The U.S. Supreme Court has struck down California’s law requiring all charitable organizations to disclose the names and addresses of donors who contributed more than $5,000 to the organization in the preceding fiscal year. Americans for Prosperity Foundation v. Bonta, 594 U.S. ____ (2021) (consolidated with Thomas More Law Center v. Bonta). In a 6-3 decision, the court held that California’s law was an unconstitutional violation of donors' First Amendment free association rights because the donor disclosure requirement was not narrowly tailored to California’s interest in protecting the public against fraud.
The law at issue in Bonta requires certain tax-exempt charitable organizations to disclose the donor information that is reported to the IRS on Schedule B to California as part of the registration and reporting requirements to solicit charitable contributions in California (more details about the facts of the Bonta case can be found in Taft's prior law bulletin). In its decision, the court held that compelled disclosure of donors created a chilling effect on donors' First Amendment rights to free association due to the risk of reprisal against those donors. The court reviewed whether the blanket disclosure requirement was an unconstitutional violation of donors' First Amendment rights under the “exacting scrutiny” standard. To be constitutional under the exacting scrutiny standard, state action must satisfy two prongs of the standard. First, the state action must be substantially related to an important government interest. Second, the state action must be narrowly tailored to achieve that government interest.
Here, the court agreed that California has an important government interest in protecting the public from fraud perpetrated by charities. California, however, failed to satisfy its burden to show that the requirement to provide unredacted donor information was narrowly tailored as required under the exacting scrutiny standard. The court indicated in its analysis that the blanket disclosure requirement appeared more related to administrative convenience because California never used the disclosed donor information for anti-fraud efforts and did not enforce the requirement for several years. Further, California’s donor disclosure requirement was not narrowly tailored because the requirement applied to all charities registered in the state without apparent regard to the risk of chilling free association rights and the state never considered any alternatives.
While this decision is a victory for donors and charities concerned with donor disclosure, the court’s decision does not foreclose future donor disclosure requirements in California or other states. The ruling should discourage states from adopting blanket donor disclosure requirements like the one in California. However, under the exacting scrutiny standard, a donor disclosure requirement could pass constitutional muster if the requirement was substantial related to combating charity or donor fraud and the donor disclosure requirements were more tailored than the California law.
State-level registration and reporting requirements are varied and can be complicated. Taft frequently helps tax-exempt organizations understand their state and federal compliance obligations. Please contact a member of Taft's Nonprofit and Tax Exempt Organizations team if you have questions.