New Law Protects California Nonprofits From Political Targeting

Gov. Newsom Signs Priority Nonprofit Legislation, AB 1318, to Protect Nonprofits' Access to State Funds

A wave of executive orders, funding cuts, and political targeting of 501(c)(3) tax-exempt status by the Trump Administration have created deep uncertainty across the nonprofit sector. These challenges highlight a key vulnerability: nonprofits' eligibility for state funding is typically tied to maintaining their federal 501(c)(3) tax-exempt status. Consequently, if the federal administration were to revoke a nonprofit's federal tax-exempt status over mission disagreements, then their access to vital state funding would be instantly jeopardized.

To address this, Governor Gavin Newsom has signed Assembly Bill 1318, by Assemblymember Mia Bonta (D-Oakland) and sponsored by CalNonprofits, safeguarding nonprofits from politically motivated efforts at the federal level that could block access to state resources. This new law, effective immediately, expands the definition of a "qualified nonprofit organization" for state grants and contracts to include either federal or state tax-exempt status.

"By enacting AB 1318, Gov. Newsom has helped preserve access to vital funding for nonprofits and preserve their partnership with the state even if their federal tax-exempt status is jeopardized by political targeting in this chaotic, unpredictable moment," said Geoff Green, CEO of CalNonprofits.

CalNonprofits continues to develop and advocate for policy solutions - in collaboration with state leaders - that advance greater efficiency, fairness, and stability in nonprofit partnerships with the state of California. We are especially grateful for the visionary leadership of Assemblymember Mia Bonta for authoring this bill, and her focus on strengthening and protecting nonprofits during a challenging period for the sector.

"Before joining the Assembly, I spent years in the nonprofit sector and saw how these organizations step up where government falls short. They serve our most vulnerable neighbors with limited resources, and they shouldn't be targeted by politically motivated attacks from the President. That's why I authored AB 1318 to ensure California stands up for its nonprofits. I'm proud of the coalition that made this possible and thankful to Governor Newsom for signing this bill into law," said Assemblymember Mia Bonta

We thank our members and supporters who helped us sustain momentum on this legislation so that it advanced all the way to the Governor's desk.

Additional Safeguards for California Nonprofits

Nonprofits concerned about the revocation of their federal tax-exempt status due to political targeting by the current administration should understand the effects of such a revocation on their organization's California tax-exempt status and how you can secure additional protection. The Franchise Tax Board's (FTB) treatment of a federal revocation is based on the method the entity first received its California tax-exemption.

Organizations that obtained California tax-exempt status by filing the Form 3500 Exemption Application (the longer form and process), will not face immediate revocation of their California tax-exempt status based on a federal 501c3 revocation. FTB's review process protects against revocation of status for political reasons because the state's examination prioritizes financial misconduct as primary justification for any change in state status during this review.

Organizations that obtained California tax-exempt status by filing Form 3500A Submission of Exemption Request (the shorter form), will face immediate revocation of state tax-exempt status if federal tax-exempt status is revoked by the IRS

What does this mean for your organization?If you initially obtained state tax-exempt status using the expedited Form 3500A, you may want to consider reapplying via Form 3500 as an additional safeguard. Be aware that the FTB review process for Form 3500is much more in-depth, involving a thorough examination of your nonprofit's activity, programs, and Profit & Loss (P&L) statements. Because of this rigorous review, an organization approved under the simpler 3500A process may not passthe full 3500 review. Additionally, the FTB typically requires 9-11 monthsof processing time for this application. Find additional information here.