maine Lobster Festival, which has taken place for almost 70 years, has never collected sales tax on its sales of taxable goods. 

When I was a girl, summer brought with it the occasional lobster dinner. It would be announced with the retrieval of a large black pot, brought out of storage specifically to boil the beasts. Then came the lobsters themselves—feisty crustaceans placed gingerly into the sink, where they tried in vain to claw their way to freedom. When my parents were feeling playful, they would let them crawl around the kitchen floor for one last hoorah before their inevitable demise.

I liked the lobster meat, dunked as it was in butter (otherwise banned from the house). But in truth, the experience was always unsettling. During my trying teen years, I took to calling the tradition murderous and refused to participate. To the enduring incomprehension of the rest of my family, I’ve never re-embraced the lobster dinner.

This came to mind when I learned that an annual lobster festival in Maine failed to collect tax on its sales of lobster, t-shirts, and other festival goods. For 67 years.

"I prefer sinners and madmen, who can learn, who can change, ... who are not afraid to eat a lobster alone...."*

In 1947, the Camden-Rockport Lobster Festival was created to revive the area and bring Maine lobsters—and the men who catch them—“into their own.” From that point on, a veritable army of committed volunteers has helped the Board of Directors stage the event. It is one of the biggest summer events in Maine, regularly donating thousands of dollars to the community. During this year's festival, volunteers cooked and served over 17,000 pounds of lobster, plus a bevy of other sea treats.  In short, it is a well-run machine.

How then, could its very capable organizers have failed to realize that they were required to collect and remit sales tax?

The simple answer is this: they just didn’t know.

“Sales to” v “sales by” nonprofits

The festival is put on by a nonprofit and its management was under the mistaken impression that nonprofits do not have to collect sales tax. Apparently, the organization’s accountant was also under this impression. It was not until the festival brought in a new accountant, who asked to see their retail sales tax certificate, that the mistake was caught.

In Maine, sales to certain nonprofit entities are exempt from sales tax. Sales by nonprofits are not necessarily so. At the end of Maine Revenue Services’ list of exempt organizations is this statement: “Except in the case of sales to government agencies, the seller should collect the tax unless the purchaser provides an exemption certificate issued by MRS….”

Our bad

Upon learning of the error, festival officials immediately contacted a tax attorney and reported it to Maine Revenue Services. State and festival have worked together to come up with a fair solution, as holding the festival liable for 67 years of back taxes (plus penalties and interest) is untenable. To date, the festival has paid the state approximately $73,000. And at this year's festival, food sales were taxed at 8% and souvenirs at 5.5% (Portland Press Herald).

As far as I’m concerned, the moral of this story is “Don’t eat lobsters,” although the good folks at the Maine Lobster Festival would probably disagree. Perhaps a better moral is this: don't make assumptions when it comes to sales tax.

Thanks to the Bangor Daily News for its excellent article on this, and James Baldwin for the * lobster quote.