Decisions on Lobby Taxes Affect Associations.Recent legislation addresses constitutionality issues.
Two court decisions determining the constitutionality of lobby taxes and involving the American Society of Association Executives The American Society of Association Executives (ASAE) is a non-profit professional organization for executive directors and executive vice presidents of professional societies both in the United States and abroad. or an ASAE ASAE American Society of Association Executives
ASAE American Society of Agricultural Engineers (Society for Engineering in Agricultural, Food, and Biological Systems)
ASAE Alkali-Sulfite-Anthraquinone-Ethanol allied society of association executives were issued late last year. On November 9, 1999, the U.S. Court of Appeals for the District of Columbia District of Columbia, federal district (2000 pop. 572,059, a 5.7% decrease in population since the 1990 census), 69 sq mi (179 sq km), on the east bank of the Potomac River, coextensive with the city of Washington, D.C. (the capital of the United States). rejected ASAE's challenge to the federal tax on association lobbying, but did so in a way that is potentially useful to at least some associations. A week later, the Washington Superior Court in Vermont accepted the arguments set forth by the Vermont Society of Association Executives (VSAE VSAE Vermont Society of Association Executives
VSAE Vereniging Studenten Actuariaat en Econometrie (Dutch: Econometrics Study Association, University of Amsterdam) ) and other Vermont associations, and held that Vermont's tax on lobbyists and employers of lobbyists is unconstitutional.
Federal lobby tax
ASAE challenged the special lobby tax provisions that Congress imposed only on associations in 1993. The challenge is based on the ways in which the complicated tax requires associations, or their members, to pay a special, high tax for lobbying in virtually every case, rather than merely reclassifying formerly tax-free lobbying expenditures as taxable. ASAE has maintained that the provisions violate the U.S. Constitution in several ways. They violate the First Amendment because they impose penalties on political speech, on banding together as an association, and on exercising the right to petition The examples and perspective in this article or section may not represent a worldwide view of the subject.
Please [ improve this article] or discuss the issue on the talk page. the government. They violate the Fifth Amendment's guarantee of equal protection under the law, because they impose a higher tax on lobbying activities of associations--or their members--than on those of commercial corporations or individuals.
ASAE's challenge was rejected by the trial court. Judge Stanley Sporkin Stanley Sporkin (born 1932) is a former judge of the United States District Court for the District of Columbia. He was nominated to the seat vacated by Judge June L. Green on April 5, 1985 by President Ronald Reagan, and was confirmed by the Senate on December 16; he received his , of the United States District Court for the District of Columbia The United States District Court for the District of Columbia is the United States District Court that hears cases originating in the District of Columbia over which federal courts have original jurisdiction. , held that the tax provisions were constitutionally sufficient in their aim to support the government's goal of withdrawing former tax subsidies for lobbying.
The U.S. Appeals Court of the District of Columbia did not affirm any of the district court's determinations. Instead, it described ASAE's position in some detail, but held that associations could avoid the constitutionally problematic aspects of the tax by adopting a dual structure pursuant to the Supreme Court's 1983 decision in Regan v. Taxation With Representation, 461 U.S. 540 (TWR TWR Tower
TWR Trans World Radio (Monte Carlo)
TWR Tom Walkinshaw Racing
TWR Time-Weighted Return (finance)
TWR The Weblog Review
TWR Tactical Weather Radar
TWR Thomas' Write Rule ). In TWR, a charity challenged an IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. decision to withdraw the tax deduction Tax deduction
An expense that a taxpayer is allowed to deduct from taxable income.
See deduction. from contributors because the Section 501(c)(3) educational organization lobbied more than the statutorily permitted amount. The Supreme Court upheld the decision on the grounds that Congress had provided a method by which TWR could protect the deduction for contributions used only for educational purposes by setting up a second organization--a section 501(c)(4) tax-exempt affinity group A special interest group. This is a marketing term for a group of people with similar interests. that could engage in unlimited lobbying. Contributions to the second organization would not be deductible as charitable donations, but those to the first organizatio n would be.
The D.C. Circuit held that the same dual structure is available to 501(c)(6) organizations, which could set up subsidiary 501(c)(6) organizations to engage in lobbying. A new separate lobbying subsidiary could elect to pay a 35 percent proxy tax Proxy Tax
A tax on lobbying and/or political expenses that exceed an allowable amount set by the IRS.
For example, political activists whose expenditures associated with attempting to influence the public votes in a given election, referendum or legislative matter , or it could elect to inform its members that dues and contributions are not deductible. The original organization would no longer undertake any lobbying, so dues paid to it would be fully deductible.
Unfortunately, the court did not answer all the relevant questions about financing such subsidiaries. What remains unclear is whether the lobbying subsidiary may fund part, or all, of its lobbying through income-generating activities, without being at risk of having its dual structure recast for lobby tax purposes. There are likely to be more detailed issues that the court did not address. ASAE is entitled to ask the Supreme Court to review the decision, but the court has discretion over which cases it will review.
Vermont lobby tax
The Vermont court held that the state's special lobbying tax is invalid because it violates both the First Amendment's protection of political speech and the 14th Amendment's guarantee of equal protection under the law. The Vermont legislature had enacted a public financing law for governor and lieutenant governor campaigns in which a key funding source was a legislature-imposed 5 percent tax on lobbyists and lobbyists' employers whose lobbying expenditures exceed a set threshold. VSAE and a number of other Vermont-based associations challenged the tax-with ASAE's full support.
The court granted the associations' motion for summary judgment motion for summary judgment n. a written request for a judgment in the moving party's favor before a lawsuit goes to trial and based on recorded (testimony outside court) affidavits (or declarations under penalty of perjury), depositions, admissions of fact, answers , agreeing with the associations that the tax singled out political speech for unique penalties and was therefore subject to the most exacting First Amendment test. It found the tax unconstitutional under that test because the legislature lacked a compelling reason to fund the campaign grants from a special lobby tax rather than from a general tax. The court also agreed that there were no procedural obstacles to deciding the constitutional question and that the tax was not simply part of the state's general sales tax sales tax, levy on the sale of goods or services, generally calculated as a percentage of the selling price, and sometimes called a purchase tax. It is usually collected in the form of an extra charge by the retailer, who remits the tax to the government. .
This decision should help remind state legislators that the First Amendment imposes significant restraints on their abilities to tax protected activities, including lobbying.
Jerald A. Jacobs is a partner at the law firm of Shaw Pittman, Washington, D.C., and is general counsel to ASAE.