HB 247 - NONPROFIT CORPORATIONS CHAIRMAN ROKEBERG announced the next order of business would be HOUSE BILL NO. 247, "An Act revising the nonprofit corporations code and the religious corporations code; relating to disclosures and reports by certain nonprofit corporations; amending Rules 3, 4, 8, 17, 19, 23.1, 24, 25, 65, 79, and 82, Alaska Rules of Civil Procedure, Rule 803, Alaska Rules of Evidence, and Rules 602 and 609, Alaska Rules of Appellate Procedure; and providing for an effective date." There was a proposed committee substitute (CS). Number 0437 PATRICK HARMAN, Staff to Representative Pete Kott, Alaska State Legislature, came before the committee to present HB 247 on behalf of the sponsor. He noted that the bill has dramatically changed from its original version and that the nonprofit [corporations] have not had a chance to look at the latest version. House Bill 247, he said, is basically a disclosure bill. It asks that domestic and foreign nonprofit [corporations] file a Form 990, a form that they already produce and provide to the Internal Revenue Service [IRS], with the state. Nonprofit [corporations], he said, are exempt from paying certain taxes because they provide a service for the good of the public; in that regard, the bill asks that they prove their service on a regular basis. Number 0531 REPRESENTATIVE HALCRO made a motion to adopt the proposed CS for HB 247, Version I [1-LS0676\I, Bannister, 3/3/00], as a work draft. There being no objection, Version I was before the committee. Number 0547 MR. HARMAN pointed out that the essence of HB 247 is Section 4, which starts on page 2, line 31. He read the following language [Version I, page 3, lines 1-4]: (a) A foreign corporation transacting business in the state and a domestic corporation shall file with the department on or before July 1 of each year a copy of the most recent Form 990 filed by the foreign or domestic corporation with the federal government. MR. HARMAN noted that Form 990 is a public document, but it is very difficult to get from the IRS. Version I asks that the corporation pay the Department of Community & Economic Development a fee in order to keep it revenue-neutral [subsection (c), page 3, lines 10-11]. There are approximately 5,000 nonprofit [corporations] in the state; and, in that regard, the bill would increase the department's costs. He noted, however, that there isn't a fiscal note for the proposed committee substitute yet from the Administration. Number 0672 REPRESENTATIVE HALCRO asked Mr. Harman whether the federal government decides if a corporation is nonprofit. MR. HARMAN replied, "Yes." REPRESENTATIVE HALCRO asked Mr. Harman why the state has an interest in making sure that nonprofit corporations really should qualify for a tax-exempt status if the IRS already verifies the qualifying nonprofit [corporations]. Number 0695 MR. HARMAN replied that there are nonprofit organizations coming to the state which are trying to affect public policy on both the right and left of the political spectrum. He asked: Who are these people? Where are they getting their money? In that regard, it's hard to track them down and get their annual reports. CHAIRMAN ROKEBERG remarked that HB 247 is the APOC [Alaska Public Offices Commission] bill for nonprofit [corporations]. MR. HARMAN answered that it could be considered as such. He noted that most of the nonprofit [corporations] are nonpolitical. Number 0744 REPRESENTATIVE HALCRO asked: If a nonprofit [corporation] is taking a position in an election to influence the outcome of a race or ballot proposition, doesn't it fall under APOC anyway? MR. HARMAN said that is true but there are other public policy issues that don't have to do with an election. Number 0767 REPRESENTATIVE BRICE stated that nonprofit [corporations] are broken down as (c)(2), (c)(3), (c)(4), and so forth. Traditional nonprofit [corporations] such as the human services are designated as (c)(3), while labor unions are designated as (c)(6). He can see the benefit of getting that information for some, but for others it would be a little overburdensome. He asked Mr. Harman what the Form 990 shows. MR. HARMAN distributed to committee members a copy of Form 990 from the IRS. REPRESENTATIVE BRICE asked Mr. Harman what types of fees would be associated with this requirement for a nonprofit [corporation]. MR. HARMAN replied, if there were 5,000 filings and if $20 was collected for a filing fee, it ought to be close to revenue- neutral. He deferred the question to a representative of the Department of Community & Economic Development. Number 0889 FRED JENKINS, Session Executive Director, United Way of Anchorage, testified via teleconference from Anchorage. He had received notice of HB 247 last Friday, and he had not had a chance to really look at it. He hopes, therefore, that the committee can answer a few questions. He asked: What is hoped to be accomplished by the bill? Is what is being accomplished for the benefit of the public or for the benefit of the department? MR. HARMAN replied that HB 247 is based on a political philosophy of free and open disclosure. CHAIRMAN ROKEBERG asked Mr. Harman what the sponsor hopes to accomplish from the bill. MR. HARMAN replied that nonprofit corporations are essentially tax exempt - a privileged position. House Bill 247 would require nonprofit [corporations] to validate their status by filing annual reports stating where they get their funding and how they spend it. Furthermore, they already submit a Form 990 annually with the IRS; in that regard, the sponsor wants to make the disclosure open but not onerous. CHAIRMAN ROKEBERG stated that the sponsor is targeting the nonprofit [corporations] which engage in the political activity in the state that do not have to disclose where their sources of funds come from - the rationale behind HB 247. Number 1007 MR. JENKINS asked whether the rationale is to have nonprofit corporations which don't currently do so disclose their sources of funds. CHAIRMAN ROKEBERG affirmed that. He asked Mr. Jenkins whether the sources of funds are disclosed to the IRS. MR. JENKINS replied, "Yes." He asked whether HB 247 is for the benefit of the public or the department. CHAIRMAN ROKEBERG replied that he would say it is for the benefit of the public, not the department. Number 1034 MR. JENKINS asked why the definition of "transacting business" in Version I is being expanded [page 3, lines 18-19]. MR. HARMAN answered that the bill drafter expressed that the definition of "transacting business" was too broad and too hard to interpret. The language, therefore, was included to pin it down. MR. JENKINS said, "So, the intent is that if you're expending money in the state, you're transacting business?" MR. HARMAN answered, "That's correct." Number 1090 MR. JENKINS asked how nonprofit [corporations] know that they are to file a certificate of authority with the state. Does an organization that solicits in a newspaper or magazine and receives donations have to file a certificate of authority with the state? MR. HARMAN answered that it is not the intent of the sponsor to require nonprofit corporations to have a certificate of authority if they aren't already required to have one. He further said, "Transactions of business would be expending monies in the state. I think solicitations wasn't the intent. That, if you're buying media time, if you're renting office space, [if] you're procuring, distributing printed material in the state but not necessarily mailing it to the state or newspaper ad (indisc.), a national advertisement." MR. JENKINS said, "So, if you place an advertisement in the state in a periodical or any kind of publication then you're transacting business in the state and spending dollars in the state." MR. HARMAN replied that it depends on whether it's a national publication. MR. JENKINS said, "So, national, no. But state or local, yes." MR. HARMAN replied, if a merchant or business received the money in the state. CHAIRMAN ROKEBERG asked Mr. Jenkins whether he had any testimony to provide. MR. JENKINS replied, no, not at this point; he hadn't had enough time to really look at the bill. However, he appreciates Mr. Harman's answering his questions. Number 1238 REPRESENTATIVE BRICE asked Mr. Jenkins whether there are specific federal designations that the United Way of Anchorage will not support as a 501(c)(3) organization. MR. JENKINS replied that the United Way of Anchorage supports activities which are within their bylaws and articles of incorporation in relation to health and human services in the community. They do not contribute to political candidates, for example. REPRESENTATIVE BRICE asked Mr. Jenkins whether the United Way of Anchorage stays with the 501(c)(3) types of designations. MR. JENKINS replied, "Yes." REPRESENTATIVE HALCRO asked Mr. Jenkins whether the United Way of Anchorage completes a Form 990 every year. MR. JENKINS affirmed that. REPRESENTATIVE HALCRO asked Mr. Jenkins whether a person could request to see the form from the IRS. MR. JENKINS replied, "Yes." A person could come to the office and request to see the form as well. Number 1326 RICHARD BLOCK, Christian Science Committee on Publication, testified via teleconference from Anchorage. He noted that he is the person requested by Christian Science churches in the state to overlook legislation that may affect the practice of their religion. He noted that under Section 6033 of the IRS churches - among other organizations - are specifically and mandatorily exempted from filing a Form 990. MR. BLOCK said the bill, however, requires a nonprofit corporation to file a statement of information with the state. The Christian Science Committee would find that to be objectionable because of the burden of filing a form and disclosing the internal workings of a church. It also mixes church and state activities, which he supposes is why at the federal level the IRS has mandated that churches be exempt from the filing requirement. He pointed out that the legislature is considering HB 387, which requires that there shall be no legislation or act by a state, municipal or school district entity unless there is a showing of a compelling state interest that it interferes with the practice of religion. If there is a compelling state interest, the least restrictive means has to be used. In the case of churches, he doesn't see a compelling state interest so far in relation to HB 247 other than a general curiosity of who is contributing money to the organization. If there was a compelling state interest, he's sure that there are lesser restrictive means in which to accomplish whatever may be the compelling state interest. In that regard, he urged the committee members to remove subsection (b) [page 3, lines 5-9, of Version I] so that churches are not required to make the filings. CHAIRMAN ROKEBERG stated, to Mr. Block, he's sure that it's not the sponsor's intent to "throw his net so wide that it catches his organization." He asserted that a committee substitute with an exemption section or provisions to that effort would be made. CHAIRMAN ROKEBERG announced that HB 247 would be held in the committee for further consideration.