BILL ANALYSIS �
SB 323
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Date of Hearing: August 12, 2013
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Raul Bocanegra, Chair
SB 323 (Lara) - As Amended: April 16, 2013
2/3 vote. Tax levy. Fiscal committee.
SENATE VOTE : 27-9
SUBJECT : Taxes: exemptions: prohibited discrimination
SUMMARY : Provides that any organization operated exclusively as
a "public charity youth organization" shall not be exempt from
the Corporation Tax (CT) Law if it discriminates on the basis of
gender identity, race, sexual orientation, nationality,
religion, or religious affiliation. Specifically, this bill :
1)Defines a "public charity youth organization" to include,
without limitation, all of the following: "Little League,
Bobby Sox, Boy Scouts, Cub Scouts, Girl Scouts, Campfire,
Inc., Young Men's Christian Association, Young Women's
Christian Association, Future Farmers of America, Future
Homemakers of America, 4-H Clubs, Distributive Education Clubs
of America, Future Business Leaders of America, Vocational
Industrial Clubs of America, Collegiate Young Farmers, Boys'
Clubs, Girls' Clubs, Special Olympics, Inc., American Youth
Soccer Organization, California Youth Soccer Association,
North, California Youth Soccer Association, South, and Pop
Warner football."
2)Provides that specified youth organizations set forth in
Revenue and Taxation Code (R&TC) Section 6361 shall not be
entitled to preferential "consumer" status under the Sales and
Use Tax (SUT) Law if they discriminate on the basis of gender
identity, race, sexual orientation, nationality, religion, or
religious affiliation.
3)Takes immediate effect as a tax levy.
EXISTING LAW :
1)Exempts, in modified conformity with federal income tax law,
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the income of various types of organizations from taxes
imposed by the CT Law.
2)Imposes a sales tax on retailers for the privilege of selling
tangible personal property (TPP), absent a specific exemption.
The tax is based upon the retailer's gross receipts from TPP
sales in this state.
3)Designates certain organizations as consumers, and not
retailers, of TPP made or produced by the organization's
members, provided the organization's sales are made on an
irregular basis and the organization's profits are used
exclusively to further the organization's purposes.
Specifically, R&TC Section 6361 grants this preferential
status under the SUT Law to the following three organization
categories:
a) Any nonprofit 501(c) organization primarily dedicated to
providing a supervised program of competitive sports for
youth, or to promoting good citizenship in youth, that does
not discriminate on the basis of race, sex, nationality, or
religion;
b) Any youth group sponsored by or affiliated with a
qualified educational institution, as defined, including
any student activity club, athletic group, or musical
group; and,
c) Any of the following organizations specifically
identified in R&TC Section 6361(b)(3): "Little League,
Bobby Sox, Boy Scouts, Cub Scouts, Girl Scouts, Campfire,
Inc., Young Men's Christian Association, Young Women's
Christian Association, Future Farmers of America, Future
Homemakers of America, 4-H Clubs, Distributive Education
Clubs of America, Future Business Leaders of America,
Vocational Industrial Clubs of America, Collegiate Young
Farmers, Boys' Clubs, Girls' Clubs, Special Olympics, Inc.,
American Youth Soccer Organization, California Youth Soccer
Association, North, California Youth Soccer Association,
South, and Pop Warner football."
4)Provides, under the Unruh Civil Rights Act, that "[a]ll
persons within the jurisdiction of this state are free and
equal, and no matter what their sex, race, color, religion,
ancestry, national origin, disability, medical condition,
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genetic information, marital status, or sexual orientation are
entitled to the full and equal accommodations, advantages,
facilities, privileges, or services in all business
establishments of every kind whatsoever."
FISCAL EFFECT : The Franchise Tax Board (FTB) has provided the
following revenue estimate for the income tax provisions of this
bill:
While it is estimated that there are approximately 7,400
organizations that could potentially be affected by this
bill, staff was unable to determine the number that
discriminate upon the basis specified in this proposal.
For each organization determined to discriminate, it is
estimated the revenue generated per taxpayer would be
approximately $1,000 per open tax year. Taxpayers
generally have one to four open tax years, depending on
when they were organized and when they filed their returns.
The State Board of Equalization (BOE), in turn, estimates that
if the Boy Scouts of America (BSA) were to have its preferential
consumer status revoked, it could increase state and local SUT
revenues by as much as $251,372 in fiscal year (FY) 2013-14,
$251,560 in FY 2014-15, and $251,729 in FY 2015-16.
COMMENTS :
1)The author has provided the following statement in support of
this bill:
Youth organizations are vital to bringing our communities
together and making our communities stronger. In
recognition of the great work they do, California provides
youth groups like the Girl Scouts, 4H, and YMCA with
special state subsidies in the form of tax exemptions.
These tax exemptions are granted to charitable
organizations for the public benefit they provide, and with
these state-supported tax savings, they are able to further
the good they do. State-supported programs and activities,
under current law, are prohibited from excluding potential
participants on the basis of sexual orientation, gender
identity, or religious affiliation.
Many youth organizations that receive special state
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supported tax exemptions follow California's
non-discrimination laws and are truly inclusive in their
membership. Unfortunately, however, there are youth
organizations that are side-stepping California's
non-discrimination laws by receiving state subsidies in the
form of special state tax exemptions while blatantly
discriminating and excluding membership on the bases of
sexual orientation, gender [identity], and religious
affiliation. One such youth organization is the [BSA].
Earlier this year BSA voted to allow gay youth as members
[but], however, maintained a discriminatory policy of
excluding LGBT adults. As a result, BSA's policies fall
short of being truly inclusive and are in violation of
California's non-discrimination laws.
Youth organizations like the BSA that maintain
discriminatory policies are out of step with California's
non-discrimination laws and, therefore, should not receive
special tax benefits that are subsidized by all
Californians, including LGBT taxpayers.
SB 323 brings our tax laws into line with our values by
ensuring that state-subsidized youth organizations are
inclusive in their membership. The bill does not hinder the
ability of a private organization to determine its
membership and does not affect a private organization's
choice to discriminate.
SB 323 simply makes clear that youth organizations [that]
choose to discriminate on the basis of sexual orientation,
gender identity, or religious affiliation should not be
rewarded with certain tax benefits. After all, tax
privileges are a public good that are paid for by all
Californians regardless of sexual orientation, gender
identity, or religious affiliation.
2)The sponsor of this bill, Equality California, notes the
following:
Existing California law does not allow state-supported
programs and activities to exclude potential participants
based on their sexual orientation, gender identity or
religious affiliation (see Government Code Section 11135).
Unfortunately, certain youth-based organizations are out of
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step with state law and [are] continuing to discriminate in
their membership policies. The most egregious example is
the [BSA], which currently excludes participation by LGBT
adults in staff or volunteer roles. Under this bill,
private youth groups that discriminate, like BSA, will no
longer receive the benefit of state support in the form of
special tax exemptions.
Discriminatory policies like BSA's not only
institutionalize the rejection lesbian, gay, bisexual and
transgender individuals and their families already
experience every day, but it teaches young people that it
is acceptable to exclude some people simply because of who
they are. Discrimination based on sexual orientation or
gender identity is especially damaging because it affects
our most vulnerable youth. Lesbian, gay, bisexual and
transgender youth are more likely to report suicidal
ideation (30% vs. 6%) and self-harm (21% vs. 6%) than their
heterosexual peers according to a Northeastern University
study. [Citation omitted.]
No person should have to experience exclusion simply
because of who they are, and organizations that practice
this exclusion should not be rewarded with special tax
breaks in California.
SB 323 would ensure that nonprofit youth organizations
would only be rewarded with these tax exemptions if they
comply with our state's strong public policy against
discrimination, and do not exclude potential participants
on the basis of sexual orientation, gender identity or
religious affiliation.
3)Proponents of this bill note the following:
Youth organizations are vital to our community. They help
young people learn important life skills during their
formative years, which helps prepare them for greater
success in life. The valuable experiences these
organizations provide should be available to all youth,
especially those who might otherwise be at risk due to
being ostracized by their peers. Unfortunately, many youth
groups still discriminate based on sexual orientation or
gender identity. While this, alone, is wrong, it is made
worse when such discrimination is supported and subsidized
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by state taxpayers through sales and corporate tax
exemptions. This amounts to state institutional support
for discriminatory policies.
The Youth Equality Act would remove state tax exemptions
for any youth group that discriminates against members or
leaders on the basis of sexual orientation or gender
identity. The practice of excluding youth simply due to
who they are should not be tolerated, much less rewarded
with special tax exemptions. Denying youth involvement in
such organizations robs them of healthy social interactions
and communicates that they are not "acceptable". SB 323
makes it clear that such exclusionary behavior will not be
rewarded with state taxpayer support.
4)Opponents of this bill note the following:
This bill is a punitive measure targeted primarily at the
[BSA], an organization with rich roots of service, but it
also attacks every other private entity that provides youth
programs, including private schools. This attempt to force
private groups to conform to a specific and controversial
code is itself discriminatory.
SB 323 discriminates against those organizations that hold
to a moral or religious foundation that differs from that
of its proponents. Many youth groups and certainly many
private schools are based on religious values or
traditional moral principles.
Across the state and nation nonprofit organizations are
structured around vastly different and sometimes
controversial ideologies and visions, about which people
may disagree - but they are all afforded tax-exempt status.
This is as it should be - and as it should remain.
[ . . . ]
The First Amendment guarantees the right to freedom of
association. In Boy Scouts of America et al. v. Dale the
U.S. Supreme Court held that this right "plainly
presupposes a freedom not to associate." Attempting to
force a private organization or a private school to change
its constitutionally-guaranteed principles through threats
of financial harm is a gross overreach by the state.
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5)The FTB notes the following in its staff analysis of this
bill:
Under this bill, a donor's charitable contribution
deduction would be unaffected if an organization's
California tax-exempt status was denied or revoked as the
charitable contribution deduction is [controlled] by
federal law. [Citation omitted.] If this is contrary to
the author's intent, the author may wish to amend the bill.
6)The BOE notes the following in its staff analysis of this
bill:
a) This bill does not materially impact the BOE's tax audit
or administrative functions : "Generally, due to the low
sales volume and lack of complexity, the BOE seldom audits
nonprofit youth groups. Also, the BOE's audit program does
not currently include specific guidelines for the
examination of retailers' discriminatory practices. If
this bill is enacted, the BOE may need to examine the
organization's by-laws and/or articles of incorporation and
any other evidence of possible discriminatory practices
when conducting an audit of a nonprofit youth group."
b) Consequences of a discriminatory youth organization or
group : "If this bill becomes law, any youth group or
organization that discriminates in violation of this
statute loses its statutory consumer status. These
organizations must then obtain seller's permits, file [SUT]
returns, and remit sales tax on all their taxable sales of
food, nonalcoholic beverages and handcrafted items.
However, tax will no longer apply to their purchases for
resale."
c) Bill should provide lead time : "The bill provides no
lead time for the BOE to notify and register affected
organizations and provide instructions related to their
reporting obligations."
7)Committee Staff Comments:
a) What would this bill do? : This bill contains two
provisions. Under the first, this bill would deny
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tax-exempt status to any public charity youth organization,
as defined, that discriminates on the basis of gender
identity, race, sexual orientation, nationality, religion,
or religious affiliation. This bill's second provision
would deny specified youth organizations preferential
consumer status under the SUT Law if they discriminate on
any of the grounds listed above. Based on the statements
provided by both this bill's author and sponsor, it would
appear that this measure is plainly directed at the
discriminatory policies and practices of the BSA.
b) The BSA : The BSA is a private, not-for-profit
organization dedicated to instilling its system of values
in young people. The BSA seeks to accomplish this goal by
having its adult leaders spend time with youth members,
engaging them in activities like camping, archery, and
fishing.
The BSA also has a long and well-documented history of
discriminating against individuals based on their sexual
orientation. Specifically, the BSA has historically
asserted that "homosexual conduct" is inconsistent with the
values it seeks to instill. Boy Scouts of America v. Dale
(2000) 530 U.S. 640, 644. For example, a 1991 position
statement promulgated by the BSA noted:
We believe that homosexual conduct is inconsistent
with the requirement in the Scout Oath that a Scout be
morally straight and in the Scout Law that a Scout be
clean in word and deed, and that homosexuals do not
provide a desirable role model for Scouts.
Id. at 652.
Within the past few months, however, the BSA has taken
significant steps to modify its membership policies. On
May 23, 2013, 1,232 voting members of the BSA voted on a
resolution maintaining the organization's existing
membership policy for adult leaders, but providing that
youth may not be denied membership in the BSA based on
sexual orientation or preference alone. The resolution
passed with a 61% majority. Pursuant to this resolution,
the following standard for youth members will go into
effect on January 1, 2014:
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Youth membership in the [BSA] is open to all youth who
meet the specific membership requirements to join the
Cub Scout, Boy Scout, Varsity Scout, Sea Scout, and
Venturing programs. Membership in any program of the
[BSA] requires the youth member to (a) subscribe to
and abide by the values expressed in the Scout Oath
and Scout Law, (b) subscribe to and abide by the
precepts of the Declaration of Religious Principle
(duty to God), and (c) demonstrate behavior that
exemplifies the highest level of good conduct and
respect for others and is consistent at all times with
the values expressed in the Scout Oath and Scout Law.
No youth may be denied membership in the [BSA] on the
basis of sexual orientation or preference alone.
[Emphasis added]
The BSA has, however, elected to retain its discriminatory
membership policy for all adult leaders. Specifically, the
BSA's current adult leadership standard provides:
While the BSA does not proactively inquire about
sexual orientation of employees, volunteers, or
members, we do not grant membership to individuals who
are open or avowed homosexuals or who engage in
behavior that would become a distraction to the
mission of the BSA.
Thus, the BSA's current adult membership policy places the
organization squarely within the ambit of this bill.
c) How is it that the BSA can legally discriminate on the
basis of sexual orientation? : Some might argue that the
BSA's discriminatory policies betray an unthinking bigotry
best relegated to the dustbin of history. Nevertheless,
the BSA has a remarkably successful record of defending
itself against legal challenges to this discrimination.
For example, in Curran v. Mount Diablo Council of the Boy
Scouts (1998) 17 Cal.4th 670, the
Supreme Court of California held that the BSA's membership
decisions are not governed by the Unruh Civil Rights Act
(Act), which prohibits discrimination in "business
establishments." Specifically, this case involved a former
Eagle Scout named Timothy Curran whose application to
become an assistant scoutmaster was rejected after Mr.
Curran publicly stated that he was gay. Id. at 672. Mr.
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Curran then filed suit, alleging, among other things, that
the BSA's rejection of his application violated the Act.
Id. at 676. On review, the Supreme Court of California
concluded that, with regard to its membership policies and
decisions, the BSA did not fall within the category of
"business establishments" covered by the Act. Id. at 673.
In reaching this conclusion, the Court acknowledged its
prior decisions holding that the term "business
establishments" must be interpreted in the broadest sense
reasonably possible. Id. at 696. Nevertheless, the Court
noted that no prior decision had ever interpreted the term
so broadly as to cover "the membership decisions of a
charitable, expressive, and social organization, like the
Boy Scouts, whose formation and activities are unrelated to
the promotion or advancement of the economic or business
interests of its members." Id. at 697.
Moreover, even in cases where a state's public
accommodations law applies, the United States (U.S.)
Supreme Court has determined that the BSA's right to
discriminate on the basis of sexual orientation is
protected under the First Amendment. The case of Boy
Scouts of America v. Dale, supra, involved a former Eagle
Scout named James Dale, whose adult membership in the BSA
was revoked when the organization learned that Mr. Dale was
openly gay. Id. at 644. Initially, the New Jersey Supreme
Court held that the state's public accommodations law
required Mr. Dale's readmission.<1> Id. On review,
however, the U.S. Supreme Court held, in a narrowly divided
opinion, that applying New Jersey's public accommodations
law in this way violated the BSA's First Amendment right of
expressive association. Id.
The Court began its analysis by noting that the forced
inclusion of an unwanted individual in a group infringes on
the group's freedom of expressive association if that
person's presence significantly affects the group's ability
to advocate public or private viewpoints. Id. at 648. The
Court went on to find that Mr. Dale's presence in the BSA
would force the organization to send a message, both to its
youth members and the world, that the BSA "accepts
-------------------------
<1> New Jersey's public accommodations statute prohibited, among
other things, discrimination on the basis of sexual orientation
in places of public accommodation. (N. J. Stat. Ann. Sections
10:5-4 and 10:5-5).
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homosexual conduct as a legitimate form of behavior." Id.
at 653. Finally, the Court concluded that the state
interests embodied in New Jersey's public accommodations
law did not justify such a "severe intrusion" on the BSA's
constitutionally protected rights. Id. at 659.
d) Does this bill run afoul of the BSA's First Amendment
right of expressive association? : Under our Constitution,
states lack the power to prohibit certain forms of
organizational prejudice. It does not necessarily follow,
however, that the government must actively subsidize such
prejudice through the tax code. Indeed, over 30 years ago,
the U.S. Supreme Court upheld the administrative revocation
of an entity's tax-exempt status based on the
organization's discriminatory practices. Bob Jones
University v. United States (1983) 461 U.S. 574.
On January 19, 1976, the Internal Revenue Service (IRS)
officially revoked the tax-exempt status of Bob Jones
University (BJU), a nonprofit religious and educational
organization, based on its racially discriminatory
policies.<2> Id. at 581. BJU's sponsors genuinely
believed that the Bible forbade interracial dating and
marriage. Id. at 580. In furtherance of these beliefs,
BJU excluded all African-Americans from admission until
1971. Id. Beginning that year, BJU began accepting
applications from African-Americans, but only from those
-------------------------
<2> Prior to 1970, the IRS granted tax-exempt status to private
schools under Internal Revenue Code Section 501(c)(3), without
regard to their racial admissions policies. Bob Jones
University, supra at 577. Then, on January 12, 1970, a
three-judge District Court for the District of Columbia issued a
preliminary injunction barring the IRS from affording tax-exempt
status to private schools in Mississippi with racially
discriminatory admissions practices. Id. at 578. Roughly six
months later, the IRS announced that it could "no longer legally
justify allowing tax-exempt status to private schools which
[sic] practice racial discrimination." Id. The IRS also
announced that it could not "treat gifts to such schools as
charitable deductions for income tax purposes." Id. This
revised policy on discrimination was formalized in Revenue
Ruling 71-447, which noted that "[a]ll charitable trusts,
educational or otherwise, are subject to the requirement that
the purpose of the trust may not be illegal or contrary to
public policy." Id. at 579.
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individuals "married within their race." Id. Then, in
1975, the U.S. Court of Appeals for the Fourth Circuit's
decision in McCrary v. Runyon (1975) 515 F.2d 1082
prohibited racial exclusion in private schools. Id.
Following this decision, BJU began allowing unmarried
African-Americans to enroll, but prohibited both
interracial dating and marriage. Id.
Following the revocation of its tax-exempt status, BJU
brought suit to recover $21 in tax paid to the IRS. Id. at
582. The U.S. District Court for the District of South
Carolina held that the revocation of BJU's tax-exempt
status exceeded the delegated powers of the IRS, and
violated BJU's rights under the Religion Clauses of the
First Amendment. Id. The Court of Appeals for the Fourth
Circuit, in turn, reversed. Id.
On review, the Supreme Court upheld the IRS's revocation of
BJU's tax-exempt status. The Court noted that racial
discrimination in education violates deeply and widely
accepted views of basic justice. Id. at 592. The Court
acknowledged that, when the nation's first charitable
exemption law was enacted in 1894, racially segregated
school facilities would not have been viewed as against
public policy. Nevertheless, the Court noted that
contemporary standards must be considered when determining
whether certain activities confer a public benefit entitled
to preferential tax treatment. Thus, the Court concluded
that an educational institution that, for whatever reason,
practices racial discrimination, cannot be viewed as
exercising beneficial influences in community life, and
should not be encouraged by having all taxpayers share in
its support by way of preferential tax treatment. Id. at
595. Moreover, the Court validated the IRS's
administrative action by noting:
[I]t would be anomalous for the Executive,
Legislative, and Judicial Branches to reach
conclusions that add up to a firm public policy on
racial discrimination, and at the same time have the
IRS blissfully ignore what all three branches of the
Federal Government had declared.
Id. at 598.
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The Court also rejected BJU's argument that the IRS's
actions violated the school's free exercise rights under
the First Amendment. While the Court acknowledged that the
denial of tax benefits would substantially impact the
operation of certain private religious schools, it would
not prevent those schools from observing their religious
beliefs. Id. at 603-04. The Court also held that the
government's fundamental interest in eradicating racial
discrimination in education substantially outweighed
"whatever burden denial of tax benefits places on [BJU's]
exercise of their religious beliefs." Id. at 604.
e) As a general rule, the government's refusal to subsidize
the exercise of a First Amendment right does not infringe
that right : Even outside the educational context, there
exists a long line of cases holding that the government
need not subsidize organizations whose practices are deemed
contrary to public policy. The case of Evans v. City of
Berkeley (2006) 38 Cal.4th 1 is particularly instructive.
In this case, the City of Berkeley asked a volunteer youth
group affiliated with the BSA to provide written assurance
that the group would not discriminate against homosexuals
or atheists as a condition of the group's continued free
use of berths in the city's marina. Id. at 5-6. The city,
finding the statement the group provided both ambiguous and
insufficient, discontinued its subsidy. Id. at 6. Members
of the group sued, claiming that the city's actions
violated their freedoms of speech and association. Id.
The trial court sustained the city's demurrer, and the
Court of Appeal affirmed. Id.
On review, the Supreme Court of California determined that
the plaintiffs' complaint failed to establish a violation
of constitutionally protected rights and affirmed the lower
court's judgment. Id. More specifically, the Court held
that a government entity may constitutionally require a
subsidy recipient to provide written, unambiguous
assurances of compliance with a generally applicable
nondiscrimination policy. Id. at 10. In reaching this
conclusion, the Court noted:
In order to meet the city's mandate of
nondiscriminatory participation policies, the Sea
Scouts were required neither to espouse nor to
denounce any particular viewpoint nor to form or
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break any association or affiliation, but only to
assure Berkeley of their adherence to the city's
policies in connection with subsidized use of
Berkeley's facilities.
Id. at 11.
The Court also observed that Berkeley, in requiring that
its subsidy not be used in a discriminatory manner, did not
demand adherence to the underlying viewpoint that motivated
the city's nondiscrimination law. Id. at 14.
Finally, the Court noted that U.S. Supreme Court decisions
have generally approved, against First Amendment
challenges, programs of governmental financial subsidy that
limit the expressive activities for which the funds may be
used. Id. at 11. For example, in Rust v. Sullivan (1991)
500 U.S. 173, the U.S. Supreme Court rejected a First
Amendment challenge to regulations banning abortion
counseling in programs supported by federal family planning
funds. In that case, the high court declared that, "[A]
legislature's decision not to subsidize the exercise of a
fundamental right does not infringe the right." Id. at
193. Moreover, in Regan v. Taxation With Representation of
Wash. (1983) 461 U.S. 540, the Supreme Court upheld a
prohibition on substantial lobbying by 501(c)(3) charitable
organizations. Specifically, the Court ruled that denying
full tax-exempt status to an organization that engages in
substantial lobbying activities does not infringe on that
organization's freedom of speech: "a legislature's decision
not to subsidize the exercise of a fundamental right does
not infringe the right, and thus is not subject to strict
scrutiny." Id. at 549. So long as the government did not
invidiously discriminate so as to aim at the suppression of
a dangerous idea, the law need only be found to be
rational. Id. at 548.
The case of Boy Scouts of America v. Wyman (2003) 335 F.3d
80 is also instructive. In this case, the Connecticut
State Employee Campaign Committee denied the application of
a local BSA chapter to participate in the state's workplace
charitable contribution campaign. Id. at 83. That
decision was based on a finding that the BSA's policy of
discriminating based on sexual orientation meant that the
local chapter's participation in the campaign would violate
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state law. Id. The BSA brought suit, alleging a violation
of their First Amendment right of expressive association.
Id. at 84. On review, the Court of Appeals for the Second
Circuit held that the removal of the local BSA chapter from
this nonpublic forum did not violate the organization's
constitutional rights. Id.
In reaching its conclusion that there was no First
Amendment violation, the court began by noting that the
BSA's exclusion could be found constitutional if and only
if it was (1) viewpoint neutral and (2) reasonable. Id. at
92. In finding that Connecticut's Gay Rights Law was
viewpoint neutral, the court observed that the law
prohibited discriminatory membership and employment
practices not for the viewpoints expressed by those
practices, but because of the immediate harms such
discrimination causes homosexuals. Id. at 93.
Specifically, the court pointed to the denial of concrete
economic and social benefits resulting from such
discrimination. Id. Thus, the court found that the
purpose of Connecticut's Gay Rights Law was to discourage
harmful conduct and not to suppress expressive association.
Id. at 95. The court also held that the state's actions
were a reasonable means of furthering Connecticut's
legitimate interest in preventing discriminatory conduct.
Id. at 98. To that end, the court noted that, while the
Constitution may, in some circumstances, require toleration
of private discrimination, that does not mean it requires
state support for such discrimination. Id.
f) For every rule, there is an exception : There is one
pertinent exception to the general rule that the
government's refusal to subsidize the exercise of a First
Amendment right does not infringe that right.
Specifically, a funding restriction that is specifically
designed to suppress a disfavored viewpoint, is subject to
strict scrutiny. Evans, supra, at 13. For example, in
Speiser v. Randall (1958) 357 U.S. 513, 518, the U.S.
Supreme Court held that the denial of a tax exemption for
engaging in certain speech infringes upon First Amendment
rights when it is frankly aimed at the suppression of
dangerous ideas. In addition, the Speiser Court noted:
To deny an exemption to claimants who engage in
certain forms of speech is in effect to penalize them
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for such speech. Its deterrent effect is the same as
if the State were to fine them for this speech. The
appellees are plainly mistaken in their argument that,
because a tax exemption is a "privilege" or "bounty,"
its denial may not infringe speech.
Id.
g) The only certainties in life are death, taxes, and
litigation : The weight of case law suggests that
California would be well within its rights to end its tax
subsidies to youth organizations that discriminate based on
sexual orientation. Given the decision in Speiser, it is
nevertheless likely that this bill's application would be
challenged on First Amendment grounds. The state, in turn,
would likely defend against any such challenge by arguing
that this bill is content neutral. Specifically, the state
would argue that this legislation seeks to end governmental
subsidies to youth organizations that engage in
discriminatory conduct based on sexual orientation, and
does not seek to suppress any particular viewpoint afforded
constitutional protection.
h) From the lofty heights of constitutional jurisprudence
to the nitty-gritty of tax administration : Beyond the
constitutional complexities outlined above, this bill
raises more mundane, but no less important, administrative
issues. First and foremost, it is unclear to Committee
staff how the FTB would determine what constitutes
impermissible "discrimination." In the case of an
organization like the BSA, with a formal policy of
discriminating on the basis of sexual orientation, the
determination would ostensibly be clear-cut. However, what
would happen if an organization with a formal policy
prohibiting discrimination were found to have discriminated
in practice, by, for example, routinely failing to hire or
promote a certain category of individuals? Would such
discriminatory conduct result in the revocation of the
organization's tax-exempt status? Moreover, if the
discriminatory conduct were confined to only one chapter of
a national organization, would the larger umbrella
organization risk revocation of its tax-exempt status as
well? While perhaps farfetched, what would happen if a
single youth sports coach were found to have called
numerous players by derogatory terms denoting, at best,
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insensitivity and, at worst, homophobic animus? Would this
conduct constitute discrimination within the meaning of
this bill?
i) The perennial question of where to draw the line : It
should be noted that, while this bill would revoke the
tax-exempt status of youth organizations that discriminate
based on sexual orientation, it would have no effect on the
numerous other organizations that continue to receive
preferential tax status despite their discriminatory
policies. For example, many churches refuse to ordain
female priests and pastors, while still others refuse to
officiate same-sex marriages. Nevertheless, the state
continues to afford these organizations exempt status under
the tax code, indirectly subsidizing their conduct.
In addition, while this bill would revoke the tax-exempt
status of discriminatory youth organizations, the FTB notes
that it would not impact a donor's ability to receive a
charitable deduction for contributions to the very same
organizations. This would result in the continuation of at
least an indirect governmental subsidy to discriminatory
youth organizations.
j) Amendments suggested by Committee staff :
i) Creating a bright line test for determining
discrimination : To address the administrative issues
involved in determining what constitutes
"discrimination," Committee staff suggests amending this
bill to apply only to organizations that either (a) have
a formal policy of discriminating or (b) refuse to
provide written assurance of their formal policy barring
prohibited discrimination.
ii) Delaying the operative dates : As a tax levy, this
bill would be effective immediately upon enactment. To
provide sufficient lead-time to affected taxpayers and
agencies, Committee staff suggests amending this bill to
provide delayed and purely prospective application.
Specifically, the SUT provisions should be amended to
apply starting on the first day of the first calendar
quarter beginning more than 90 days after the act's
effective date. The income tax provisions, in turn,
should be amended to apply for taxable years beginning on
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or after January 1, 2014.
iii) Modifying the SUT language so it reads as a
condition and not an outright prohibition : The proposed
language included in R&TC Section 6361(b)(3)(B) currently
reads as an outright prohibition on discriminatory
conduct. Committee staff recommends amending this
language to make clear that non-discrimination is simply
a condition of preferential consumer status under the SUT
Law.
iv) Addressing the conflict with AB 1413 : AB 1413
(Committee on Revenue and Taxation) and this bill both
propose amendments to R&TC Section 23701d. Committee
staff recommends amending this bill to address potential
chaptering out issues.
REGISTERED SUPPORT / OPPOSITION :
Support
Equality California (sponsor)
American Federation of State, County and Municipal Employees,
AFL-CIO
City of West Hollywood
Humboldt County Board of Supervisors
State Board of Equalization Member Betty T. Yee
Opposition
California Collaboration for Youth
California State Alliance of YMCAs
Calvary Assembly of God
Capitol Resource Institute
City of Tustin
Concerned Women for America of California
Faith Assembly of God Church
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098