Dues Payments Used for Local-level Lobbying are No Longer Tax Deductible

Local chambers of commerce and other trade associations sending out their year-end annual dues statements need to be aware of a significant recent change in the tax law regarding the ability of their members to deduct their dues as a business expense.

Since changes were made to the tax code in the early 1990s, members of local trade associations have been unable to deduct the percentage of their dues payments which the association uses for “lobbying,” as that term is defined in the tax law. Until this year, the tax law only defined lobbying to include lobbying on the state and federal levels; in other words, members of local chambers and trade associations were able to deduct all or nearly all of their dues payments because local chambers and trade associations typically do not spend a significant percentage of their budgets on state and federal level lobbying.

The new law renders the time and money which a local chamber or trade association spends on all lobbying non-deductible – whether the lobbying is aimed at the state legislature, federal government agency, city council, county board of supervisors, a city or county agency, local special district, etc. (Internal Revenue Code section 162(e).)

Trade associations are required to indicate on their annual dues invoices the percentage of dues payments which is attributable to non-deductible lobbying and which the member therefore may not deduct as a business expense. Whereas in the past, local chambers and trade associations could feel comfortable telling members that this amount was $0 (assuming that the trade association did not really become involved in state or federal level legislation), they now must take the time to estimate the percentage of the organization’s annual budget which goes towards attempting to influence city, county or special district legislation or agency matters, and include this estimate on the dues invoices. If an organization has already sent out its dues invoices for 2019, it should consider sending a follow-up to members with a non-deductible estimate which includes local lobbying.

For most local trade associations, the primary expenditures related to local-level lobbying will be the applicable percentage of the salary of the government affairs director plus any retainers paid to lobbying firms. For example, if a local chamber has a $1 million annual budget and pays $100,000 in salary to its government affairs director who focuses exclusively on City Hall matters, and a $5,000 monthly ($60,000 annually) retainer to a lobbying firm for monitoring city council and board of supervisors actions, then $160,000 ($100,000 in salary plus $60,000 in lobbying firm fees) out of $1 million, or 16 percent, of the organization’s annual expenditures relate to non-deductible lobbying, and the chamber must inform members on dues invoices that 16 percent of their dues are not deductible.

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Please contact a Sutton Law Firm attorney or Political Compliance Specialist if you would like assistance setting up a lobbying or gift law compliance system in the City of Los Angeles or any other jurisdiction.

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