OPINION NUMBER - 116
ADOPTED - 1988/08/05
SUBJECT - Campaign Financing; Interest income for separate segregated political fund and the payment of federal tax on that interest.
REQUESTED BY: V.G. Beisch, Assistant Treasurer, AT&T PAC Nebraska
QUESTION: 1) Can a separate segregated political fund earn interest on unexpended funds?
2) Can a separate segregated political fund pay federal income tax upon the interest earned on unexpended funds?
Separate Segregated Political Funds are governed by the provisions of Section 49-1469 of the Nebraska Political Accountability and Disclosure Act. Section 49-1469(2)(a) provides for the establishment of these funds. Section 49-1469(2)(c) prescribes the sources from which contributions may be collected and the entities to which expenditures may be made. The question is whether or not the language of the statute permit a separate segregated political fund to earn interest on unexpended funds and, if so, if it permits the separate segregated political fund (SSPF) to pay federal income tax on the interest earned.
All contributions to and expenditures from such separate segregated political fund shall be limited to money or anything of ascertainable value obtained through the voluntary contributions of the employees, officers, directors, stockholders, or members of the corporation, including a non-profit corporation, labor organization, or industry, trade, or professional association, and the affiliates thereof, under which such fund was established.
We note that Section 49-1469(2)(c) limits the sources of contributions. Section 49-1415 defines contribution as follows:
Contribution shall mean a payment, gift, subscription, assessment, expenditure, contract, payment for services, dues, advance, forbearance, loan, donation, pledge or promise of money or anything of ascertainable monetary value to a person, made for the purpose of influencing the nomination or for the qualification, passage, or defeat of a ballot question.
By this definition, interest on unexpended funds of a SSPF are not contributions. In making this statement we refer only to that interest which would normally be paid under similar circumstances. That part of interest which is excessive could be considered a contribution. See Federal Election Commission Advisory Opinion 1981-19, Footnote 1 and Federal Election Commission Advisory Opinion 1981-20. An analysis of Section 49-1469 indicates that it controls the sources of contributions going into the fund. It does not prohibit the earning of interest on the assets of the fund.
Prior to the effective date of LB1136 in July of 1988, the fact that interest income could not be considered a contribution might very well have acted as a bar to a SSPF receiving interest income. This is because Section 49-1469(2)(a) formerly provided that a separate segregated political fund be utilized only for the purpose of receiving contributions and making expenditures. LB1136 deleted this restrictive language.
There being no prohibition upon the earning of interest, a separate segregated political fund is permitted to earn interest on its unexpended funds.
The second question is more complex. Section 49-1469(2)(c) also provides in part:
Only expenditures to candidates and committees and independent expenditures may be made from a fund established by a corporation or labor organization. Only expenditures to and committees, independent expenditures, and expenditures for the establishment and administration of such separate segregated political funds may be made from a fund established by an industry, trade, or professional association.
The language of the statute indicates that there is only one thing which a SSPF established by a corporation or labor organization may do with its funds. That is, it may make expenditures. The definition of expenditure is found in Section 49-1419 which states in part that:
Expenditure shall mean a payment, donation, loan, pledge, or promise of payment of money or anything or ascertainable monetary value for goods, materials, services, or facilities in assistance of, or in opposition to, the nomination or election of a candidate, or the qualification, passage, or defeat of a ballot question.
An exception is made for a SSPF established by an industry, trade, or professional association to permit payment of the expenses for the establishment and administration of its fund.
We do note that LB1136 provides two other specific exceptions to the use of the funds of a SSPF regardless of whether or not the SSPF is established by a corporation, labor organization, or industry, trade or professional association. Section 49-1469(2)(c), as amended by LB1136 permits the receipt and disbursement of funds for the purpose of supporting or opposing candidates for federal office, candidates in other states, and ballot questions in other states.
Other than these exceptions, the only way that money can be removed from a SSPF is by making expenditures. Payment of taxes is not an expenditure, nor has it anything to do with the establishment of a SSPF. Perhaps it could be considered an administrative expense but such a finding would only apply to a SSPF established by an industry, trade or professional association. Therefore, at least as to a SSPF established by corporations and labor organizations, the payment of taxes is not permitted by the language of the statute. However, we believe that we must consider the language of Section 49-1469 simultaneous with the language of the Constitution of the United States.
Article XVI of the Constitution of the United States provides that "The Congress shall have power to lay and collect taxes on incomes . . .". In certain instances the Internal Revenue Code may require the payment of taxes on interest generated by the unexpended funds of a Separate Segregated Political Fund. The language of Section 49-1469 appears to prohibit the payment of those taxes. Thus, it appears that the portion of Section 49-1469 which would prohibit the payment of taxes is in conflict with federal law.
When Congress acts within an area delegated to it, a conflicting state law must yield to the federal law. One hundred and sixty four years of decisions by the United States Supreme Court renders detailed discussion of this statement unnecessary. It is, therefore, the position of the Commission that to the extent Section 49-1469 prohibits the payment of federal income taxes upon interest earned on the funds of a separate segregated political fund, the provision will not be enforced.