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Supreme Court Rules Charities Do Not Have To Disclose Donors to the State of California

For the last 10 years, the State of California has been requiring charities that operate or solicit donations in that state to file a copy of their federal tax return – which discloses the names and addresses of the charity’s major donors – with the State’s Attorney General. The purported reason for this requirement is to help the state root out fraudulent charitable fundraising practices, or the misuse of funds.
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By a vote of 6-3, the Supreme Court ruled the California state law was, on its face, unconstitutional.

The law was challenged by two charities, supported by more than 100 national organizations, that argued the state’s interest was unnecessary, overbroad, and not narrowly tailored. It was also argued that California has leaked the names of these donors to the public which has subjected them to harassment and violated their right to privacy.

There are several major takeaways:

First, the Supreme Court reiterated that charitable organizations have significant first amendment rights. Before a state can compel disclosure of a charity’s donor information, it must demonstrate a significant state interest in that information and that the state is seeking the information in a narrowly tailored way. The Court explained that effective advocacy of both public and private points of view, particularly controversial ones, is undeniably enhanced by group association and there is a vital relationship between freedom to associate and privacy in one’s associations. This rule was laid down 50 years ago in NAACP v. Alabama and remains good law today.

Second, the Court noted that donors are entitled to some privacy protections as well. A state cannot indiscriminately sweep up the information of every major donor who may wish to remain anonymous. The Court also rebuffed California’s argument that many donors are not going to mind if their names are given to the State, asserting that the State needs to justify its actions separate and apart from any perceived burden on donors. The Court noted that the plaintiffs here had introduced evidence demonstrating that they and their supporters had been subjected to bomb threats, protests, stalking, and physical violence. Such risks are heightened in the 21st century and seem to grow with each passing year, as anyone with access to a computer can compile a wealth of information about anyone else, including such sensitive details as a person’s home address or the school attended by their children.

Third, supporters matter. The Chief Justice noted that the gravity of the privacy concerns in this context was further underscored by the filings of hundreds of organizations as amici curiae in support of the petitioners. Far from representing uniquely sensitive causes, these organizations spanned the ideological spectrum, from the American Civil Liberties Union to the Proposition 8 Legal Defense Fund; from the Council on American-Islamic Relations to the Zionist Organization of America; and from Feeding America Eastern Wisconsin to PBS Reno. The deterrent effect feared by these organizations is real and pervasive, even if their concerns are not shared by every single charity operating or raising funds in California.

And finally, reporting of donors to the IRS will remain lawful. Although the Court did not say this explicitly, it noted that the IRS has its own separate revenue collection needs (California does not) and authority to confer federal tax-exempt benefits (California does not) that can justify disclosure and reporting requirements to the IRS. This means the Court did not address the Solicitor General’s argument that the providing of a tax exemption is a subsidy that allows for the regulation of a charity’s activity.

All in all, it was a good day for the nonprofit community, for donors, and for the first amendment at the Supreme Court. We can expect similar laws in New York and New Jersey to be challenged next. The next question will be: How does the standard of review applied here affect the disclosure of donors in non-charitable cases, such as for 501(c)(4)s and on campaign finance forms?

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