Today’s column by Chip Johnson in the Chronicle blasts the Richmond Chamber of Commerce and others for participation in political activity using member’s dues without informing the members.

In fact, such practice is against the law. While chambers of commerce, which are 501(c)6 organizations under the Internal Revenue Code, may participate in political campaigns, they are required to report to their membership what portion of dues is used for political campaign activity (IRC 162(e)(1)). A dues paying member cannot deduct as a business expense the portion of dues used for political campaigns (IRC 162(e)(3)). The Richmond Chamber of Commerce has never informed its members in accordance with IRC 162(e)(1).

A really thorough explanation of this can be found at http://www.irs.gov/pub/irs-tege/eotopicl03.pdf and http://www.irs.gov/pub/irs-drop/rr-04-6.pdf.

Not all chambers of commerce commingle political and general funds. The Sacramento Chamber of Commerce (Metro Chamber), for example, notes “As a 501c)6, the Metro Chamber is prohibited from financially supporting candidates. The Metro Chamber's bylaws prohibit the chamber from endorsing candidates for public office. Instead, Metropac confines its political activities to a separate organization: “MetroPAC is the Metro Chamber's political action committee. Metro PAC is a separate organization chartered by the Metro Chamber Board of Directors and registered with the California Secretary of State.”

 Richmond slams door on chamber
- Chip Johnson
Tuesday, November 21, 2006

It was barely a week since voters in Richmond had rejected a ballot measure that would have raised millions of dollars in additional taxes each year from the city's largest taxpayer, the Chevron refinery.

But the City Council moved quickly to dump its membership in a group that spent thousands of dollars to help defeat the measure.

The council voted 6-1 last week to withdraw from the Richmond Chamber of Commerce after an outside law firm advised the city that using city money -- in this case, its annual membership dues -- to promote a political measure or candidates is against the law.

Councilman Tom Butt led the move to pull the plug on the city's chamber membership -- and he also canceled his business membership in the group.

"My business dues are about $800, and I'd like to be informed that some portion of my dues are being used for political contributions," Butt said Monday.

Chamber President Judy Morgan, who has challenged the ruling, said chambers statewide regularly take "yes" and "no" positions on proposed ordinances and citywide ballot measures that can affect the business community. Most of the groups also have political action committees that raise money and lobby on behalf of candidates.

In this case, Morgan said, the chamber spent $5,000 from its general fund to lobby against passage of Measure T, a tax on manufacturers that would have primarily affected the tax rate at Chevron, the city' largest employer.

The expense was separate from those that RICHPAC, the chamber's political action committee, made to the campaigns for City Council and mayor in the recent election, Morgan said.

"We will not stop being political," Morgan said. "That's what we're all about, representing the interests of businesses operating in Richmond."

In Morgan's view, the council vote was payback for the chamber's position on Measure T -- and little else.

"The chamber and the Council of Industries opposed the Measure T manufacturer's tax, and I think that's why they got mad," Morgan said.

Butt said the council's view toward the chamber's political viewpoints is not the question.

Indeed, the chamber's contribution violates no local or state campaign laws, but the city's contribution to a group with such political activities is prohibited, Butt said.

"She (Morgan) can call it payback or anything she wants, but what they're doing is still wrong," Butt said. "In the last several years, it seems to be getting real obvious."

Morgan has contacted the California Chamber of Commerce to ask about the practice, but has yet to hear from the statewide group. In the meantime, the loss of the city as a chamber member is a financial blow to the organization.

The city was one of five members of the President's Circle, made up of companies that pay $10,000 in annual membership dues, Morgan said. But the news hasn't been all bad, she added.

The chamber's bold and business-friendly stance on Measure T attracted 10 new members, Morgan said, although their collective dues don't add up to the city's annual payment.

Whether or not the Richmond chamber can use membership funds for its political cause of choice may be another matter. In Sacramento, the state organization has established separate pots of money for local issues and candidates, officials from both groups said.

At the Oakland Chamber of Commerce, Public Policy Director Scott Peterson said candidate and ballot issues are funded through the group's political divisions.

And in San Jose last month, a federal judge ruled that city officials could not enforce the $250 "soft money" limit it set on individual contributors donating through COMPAC, the chamber's political unit.

Even if the political expenditures of the Richmond chamber organization are valid and legal and the city's motivation is a less-than-genuine concern about the process, spending anything but money donated for political contributions is less than honest.

Just because the Richmond chamber -- or the Berkeley chamber, which does the same thing -- are not barred by law from making political contributions, you would hope that ethical considerations might halt the practice.

Using $5,000 or $10,000 from the membership fund, whether it's reported as a political contribution or not, seems a roundabout way of shoveling cash to a favored candidate or cause.

Morgan is right about one thing: Local chambers are more involved in political races than ever before, but there is also a greater level of public responsibility that comes with increasing leverage in the political arena.

If Richmond's Chamber of Commerce, and Oakland's for that matter, want to have a greater role in selecting elected officials, they should not comingle membership revenues with political contributions.

It would be better and a lot more honest to spend political contributions on politics and leave the general fund revenues out of political contests.

Chip Johnson's column appears in the Chronicle on Tuesdays and Fridays. E-mail him at chjohnson@sfchronicle.com.