Supreme Court Upholds First Amendment and Sound Tax Administration in California Donor Disclosure Case

Taxpayers won a big victory today when the Supreme Court today struck down a California regulation that requires all charities to provide the state with a list of their donors. California argued that the mass collection of this information, from the federal Schedule B form, was needed to administer and enforce its state tax laws. The Court held that the regulation violates First Amendment freedom of association, drawing on National Association for the Advancement of Colored People v. Alabama (1958) where the Court invalidated Alabama’s attempt to demand membership and donor lists from the NAACP.

The majority opinion follows much of the reasoning in the amicus brief filed by National Taxpayers Union Foundation’s Taxpayer Defense Center, which argued that California’s regulation is at odds with longstanding donor privacy protections, unnecessary for tax administration, and a violation of the First Amendment.

NTUF Vice President of Litigation Joe Bishop-Henchman:

California’s dragnet collection of all donor information has nothing to do with legitimate tax administration. The IRS has actually been trying to get rid of the form at issue, Schedule B, since 2016 because it is not useful for policing fraud and poses a major risk for leaks and misuse.

After President Nixon misused tax information for political purposes, Congress enacted stringent privacy protections on tax information. Our brief explained why this information is neither precise nor effective for legitimate tax administration purposes, and I’m pleased the Court agreed.

California (and Justice Sotomayor, who wrote a dissent for three justices) argued that there was no risk of public disclosure because the information provided will be kept confidential. But just last month, the website ProPublica began publishing a series of articles obviously using a large leak of private tax data from the IRS or someone who hacked into the IRS. Far from promoting tax administration, every leak undermines taxpayer confidence. Any large electronic archive of confidential taxpayer information is vulnerable to unlawful public disclosure. The Court is right to demand a better reason than “it’s easier for the state” for compelling charities to provide this information.

To speak with NTUF Vice President of Litigation Joe Bishop-Henchman about this case, please contact him at 202-766-5019 or at jbh@ntu.org.