For the rest of the 2016 election season, nonprofits in Arizona can be politically active without registering as a political committee. As long as they meet basic qualifications, nonprofits can run candidate ads, support ballot measures, and even make contributions, all without the burdens of registration, ongoing reports, and disclosure of donors.

Arizona concluded its 2016 legislative session in May with the passage of an important campaign finance law, House Bill 2296. This bill mirrors one passed earlier in the session, Senate Bill 1516. Both bills exempt certain nonprofit organizations from Arizona’s definition of a political committee, but SB 1516 would have only taken effect starting in 2017. HB 2296, on the other hand, makes these rules effective in time for the 2016 election. As of June 1, 2016, nonprofits active in Arizona elections will not have to register as a political committee and will be free from the regulatory obligations that come with being a political committee.

Who qualifies?

A 501(c) entity will qualify for this exemption if it

  • has tax-exempt status under 501(a) of the Internal Revenue Code;
  • has properly filed its Form 1023 ((c)(3)s) or 1024 ((c)(4)s);
  • has properly filed its Form 990;
  • has not had its tax-exempt status denied or revoked; and
  • remains in good standing with the Arizona Corporation Commission.

Most preexisting 501(c)(3) or 501(c)(4) entities will qualify for this exemption. Furthermore, the new law provides that 501(c)(3) entities are completely exempt from filing any disclosure reports in Arizona, as long as they do not spend a substantial amount of time or assets on influencing an election (a requirement borrowed from federal tax law).

This exemption will spare many nonprofits from government regulation, since Arizona’s political-committee registration threshold is rather low: $500 in expenditures made or contributions received. More importantly, the exemption prevents government regulators from even evaluating whether a nonprofit’s “primary purpose” is to influence state or local elections. This is particularly good news, as the application of this test has led to costly and lengthy administrative proceedings.

Is there a catch?

Yes.

First, this exemption applies only to political committee registration requirements. Nonprofits are still subject to Arizona’s reporting requirements for independent expenditures and electioneering communications.

Second, the Arizona Citizens Clean Elections Commission has yet to decide how to implement these provisions. The CCEC will address this issue at its June meeting, and its Executive Director has recommended that the Commission implement these provisions immediately, rather than challenge them in court as conflicting with Arizona’s constitution.

Third, the law does not take effect until August 6, 2016, although once it does become effective, it will be retroactive to June 1, 2016. That means, as of June 1, nonprofits involved in Arizona elections will not need to register as political committees.

Finally, the law is being challenged by referendum. SB 1516 is already the subject of a referendum petition, and HB 2296 will also be subject to referendum according to news reports. Signatures are due by August 7, 2016, so we will not know more about its status until later this summer.

For now, nonprofits active in Arizona will have regulatory relief from having to register and report as a political committee. But this may be a one-time deal, as 2016 may be the only election to which this exemption applies.

Lessons learned from Arizona

The passage of SB 1516, HB 2296, and the possible referendum is a reminder of how quickly state laws are changing to respond to the growing role of 501(c) organizations in election-related activity, and how important it is to keep up with the latest state rules.