WSJ: California Bill Would Target Tax-Exempt Status of Boy Scouts

September 04, 2013

Wall Street Journal - California Bill Would Target Tax-Exempt Status of Boy Scouts
By Jacob Gershman

California lawmakers are deciding whether to pressure the Boy Scouts of America to change its policies toward gays by threatening the group’s tax-exempt status.

A bill under consideration would revoke the tax-exempt status of youth organizations that fail to comply with California’s nondiscrimination laws.

Dubbed the “Youth Equality Act,” the bill could pass California’s Legislature as early as Wednesday, a spokeswoman for its main sponsor, Sen. Ricardo Lara, told Law Blog on Tuesday. It would then be sent to Gov. Jerry Brown, who hasn’t taken a position on it.

While the bill doesn’t explicitly target the Scouts, “it is clearly aimed at them,” according to a legislative analysis by a California Senate finance committee. Legislative staffers say they are unaware of another group whose tax-exempt status would be in jeopardy under the proposed tax law change.

The Scouts decided in May to allow gay youth to openly join its ranks, while continuing to bar gay adults from staff or volunteer leadership roles. Supporters of the California measure say the organization is still discriminating on the basis of sexual orientation.

“California does not tolerate discrimination and we certainly shouldn’t pay for it,” said John O’Connor, executive director of Equality California,  a gay rights group, in a statement.

Deron Smith, a spokesman for Boy Scouts of America, told Law Blog by email that “the focus of our 23 local Boy Scouts councils across the state of California is to deliver the Scouting program to more than 180,000 youth, many of whom are disadvantaged and at risk.”

Losing its tax-exempt status would mean that the Scouts would be treated like a taxable corporation. Income from member dues, camp fees, corporate sponsorships, and proceeds from fundraisers would all be subject to California’s corporation tax. The group could see their state and local tax bills increase by $250,000 a year, according to a legislative analysis by California Assembly staff.

In California, changes to tax law that result in higher taxes require a two-thirds majority in both houses.

This bill falls into that category so the bar for passage is higher than ordinary bills. The Senate passed the bill in May with a 27-to-9 vote. To clear the two-thirds hurdle in the Assembly, all of the Democrats would need to vote for it and at least one Republican. Supporters of the bill are still trying to round up enough votes.

If the bill were to become law, the fate of the Scouts’ tax-exempt status in California would be in the hands of California’s Franchise Tax Board, which collects state personal income tax and corporate income tax.

The board would decide whether a “public charity youth organization discriminates, in much the same way as it determines whether a taxpayer inappropriately claimed a credit or unlawfully failed to include an item of income,” according to the Senate finance report.

Even if the Scouts were to lose its tax-exempt status as a result of the measure, taxpayers could still claim a charitable deduction for donating to the group.