In 2016, Missouri voters enshrined new campaign finance laws in the state constitution. The Missouri Ethics Commission issued several interpreting opinions and a federal court has enjoined parts of the law as unconstitutional. At the same time, the Missouri legislature was debating laws to require disclosures to prohibit "dark money." All of this has resulted in some confusion among the political contributing and fundraising community. Following is a brief explanation of issues to consider when it comes to Missouri campaign finance.
When forming any political organization in Missouri, there are three bodies of law to consider:
- Missouri corporate formation laws,
- Missouri campaign finance laws, and
- Federal tax law.
These issues are regularly confused, but when considered in three distinct buckets the analysis is fairly straightforward. Every political organization should ask itself the following three questions.
What is my organization for purposes of Missouri corporate law?
Every business in Missouri falls into some legal category. If no specific decision is made, businesses are "sole proprietorships" or "unincorporated associations" or "partnerships." Not deciding to choose a business form means there is no legal distinction between the business and those running it. Therefore, the individuals involved can be found personally liable for acts of the business (contracts, injuries, etc…). Any political entity should consider incorporating as a Missouri not-for-profit corporation. Doing so does not resolve the entity's tax status (see below) but simply provides a corporate form for purposes of liability. Incorporating is a simple process of filing documents with the Missouri Secretary of State. A not-for-profit corporation needs articles of incorporation, by-laws and a board of at least three persons.
What is my organization for purposes of Missouri campaign finance law?
Missouri campaign finance law applies to any organization involved in advocating for the election or defeat of candidates for office or ballot measures. If the entity is not engaged in such advocacy, i.e. it only "educates" voters on issues without asking them to vote for a specific candidate or measure, it is not subject to campaign finance laws. For example, entities that solely run ads urging voters to "call Senator X and thank her for supporting law enforcement" or "call Senator Y and tell him to quit playing games with our children's education" are not subject to Missouri campaign finance laws and are not subject to limits or reporting requirements.
However, entities that engage in advocacy for the election of candidates or ballot measures are subject to Missouri campaign finance law, including the new constitutional amendment. There are three types of election committees under Missouri campaign finance law – a candidate committee, a Political Action Committee, and a campaign committee.
- A Candidate Committee is an entity formed and controlled by a particular candidate such as a candidate for Governor, State Senate or mayor. No candidate committee may accept corporate contributions. Candidate committees supporting state candidates are subject to contribution limits, while candidates for local office are not subject to limits. Candidate committees may not contribute to other candidates or to political action committees. They must file regular reports with the Missouri Ethics Commission or, in some cases, with their local election authority.
- A Political Action Committee (also known as a continuing committee) supports or opposes candidates for office and may also support or oppose ballot measures, but they cannot be formed or directed by a candidate. PACs may accept unlimited contributions from most sources. Recent litigation in federal court focused mainly on the law governing PACs so there are still some unresolved issues, but as a general rule PACs may accept corporate contributions so long as the PAC does not operate as a "pass-through" for a corporation and so long as those corporations are authorized to do business in Missouri. PACs may contribute to candidates (subject to limits), may make "independent expenditures" urging support of candidates, and may support ballot measures either directly or by making contributions to campaign committees.
- A Campaign Committee is formed and operated solely for the purpose of supporting or opposing ballot measures. It does not support any candidate for office. Campaign committees are generally not subject to any limitations on the funds they may raise or expend in support of or opposition to their ballot measure(s).
What is my organization for purposes of federal tax law?
Federal law requires taxes on business income unless the entity is tax-exempt. Political entities normally fall into one of two exemptions.
- Section 527 exemptions. Candidate committees and PACs are generally tax-exempt under section 527 of the IRS code. They must file an initial notice (Form 8871) with the IRS and must file an income tax return (form 1120-POL). An organization filing under 527 will be taxed on its investment income but not on normal political contributions.
- Section 501(c)(4) exemptions. Campaign (ballot measure) committees do not qualify for section 527 exemption because they are not involved in attempting to influence the election of an individual to office. Instead, campaign committees can be tax-exempt under other sections of the IRS code, most likely section 501(c)(4), which applies to entities that engage in social welfare including educating the public on policy issues and lobbying. Supporting a ballot measure is considered lobbying because it is simply another method of convincing an authorized body (in this case the voters) to adopt a law. Similarly, entities that engage in political activity that does not specifically urge voters to vote for or against a candidate are likely tax-exempt under section 501(c)(4).
Entities claiming 501(c)(4) exemptions must apply for that status with the IRS. If tax-exempt status is granted, it is retroactive to the time the entity was formed. 501(c)(4) entities must file disclosure forms (990's) with the IRS. These forms disclose high level information about the organization, but the contributors are not required to be made public by the IRS. Recent discussions about "dark money" have to do with the fact that the IRS does not require these disclosures, but if a 501(c)(4) entity is in fact advocating for candidates or ballot measures it might still be subject to Missouri campaign finance law as discussed above.
All three bodies of law – corporate law, campaign finance law and the Federal tax code – must be considered when engaged in political activity. Qualifying your entity as a PAC under Missouri campaign finance law does not resolve the question of its corporate status or its tax status. Similarly, organizing an entity as tax-exempt under section 501(c)(4) of the IRS code does not resolve how the entity will be treated for purposes of Missouri campaign finance law.