Hawaii-2021-HB1118-Amended

SECTION 1. The legislature finds that dark money is defined as funds raised for the purpose of influencing elections by nonprofit organizations that are not required to disclose the identities of their donors. Dark money sometimes comes from Internal Revenue Code 501(c)(4) organizations that are not required to disclose the identity of their donors. By doing so, there is a lack of transparency that fails to inform the public on who is trying to influence an election. Although dark money can come in through different tax-exempt organizations, this Act attempts to address one area of dark money through the 501(c)(4) organizations.

The legislature further finds that Internal Revenue Code 501(c)(4) organizations are tax-exempt as a social welfare organization, must not be organized for profit, and must be operated exclusively to promote social welfare. The Internal Revenue Service describes "exclusively promoting social welfare" as operating primarily to further the common good and general welfare of the people of the community, such as by bringing about civic betterment and social improvements. The promotion of social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office.

However, the Internal Revenue Code states that social welfare organizations may engage in some political activities, so long as that is not their primary activity. Arguably, this means that an organization can use 49.99 per cent of its funds to engage in political activity and still maintain its tax‑exempt status, all while hiding its donor's involvement in political campaigning. Also, the Internal Revenue Service is currently not authorized to use any funds to investigate these activities in order to ensure compliance. This allows 501(c)(4) organizations to engage in and spend unregulated amounts of money on political activity without any consequences or oversight, conceivably well above the political activity percentage threshold allowed.

While the State does not have the authority to revoke federal tax-exempt status, the State should be given oversight into 501(c)(4) organizations that operate in Hawaii to ensure that the majority of its operations and spending are focused on social welfare and not political activities. The State may then submit its findings to the Internal Revenue Service and the public.

The purpose of this Act is to ultimately provide more transparency in elections and build trust between the public and elected officials through transparent information by requiring:

(1) Any organization, association, party, or individual that is financially involved in the political process to file a financial disclosure with the campaign spending commission; and

(2) Noncandidate committees to provide to the campaign spending commission a list of donors whose money was given by a 501(c)(4) organization to the noncandidate committee to fund an advertisement or electioneering communication.

SECTION 2. Section 11-302, Hawaii Revised Statutes, is amended by amending the definition of "noncandidate committee" to read as follows:

""Noncandidate committee" means an organization, association, party, or individual that [~~has the purpose of making or receiving~~] makes or receives contributions, [~~making~~] makes expenditures, or [~~incurring~~] incurs financial obligations to influence the nomination for election, or the election, of any candidate to office, or for or against any question or issue on the ballot; provided that a noncandidate committee does not include:

(1) A candidate committee;

(2) Any individual making a contribution or making an expenditure of the individual's own funds or anything of value that the individual originally acquired for the individual's own use and not for the purpose of evading any provision of this part; or

(3) Any organization that raises or expends funds for the sole purpose of producing and disseminating informational or educational communications that are not made to influence the outcome of an election, question, or issue on a ballot."

SECTION 3. Section 11-335, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:

"(b) Schedules filed with the reports shall include the following additional information:

(1) The amount and date of deposit of each contribution received and the name, address, occupation, and employer of each contributor making a contribution aggregating more than $100 during an election period, which was not previously reported; provided that if:

(A) All the information is not on file, the contribution shall be returned to the contributor within thirty days of deposit; and

(B) A noncandidate committee making only independent expenditures receives a contribution of more than $10,000 in the aggregate in an election period from an entity other than an individual, for-profit business entity, or labor union, then the schedule shall include:

(i) The internet address where the contributing entity's disclosure report can be publicly accessed, if the contributing entity is subject to state or federal disclosure reporting requirements regarding the source of the contributing entity's funds;

(ii) The name, address, occupation, and employer of each funding source that contributed $100 or more in the aggregate in an election period to that contributing entity; or

(iii) An acknowledgment that the contributing entity is not subject to any state or federal disclosure reporting requirements regarding the source of the contributing entity's funds;

(2) The amount and date of each contribution made and the name and address of the candidate, candidate committee, or noncandidate committee to which the contribution was made;

(3) All expenditures, including the name and address of each payee and the amount, date, and purpose of each expenditure; provided that:

(A) Expenditures for advertisements or electioneering communications shall include the names of the candidates supported, opposed, or clearly identified;

(B) Expenditures for consultants, advertising agencies and similar firms, credit card payments, salaries, and candidate reimbursements shall be itemized to permit a reasonable person to determine the ultimate intended recipient of the expenditure and its purpose;

(D) The purpose of an independent expenditure shall include the name of the candidate who is supported or opposed by the expenditure, and whether the expenditure supports or opposes the candidate;

(4) For noncandidate committees making only independent expenditures, certification that no expenditures have been coordinated with a candidate, candidate committee, or any agent of a candidate or candidate committee;

(5) The amount, date of deposit, and description of other receipts and the name and address of the source of each of the other receipts;

(6) A description of each durable asset, the date of acquisition, value at the time of acquisition, and the name and address of the vendor or contributor of the asset; [~~and~~]

(7) The date of disposition of a durable asset, value at the time of disposition, method of disposition, and name and address of the person receiving the asset[.]; and

(8) If the noncandidate committee received funds from an organization that is exempt from federal taxation under section 501(c)(4) of the Internal Revenue Code of 1986, as amended, to be expended for advertisements or electioneering communications, a list of donors contributing more than $5,000 in the aggregate in an election period whose money was used by the organization for the advertisement or electioneering communication."

SECTION 4. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 5. This Act shall take effect on July 1, 2112.

HOUSE OF REPRESENTATIVES	H.B. NO.	1118
THIRTY-FIRST LEGISLATURE, 2021		H.D. 2
STATE OF HAWAII