The Supreme Court on Thursday voted 6 to 3 to overturn a California donor-disclosure law that critics said was a needless intrusion on donor privacy and would hurt giving.
The California law required charities raising money in the state to disclose the names of major donors to state regulatory officials. However, public disclosure of the names was prohibited.
California officials argued the disclosure requirement helped ensure that tax-exempt organizations were serving a charitable purpose and would help ferret out fraud. Opponents said it violated the First Amendment and that it could endanger donors who give to controversial but legitimate charitable causes.
Chief Justice John Roberts, writing for the majority, said California’s harvesting of donor information from a section of the informational tax forms charities file, known as Schedule B, was too broad, argued such information accounted for a minuscule amount of leads in state fraud investigations, and said the state had other avenues to ferret out fraud.
“The upshot is that California casts a dragnet for sensitive donor information from tens of thousands of charities each year, even though that information will become relevant in only a small number of cases involving filed complaints,” he wrote. “California does not rely on Schedule Bs to initiate investigations, and in all events, there are multiple alternative mechanisms through which the Attorney General can obtain Schedule B information after initiating an investigation.”
Justices Clarence Thomas and Samuel Alito wrote separate concurring opinions. Justices Sonya Sotomayor, Stephen Breyer, and Elena Kagan dissented.
“Today’s analysis marks reporting and disclosure requirements with a bull’s-eye, “ wrote Justice Sotomayor on behalf of the dissenting justices. “Regulated entities who wish to avoid their obligations can do so by vaguely waving toward First Amendment ‘privacy concerns.’”
What’s more, she wrote, the court “invalidates a regulation in its entirety, even though it can point to no record evidence demonstrating that the regulation is likely to chill a substantial proportion of donors.”
Koch Charity Led the Charge
Powerful groups lined up on both sides of the case. The Americans for Prosperity Foundation, which was funded by billionaire and conservative activists Charles Koch and his now-deceased brother David Koch, led the charge to overturn the California law.
Opponents of the California law include the Association of Fundraising Professionals, the Council for Advancement and Support of Education, Defenders of Wildlife, Disabled American Veterans, Doctors Without Borders, the National Wildlife Federation, and the Southern Poverty Law Center.
Supporters of the California law include the National Council of Nonprofits, CharityWatch, and Public Citizen.
In response to Thursday’s ruling, the California Association of Nonprofits, which filed a friend of the court brief urging that the disclosure law be upheld, issued a statement that said:
“The opinion today will inevitably reduce public trust in nonprofits in California because it takes away the Attorney General’s ability to ask for an unburdensome disclosure to prevent and investigate fraud and other possible wrongdoings by nonprofits. “
It added: “We have lost an important means of keeping bad actors from using tax-exempt status to commit harmful and unlawful acts against the public. We are deeply concerned that this unprecedented finding will put a serious damper on the ability of the Attorney General to regulate our sector — to the detriment of the hundreds of thousands of mission-driven nonprofits doing vital work in our communities. “
Jakada Imani, CEO of the Management Center, which assists nonprofit leaders working for social change, was disappointed by the Supreme Court’s decision. Imani said he understood why a few donors and nonprofits wanted to make sure their donor information was kept private. He cited needle exchanges as an example of a good cause that donors might wish to support that could generate considerable backlash and unwanted attention for donors.
“There are a few organizations that are taking on really unpopular programs,” Imani said.
However, those instances are relatively rare, he said, and the benefits of disclosure rules like the one in California outweigh the drawbacks.
“Information is power in a democracy,” Imani added. “On balance; I favor transparency.”
But Philanthropy Roundtable, an organization that represents foundations and donors, applauded the ruling for following the approach it sought in its court brief.
“The Supreme Court’s decision protects philanthropic freedom and strengthens the ability of all Americans to give to causes they believe in without fear of retaliation,” said Philanthropy Roundtable CEO Elise Westhoff in a written statement. “California’s actions violated Americans’ constitutional rights as well as the rights of donors who wish to keep their charitable giving private for a wide range of good and valid reasons, including religious and moral traditions.”
History of Harassment
Most nonprofits must disclose to the IRS all donors who gave more than $5,000 in any one year, although that threshold can be even higher for some larger organizations. The California law required that information to be shared with state regulators as well.
A federal district court sided with opponents of the law, but a federal appeals court reversed that ruling and upheld the California law.
Opponents of the California law cited a 1958 Supreme Court case, NAACP v. Alabama, in which the court ruled unanimously that the NAACP did not have to disclose the names of its rank-and-file members to the state of Alabama. Civil-rights groups argued that the state had sought the names to harass and intimidate the NAACP, and the Supreme Court ruled that the Alabama law violated the NAACP’s constitutional rights of association and assembly.
The ACLU, which argued for overturning the California law, said that because there is a history of inadvertent data disclosure by some state agencies, that amounts to de facto public disclosure.
But many academics said the constitutional arguments were a smoke screen, noting that the Alabama law was different because it was intended from the start to harass a specific group of people.
Opponents also say that it is legitimate to impose certain conditions on donors because of the tax subsidy they enjoy. And tax scholar Roger Colinvaux said that overturning the California law will spur more nefarious activity by organizations abusing their tax exempt status, and it will “create the forerunner to a Citizens United for charities.”
