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My Turn: The LLC loophole debate in context



For the Monitor
Saturday, February 04, 2017

“Corporations are people, my friend.”

– Mitt Romney

State Sen. Dan Feltes, a Concord Democrat, seeks to close the “LLC Loophole” – the currently lawful practice where individuals who own multiple limited liability companies can give the maximum contribution of $7,000 a piece many times over – to the tune of hundreds of thousands of dollars.

The practical effect is a small group of people can amplify their individual political preferences many times over. This piece provides context to the many different ways businesses can contribute to campaigns under current law, and I hope it will help the public and our Legislature decide whether the practice of LLC contributions should be continued as an exercise in free speech or whether the Granite State will place a marker down that corporations should not count as people under this small, but not insignificant corner, of our complex and convoluted state campaign finance law.

There are many avenues for business leaders to make investments in the 430 state races that can tip the balance of power at the State House every two years – especially in a small state where spending in the vast majority of legislative races rarely exceeds several thousand dollars for house seats. These avenues are made possible by New Hampshire law, which acknowledges corporate personhood separate and apart from natural person owners or shareholders.

Controversial as Romney’s statement and the U.S. Supreme Court’s Citizens United decision are, corporations are “people” under New Hampshire law in the current campaign finance arena.

Contributions by multiple LLCs

Corporate owners who control a large number of individual LLCs (say a commercial developer or a franchisee of a large number of stores or restaurants) can each max out to state campaigns, even though a small handful of individuals may control the LLCs. Dunkin’ Donuts and Planet Fitness franchisees and Brady Sullivan Properties have utilized multiple LLCs to exert significant political clout through hundreds of thousands of dollars in contributions – especially in gubernatorial races – in the last decade.

Direct corporate contributions

Since a 1998 New Hampshire U.S. District Court case decided under the First Amendment, corporations have been allowed to contribute the legal maximum of $7,000 to state candidates in the pre-filing period ($5,000 for the exploratory period and $1,000 each for the primary and general election).

A political committee

A corporation or group of companies can team up and establish and fund or contribute to a state political committee (colloquially known as a “PAC”), and that political committee can transfer significant funds to one or more candidate’s political committees in the pre-filing period. During the pre-filing period, transfers between political committees are unlimited – a long-standing practice the New Hampshire Attorney General’s Office confirmed was lawful during the 2014 governor’s race.

Funding a 501(c)(4)

If political anonymity is prized by a corporation, it can contribute large sums to a 501(c)(4) organization that may then spend unlimited amounts supporting or opposing candidates of choice, so long as the group doesn’t directly coordinate with candidates. Industrialists David and Charles Koch have mastered this avenue of spending with their flagship Americans for Prosperity and other organizations.

Identities of donors to 501(c)(4)s are shielded by federal tax law. Many associations, industry groups, and even nonprofits like Planned Parenthood have established 501(c)(4)s to facilitate discrete political spending, and the New Hampshire Attorney General’s Office has interpreted a new law requiring reporting of 501(c)(4) spending so narrowly that some groups may cease doing so. (The attorney general’s office concluded in the autumn of 2015 that only if a political communication could solely be construed as political would it be subject to the reporting; even mailings on the eve of the election that ostensibly could be construed as issue advocacy or educational aren’t necessarily political communications). Republican Senators Jeb Bradley, Dan Innis and Sharon Carson are seeking a legislative fix to this narrowing of the law.

Corporations that can’t contribute

Nonprofit 501(c)(3)’s are strictly prohibited from making political contributions. Further, state law technically still contains a prohibition on contributions by partnerships and unions, but these provisions barring union and partnership gifts are of dubious constitutionality in the post-Citizens United world.

Have corporations taken advantage of this landscape?

By any measure, LLCs constitute a significant share of corporate contributions. According to an NHPR analysis of campaign filings, they have contributed $1,069,892 to candidates for governor of both parties since 2002. Beyond doubt, Sen. Feltes’s bill addresses a substantial source of campaign funds to state candidates and it merits careful consideration.

(Jay Surdukowski is a member of the Concord-based law firm of Sulloway & Hollis who litigates and advises on political law, in addition to defending medical negligence cases and other litigated matters. He served as counsel to the last two Democratic candidates for governor.)