SB594 – A New Law For California Nonprofit Corporations
A 2014 California law prohibits nonprofit organizations from using monies and other property received from local agencies for campaign activities. SB 594, signed into law by Gov. Brown in 2013, and which took effect on January 1, 2014, prohibits all California non-profit organizations from supporting or opposing any candidate for public office. While the law does not apply to nonprofit organizations exempt under Section 501(c)(3) of the Internal Revenue Code, it is irrelevant to them as they are already prohibited from supporting or opposing any candidate for public office and may only engage in activities that “influence legislation” to a limited extent.
Specifically, the law prohibits nonprofit organizations from using “public resources” in any communications that expressly advocate for or against a state or local ballot measure, or for the election or defeat of a candidate, or that constitutes a campaign contribution. The term “Public resources” is a broad term that is not limited to cash, but instead includes assets of the organization, such as equipment, office supplies and compensated employee work time.
Despite the law’s restrictions, it does allow nonprofit organizations to use public resources to adopt a position or resolution supporting or opposing a ballot measure or candidate; and, does not preclude the nonprofit organization from using public resources for the establishment and administration of a sponsored committee. Nonetheless, nonprofits should exercise caution when relying on this latter exception, as the law still prohibits a nonprofit organization from committing public resources to the sponsored committee to be used by it for campaign activities.
A nonprofit wishing to engage in campaign activities is:
- Obligated to report a portion of its income;
- to create a separate bank account for all funds received and to be used for campaign activity;
- to disclose certain information to the public and the California Franchise Tax Board (FTB); and,
- are subject to an audit by the FTB for compliance with these obligations.
Disregarding this law will prove costly to a non-compliant nonprofit, as it allows the imposition of a $1,000 fine for each day that a violation occurs plus three times the value of the unlawful use of public resources. It also provides that a civil action to assess and recover the civil penalty can be brought by the Attorney General, any district attorney or any city attorney of a city having a population in excess of 750,000.
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