With the Iowa Caucus only a few days away, the public will soon turn its full attention to the 2020 presidential election. If 2016 is any indication, the 2020 presidential race promises to be heated and divisive. The following article provides an overview of what all businesses need to know about political activity.
Businesses will often think that they are not politically active, but that assumption is not always accurate. The CEO writes a check to support his neighbor who is running for local office. A grocery store provides items to a political officeholder who uses the goods for a campaign event. A partner at an accounting firm is listed as a host of a campaign fundraiser.
These are all examples of political activity that are subject to federal and state campaign-finance and election laws. As the country’s elections become only more heated and as new laws come into effect, it is important for businesses to ensure that they understand these laws and have a plan for compliance.
What Is a Political Contribution?
Anything of value provided to a political campaign is a political contribution subject to campaign-finance restrictions. This includes making a direct political contribution via check, making an in-kind political contribution (the provision of goods or services to a political campaign), purchasing tickets to a political fundraiser (such as golf outings or cocktail parties) or placing an ad in a journal for a political fundraiser. While currency contributions are generally permitted, they are often subject to reduced limits and heightened reporting requirements, and thus most political recipients generally seek to avoid currency contributions. In addition, soliciting political contributions by asking another person to provide something of value to a political recipient is covered as political activity.
The entire amount of the funds or goods provided to a political campaign is the amount of the political contribution. Therefore, if you write a check for $300 to attend a political dinner, the entire amount of $300 is a political contribution despite the fact that the underlying cost of the dinner was $100.
Political contributions are not tax deductible for the contributor.
Are Subject to Restrictions
Under campaign-finance laws in effect in all 50 states and at the federal level, there are limits on who may make political contributions.
Foreign nationals (with the exception of green-card holders) may never make political contributions anywhere in the United States.
In different jurisdictions, different laws apply. For example, corporations may make political contributions to New Jersey political recipients, but corporate political contributions are prohibited in New York City, Pennsylvania and for federal recipients. The prohibition on corporate political contributions in those jurisdictions extends beyond direct contributions of money. The use of any corporate resources to support a federal candidate is strictly prohibited. This prohibition even extends to granting unpaid leave to employees who want to volunteer for political campaigns if the leave is granted in a way that demonstrates a preference for one party or candidate. For example, approving unpaid leave so that individuals may volunteer only for Democratic campaigns but refusing to grant unpaid leave to individuals who wish to volunteer for a Republican campaign may itself be prohibited as a corporate political contribution.
In New Jersey, while corporations may generally make political contributions, New Jersey criminal law prohibits any political contributions from the corporate resources of banks, insurance companies, utilities and other heavily regulated industries.
There are also different rules that apply to non-corporate business entities, such as LLCs and partnerships. The law for contributions made by these entity types also depends on the relevant jurisdiction.
Political Contributions Are Subject to Limits
Different limits apply to contributions made to different recipients. In New Jersey, state and local political candidates may accept contributions of up to $2,600 per election, while different limits apply to political parties and PACs. However, federal candidates may accept up to $2,800 per election. In Pennsylvania (outside of certain cities such as Philadelphia) there are no limits on what an individual may contribute to a political recipient. As always, the specifics of the law depend on the jurisdiction and the recipient type.
All Political Contributions Must Be Voluntary and May Never Be Reimbursed
Under applicable law, a political contribution must be voluntary. This means that not only may political contributions not be coerced, but it is important to ensure that no undue pressure is placed on a contributor. For example, I often explain to clients that if a business is hosting a political event in its office, the CEO should not ask an intern to support the candidate, even if the CEO specifies that all contributions are voluntary, because the unequal status of the individuals in the company may pressure the intern to contribute. Instead, the CEO may solicit contributions only from people at similar levels of the company, who would feel comfortable responding “no” to such a request.
Avoiding coercion, express or implied, in the solicitation of political contributions is also important to protect the company from legal liability. In many employment suits for wrongful termination, the former employee will claim that the company terminated the relationship because the employee refused to support the political candidates favored by the CEO. Ensuring that solicitations of political contributions are only directed to people who would feel comfortable declining the request will help protect the company from this possibility.
Last, under applicable law, each political contribution must be made with a contributor’s own funds and may never be reimbursed. In the context of a business, this means that an employee that attends a political event may never submit the cost of the event for reimbursement on an expense report.
Stay tuned for next week’s article on why all businesses need a political-activity policy.
Avi D. Kelin, Esq. is an attorney in the Newark, New Jersey, office of Genova Burns LLC. Kelin focuses on the interaction between government and business. He advises businesses, trade associations and individuals on lobbying requirements, campaign-finance law, pay-to-play restrictions, government-ethics rules and the government-procurement process.