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2001-5: Taxes Paid on Income Earned from Campaign Contributions are not Exempt Expenditures

Thursday, May 17, 2001

Re: N.Y.C. Admin. Code §§ 3-703(6), 3-706(1), 3-706(4); Advisory Opinion No. 1996-1; Op. No. 2001-5.

The Campaign Finance Board (the "Board") has received a request for an opinion whether the payment of taxes on income earned on campaign contributions may be treated as an exempt expenditure.1

N.Y.C. Administrative Code § 3-706(4) details those expenditures that are exempt from the expenditure limits. The statute provides that:

"Expenditures made for the purpose of complying with the provisions of the Campaign Finance Act or the New York State election law, including legal fees, accounting fees, the cost of record creation and retention, and other necessary compliance expenditures, and expenses to challenge or defend the validity of petitions of designation or nomination or certificates of nomination, acceptance, authorization, declination or substitution shall not be limited by the expenditure limitation of § 3-706(1)."

The Board has construed this statute narrowly. Advisory Opinion No. 1996-1 provides that costs incurred for "standard bookkeeping and other practices that political committees routinely perform as entities that raise and spend funds" are not exempt. Rather, it is only costs incurred for "those functions performed for the purpose of complying with the requirements of the Campaign Finance Program and New York State Election Law" that are exempt. Advisory Opinion No. 1996-1 (April 4, 1996).

Payment of taxes on income earned on campaign contributions, while required pursuant to law, is not required pursuant to either the New York City Campaign Finance Program or New York State Election Law. Rather, such expenditures are "standard practices" of political committees. Accordingly, the payment of taxes on income earned on campaign contributions is an expenditure subject to the expenditure limitations and reporting requirements of N.Y.C. Administrative Code §§ 3-703(6) and 3-706(1).2

NEW YORK CITY CAMPAIGN FINANCE BOARD3

1John Siegal made this request in a letter to the Board dated April 30, 2001.

2Payment of other taxes, such as payroll taxes for compliance personnel, may be exempt from the expenditure limits, but application of the expenditure limits to these other taxes is beyond the scope of this Advisory Opinion.

3The Board recognizes that there are public policy arguments why the payment of taxes should not be subject to the expenditure limits of the Campaign Finance Act. The Board will consider as part of its mandated report following the 2001 elections whether to recommend legislation to the Mayor and the City Council that would provide that payment of taxes on income earned on campaign contributions be exempt from the Campaign Finance Act's expenditure limits.