The proposed law, Senate Bill 323 seems pretty clearly aimed at the Boy Scouts, who would lose the exemption unless they reject both their policy against gays and their requirement of belief in God. The sales/use tax exemption is likely not a very big deal for the Scouts, but I take it that there might well be similar proposals with regard to the nonprofit property tax exemption, the charitable institution income tax exemption, and the tax deductibility of contributions to such institutions. (I assume the argument would be, “We already strip these groups of the sales tax exemption, how are the newly proposed property tax/income tax exemptions any different?”)
I doubt that this is a good idea, but I do think it is constitutional: As I’ve argued in my Freedom of Expressive Association and Government Subsidies (2006) that such proposals are constitutional, notwithstanding the groups’ expressive association rights — just as the government may refuse to subsidize, for instance, constitutionally protected abortion, lobbying, or electioneering, so it may refuse to subsidize constitutionally protected expressive association decisions. The Court’s decision in Christian Legal Society v. Martinez (2010) strengthens that argument. And the Court has long held (see, e.g., Taxation With Representation v. Regan (1983)) that tax exemptions are tantamount to subsidies for Free Speech Clause purposes. If this proposal is defeated, it would likely have be to defeated in the political process, not in court. So far, it has cleared a State Senate committee.
Thanks to Nick Lum for the pointer. [...]