Pastor, Church & Law

Regulation of Charitable Solicitations

§ 9.02

Key point 9-02. Several states have enacted laws regulating the solicitation of charitable contributions. These laws generally do apply to solicitations of contributions by churches from their members. However, in some cases, they may apply to churches that use professional fundraisers, or that actively solicit contributions from nonmembers.

1. State Charitable Solicitation Laws

Several states have enacted laws regulating the solicitation of charitable contributions. The purpose of such laws is “to protect the contributing public and charitable beneficiaries against fraudulent practices in the solicitation of contributions for purportedly charitable purposes.” 20 Larson v. Valente, 456 U.S. 228 (1982).

The typical statute requires designated charitable organizations to register with a state agency prior to the solicitation of contributions within the state, and imposes various reporting requirements. These statutes ordinarily give the state authority to revoke the registration of any charitable organization upon a finding that the organization has engaged in a fraudulent or deceptive practice, or that it has expended more than a prescribed or “reasonable” amount of solicited funds for administrative and fund raising costs, and that the public interests so require.

Key point. Many states have laws requiring registration and regulation of “professional” fund raisers. The validity of such laws was called into question by the United States Supreme Court in a 1988 ruling in which the Court struck down a North Carolina statute requiring professional fund raisers to be licensed by the state, and establishing maximum administrative fees and expenses that could be charged.21 Riley v. National Federation of the Blind, 108 S. Ct. 2667 (1988).

Most state laws that regulate the solicitation of charitable contributions exempt religious organizations. Some restrict the exemption to religious organizations that are exempt from the requirement of filing annual information returns (Form 990) with the IRS. A few states have enacted the Uniform Supervision of Trustees for Charitable Purposes Act.

The application of state charitable solicitation laws to religious and charitable organizations has been challenged in a few important cases. In Larson v. Valente,22 456 U.S. 228 (1982). The Court invalidated § 309.515-1(b) of the Minnesota Statutes.the United States Supreme Court invalidated a section of the Minnesota Charitable Solicitation Act that exempted from registration only those religious organizations receiving more than half of their support from members. The Court emphasized that “the clearest command of the Establishment Clause [of the First Amendment] is that one religious denomination cannot be officially preferred over another,”23 Id. at 1683.and concluded that “the fifty percent rule … clearly grants denominational preference of the sort consistently and firmly deprecated in our precedents.” 24 Id. at 1684Such a law, observed the Court, must be invalidated unless (1) it is justified by a compelling governmental interest, and (2) it is “clearly fitted to further that interest.” The “tripartite” establishment clause analysis formulated by the Court in the Lemon case (itself since overturned)25 Lemon v. Kurtzman, 403 U.S. 602, 612-13 (1971). The Lemon case is discussed in chapter 12, infra.was deemed inapplicable in this context, since that analysis was “intended to apply to laws affording a uniform benefit to all religions, and not to provisions, like the … fifty percent rule, that discriminate among religions.” 26 Id. at 1687. While the Court concluded that the tripartite test of Lemon was inapplicable, it nonetheless observed that the Minnesota statute did not satisfy that test.

The Court acknowledged that the State of Minnesota had a significant interest in protecting its citizens from abusive practices in the solicitation of funds for charity, even when the solicitation was conducted by religious organizations. However, it rejected the state’s contention that the 50 percent rule was closely fitted to further that interest.

In 1980, the Supreme Court observed in the Village of Schaumburg decision:

Prior authorities, therefore, thoroughly establish that charitable appeals for funds … involve a variety of speech interests—communication of information, a dissemination and propagation of views and ideas, and the advocacy of causes—that are within the protection of the First Amendment. Soliciting financial support is undoubtedly subject to reasonable regulation but the latter must be undertaken with due regard for the reality that solicitation is characteristically intertwined with informative and perhaps persuasive speech seeking support for particular causes or for particular views on economic, political, or social issues, or for the reality that without solicitation flow of such information and advocacy would likely cease. 27 Village of Schaumburg v. Citizens for a Better Environment, 444 U.S. 620, 632 (1980).

Such reasoning suggests that a state charitable solicitation law that applies to all religious organizations would be constitutionally suspect under the establishment clause, but it also would clash with the free exercise and free speech clauses. 28 In 1990 the Supreme Court observed that the compelling government interest test is triggered if a neutral and generally applicable law burdens not only the exercise of religion, but some other First Amendment right (such as speech, press, or assembly) as well. Employment Division v. Smith, 494 U.S. 872 (1990). The Court observed: “The only decisions in which we have held that the First Amendment bars application of a neutral, generally applicable law to religiously motivated action have involved not the free exercise clause alone, but the free exercise clause in conjunction with other constitutional protections, such as freedom of speech and of the press . . . .” In other words, if a neutral and generally applicable law or governmental practice burdens the exercise of religion, then the compelling governmental interest standard can be triggered if the religious institution or adherent can point to some other First Amendment interest that is being violated. In many cases, this will not be hard to do. For example, the First Amendment guaranty of free speech often will be implicated when a law or governmental practice burdens the exercise of religion. The same is true of the First Amendment guarantees of free press and assembly.

As the Supreme Court noted in Larson, a state unquestionably has a significant interest in protecting its citizens from abusive practices in the solicitation of funds for charity. However, such an interest alone does not determine constitutional validity. The state must also demonstrate that its charitable solicitation law is “closely fitted to further the interest that it assertedly serves.” 29 456 U.S. 228 (1982).The Court noted in Village of Schaumburg that “the Village may serve its legitimate interests, but it must do so by narrowly drawn regulations designed to serve these interests without necessarily interfering with First Amendment freedoms.” 30 444 U.S. at 637.

2. Municipal Charitable Solicitation Laws

Several cities have enacted ordinances regulating the solicitation of charitable contributions. These ordinances often are similar in content and purpose to state laws, and contain an exemption for religious organizations that meet certain requirements. For example, some cities exempt religious organizations that are exempt from federal income taxation. Other cities exempt properly authorized solicitors of established and organized churches or other established and organized religious organizations, organizations conducting a solicitation among their own membership, solicitations in the form of collections or contributions at a regular assembly or service, and any church which solicits funds for religious purposes. Some cities require religious organizations that use professional fund raisers to register under a charitable solicitation ordinance.

The constitutionality of applying charitable solicitation ordinances to religious organizations has been challenged in several cases. In Village of Schaumburg,31 See note 27, supra.the Supreme Court struck down an ordinance prohibiting the solicitation of contributions by charitable organizations that did not use at least 75 percent of their receipts for charitable purposes. The ordinance excluded solicitation expenses, salaries, overhead, and other administrative expenses from the definition of “charitable purpose.” The Court conceded that charitable appeals for funds involve a variety of speech interests that are within the protection of the First Amendment, and that any ordinance interfering with such interests would be constitutionally valid only if it (1) served a compelling governmental interest and (2) was narrowly drawn to serve that interest without necessarily interfering with First Amendment freedoms.

The Court acknowledged that a city has a substantial interest in protecting the public from fraud, crime, and undue annoyance. However, it concluded that a municipal ordinance banning solicitations by any charity that did not expend more than 75 percent of solicited funds for charitable purposes could not be upheld, since the city’s legitimate interests could be “better served by measures less intrusive than a direct prohibition on solicitation.” 32 Id. at 637.The Court also noted that there was no evidence that “organizations devoting more than one-quarter of their funds to salaries and administrative expenses are any more likely to employ solicitors who would be a threat to public safety than are other charitable organizations.” 33 Id. at 638.

In summary, the Village of Schaumburg decision may be reduced to the following two principles: (1) The right to solicit funds for religious and charitable purposes is protected by the First Amendment’s free speech clause, and (2) this right is not unconditional, but may be limited by a municipal ordinance if the ordinance (a) serves a compelling government interest and (b) is narrowly drawn to serve that interest without unnecessarily interfering with First Amendment freedoms.

Village of Schaumburg has been followed in several other cases. 34 See, e.g., Chiu v. Plano Independent School District, 339 F.3d 273 (5th Cir. 2004); ACORN v. City of Frontenac, 714 F.2d 813 (8th Cir. 1983); ACLU v. City of Las Vegas, 466 F.3d 784 (9th Cir. 2006); Pacific Frontier v. Pleasant Grove City, 414 F.3d 1221 (10th Cir. 2005); United Youth Careers v. City of Ames, 412 F.Supp.2d 994 (S.D. Iowa 2006); Pennsylvania Public Interest v. York Township, 569 F. Supp. 1398 (M.D. Pa. 1983); NAACP Legal Defense and Educational Fund, Inc. v. Devine, 567 F. Supp. 401 (D.D.C. 1983); Taylor v. City of Knoxville, 566 F. Supp. 925 (E.D. Tenn. 1982); Optimist Club v. Riley, 563 F. Supp. 847 (E.D.N.C. 1982); Los Angeles Alliance for Survival v. City of Los Angeles, 993 P.2d 334 (Cal. 2000); People v. World Church of the Creator, 760 N.E.2d 953 (Ill. 2001); State v. Dean, 866 N.E.2d 1134 (Ohio App. 2007); State v. Gold, 850 N.E.2d 1218 (Ohio App. 2006).In most of these decisions, municipal ordinances attempting to regulate charitable solicitations were invalidated. The courts generally concede that a city has a legitimate and substantial interest in preventing fraud, crime, and undue annoyance, but they often conclude that a particular charitable solicitation ordinance too broadly serves that interest since other, less restrictive, alternatives exist which serve the same interest. The Supreme Court in Village of Schaumburg noted:

Frauds may be denounced as offenses and punished by law. Trespasses may similarly be forbidden. If it is said that these means are less efficient and convenient than … deciding in advance what information may be disseminated from house to house, and who may impart the information, the answer is that considerations of this sort do not empower a municipality to abridge freedom of speech and press. 35 444 U.S. 620, 639.

In conclusion, a municipal ordinance purporting to regulate the solicitation of funds by some or all religious organizations should presumptively 36 See, e.g., Pennsylvania Public Interest v. York Township, 569 F. Supp. 1398, 140 (M.D. Pa. 1983) (“because the ordinance impinges on the exercise of free speech, it is presumptively unconstitutional”).be unconstitutional unless the city can demonstrate that the ordinance serves a legitimate and compelling interest and that this interest cannot effectively be protected by less intrusive, more narrowly drawn, alternatives.

Several courts have concluded that the availability of private causes of action for fraud and trespass, together with penal prohibitions of such conduct, sufficiently protect a city’s legitimate interests in safeguarding its citizens from abusive charitable solicitations by religious organizations.

A city also of course may make a determination that a particular “religious” organization is spurious and therefore not entitled to an exemption, and it is free to deny an exemption to otherwise bona fide religious organizations that have been proven to have engaged in frauds upon the public. 37 See Larson v. Valente, 102 S.Ct. 1673, 1689 n.30 (1982): Nothing in our opinion suggests appellants could not attempt to compel the Unification Church to register under the Act as a charitable organization not entitled to the religious‑organization exemption, and put the Church to the proof of its bona fides as a religious organization. Further, nothing in our opinion disables the State from denying exemption from the Act, or from refusing registration and licensing under the Act, to persons or organizations proved to have engaged in frauds upon the public.Further, any municipal charitable solicitation ordinance exempting only some religious organizations from registration would be suspect under the establishment clause, since some religious groups are singled out for favored treatment while others are not. All of these factors indicate that most charitable solicitation laws cannot constitutionally be extended to religious organizations.

Certainly any charitable solicitation law that gives a licensing body or official effective discretion to grant or deny permission to solicit funds for religious purposes is likewise unconstitutional:

The solicitation of funds for religious purposes is protected by the First Amendment. Any law restricting the exercise of such rights must do so with narrow, objective and definite standards. If a certificate is required for one to solicit funds for religious purposes, the discretion of the official granting the certificate must be bounded by explicit standards. If the decision to issue the certificate “involves appraisal of facts, the exercise of judgment, and the formation of an opinion,” the ordinance violates the First Amendment. Ambiguities in the application process which give the licensing official effective power to grant or deny permission to solicit funds for religious purposes is likewise unconstitutional. In other words, it is not enough that an official is directed to issue the license forthwith; if the official may deny the application because of unclear requirements in the application process, the law is unconstitutional. Laws allowing an investigation into the financial affairs of religious institutions have been held unconstitutional as an impermissible entanglement of the affairs of church and state. Finally, any prior restraint on the exercise of First Amendment freedoms must be accompanied by procedural safeguards designed to obviate the dangers of prior restraint. 38 Taylor v. City of Knoxville, 566 F. Supp. 925, 929 (E.D. Tenn. 1982).

The Supreme Court has held that the fund raising activities of religious organizations, “like those of others protected by the First Amendment, are subject to reasonable time, place, and manner restrictions.” 39 Heffron v. International Society for Krishna Consciousness, Inc. 452 U.S. 640, 647 (1981).It is doubtful that these restrictions are of any practical relevance in the context of charitable solicitations by religious organizations. One court specifically held that the Supreme Court’s decision in Heffron “has a rather narrow applicability” because of its “somewhat unusual factual situation” involving solicitation at a state fair. 40 Pennsylvania Public Interests v. York Township, 659 F. Supp. 1398, 1402 (M.D. Pa. 1983).The court observed that “the flow of the crowd and demands of safety are more pressing in the context of the fair.” 41 Id.The Supreme Court’s decision in Village of Schaumburg strongly intimated that “time, place and manner” restrictions do not justify regulation of charitable solicitations. 42 444 U.S. 620, 639-640 (1980).

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