U.S. Supreme Court Questions California Donor Disclosure Mandate

Two cases with major implications involving donor privacy and state charitable regulation had their day in the nation’s highest court on April 26, 2021. After two hours of oral arguments, California’s broad donor disclosure mandate appears to be on thin ice, at least in its current form.

Roughly a decade ago, California began demanding that any charity soliciting contributions in the Golden State must submit unredacted Schedule B tax forms that include sensitive information about donors contributing $5,000 or more to the nonprofit. While the state asserts this new warehouse of data helps it fight fraud and abuse in the tax-exempt sector, numerous nonprofits cried foul.

After years of battling in lower courts, challenges from two conservative organizations — Americans for Prosperity (AFP) and Thomas More Law Center (TMLC) — both made their way to the U.S. Supreme Court. Those groups worried the bulk collection mandate could put their supporters’ First Amendment freedoms of speech and association in jeopardy — concerns elevated by several public breaches of giver information in the states possession.

Reflecting on this week’s oral argument, John Bursch, an Alliance Defending Freedom senior counsel representing TMLC, suggested that mandates like California’s discourage charitable giving and chill expression. “Every American should be free to peacefully support causes they believe in without fear of harassment or intimidation,” Bursch said.

That reasoning seemed near to mind in the courtroom this week as well. For example, Justice Clarence Thomas raised what may well become the very heart of this case. He quoted the NAACP as stating, “The right of anonymity is an incident of a civilized society and a necessary adjunct to freedom of association and to full and free expression in a democratic state.”

Notably, NAACP won a landmark ruling against Alabama in 1958 after that state attempted to force the disclosure of its member rolls. How the justices think NAACP v. Alabama applies in today’s California proceeding could well be the key to its outcome.

The involvement of NAACP and a number of progressive allies on the side of the conservative challengers is also significant because it shows a broad scope of concern on this matter. In fact, the New York Times reported that AFP and TMLC received “support from hundreds of groups across the ideological spectrum.”

The state countered repeatedly that other nonprofit voices supported the state in its disclosure requirements, but Justice Amy Coney Barrett observed that 250 groups had filed briefs “arguing that the disclosure mandate would harm their rights.” Justice Barrett wanted to know how many voices it would take to show a fundamental problem with the bulk donor data collection mandate. Meanwhile, Justice Neil Gorsuch wondered whether a logical extension of California’s premise would enable it to require all manner of private information about a group’s associations including “their Christmas card lists, their dating lists, their whatever.”

Still, some of the more liberal justices appeared sympathetic to California’s basic transparency and accountability arguments. Justice Stephen Breyer particularly zeroed in on a line of reasoning offered by some politicians and nonprofit leaders that “this case is really a stalking horse for campaign finance disclosure laws.”

On the other hand, Justices Sonia Sotomayor and Elena Kagan also expressed concern with the undeniable exposure of confidential information on California’s watch. Sotomayor asked California’s deputy solicitor general, “But what do we do with that finding, that given your past breaches you have essentially turned this into a public disclosure case?”

What the Court will decide—and how big it might rule on constitutional grounds—is unclear, but California’s current mandate on donor disclosure by nonprofits does appear to be in some element of jeopardy.

ECFA will be closely monitoring this case, which promises major ramifications for charities nationwide. A decision is likely in June.

This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.