Opinion
No. 87
Filed 5 March 1980
1. Constitutional Law 22; Charities and Foundations 2 — Solicitation of Charitable Funds Act — exemption of religions relying on financial support of its members — impermissible establishment of religion The provision of G.S. 108-75.7(a)(1) which exempts from compliance with the licensing and reporting requirements of the Solicitation of Charitable Funds Act all religious organizations except those whose "financial support is derived primarily from contributions solicited from persons other than its own members" constitutes an impermissible establishment of religion in violation of the First Amendment of the Constitution of the United States and Art. I, 13 and 19 of the Constitution of North Carolina, since the result of the statute is to exempt from regulation the more orthodox, denominational and congregational religions while subjecting to regulation those religions which spread their beliefs in more evangelical, less traditional ways.
2. Constitutional Law 22; Charities and Foundations 2 — Solicitation of Charitable Funds Act — excessive State entanglement with religion — impermissible establishment of religion As applied to religious organizations, certain provisions of the Solicitation of Charitable Funds Act, including the requirement of audited financial statements, G.S. 108-75.6(6), the requirement that extensive fiscal records be maintained and available for inspection, G.S. 108-75.12, and the grant of power to the Secretary of Human Resources to suspend or deny a license to solicit charitable funds upon finding that the applicant has or will apply "an unreasonable percentage" of the funds solicited to other than a "charitable purpose," or that the contributions solicited are not applied to the "purposes represented in the license application," or that expenses "fairly allocable" to the costs of fund-raising have exceeded or will exceed 35 percent of the total funds solicited, G.S. 108-75.18(4)-(6), are held to cause the State to become excessively entangled with religion so as to violate the Establishment Clause of the First Amendment of the Constitution of the United States and Art. I, 13 and 19 of the Constitution of North Carolina.
APPEAL by the state from a decision of the Court of Appeals (opinion by Judge Erwin, in which Judges Robert Martin and Mitchell concurred), 40 N.C. App. 429, 253 S.E.2d 475 (1979), affirming Judge Sam Ervin III who, finding certain aspects of G.S. 108-75.1 et seq. violative of the state and federal constitutions, granted in part plaintiffs' motions for summary judgment at the 15 May 1978 Session of MECKLENBURG Superior Court. We allowed petition for discretionary review under G.S. 7A-31 on 12 July 1979. This case was argued as No. 77 at the Fall Term 1979.
Wardlow, Knox, Knox, Robinson Freeman by H. Edward Knox and John S. Freeman, Attorneys for Original Plaintiff Appellee.
Melrod, Redman Gartlan by Dorothy Sellers, and Chambers, Stein, Ferguson Becton P.A., by Jonathan Wallas for Intervenor Plaintiff.
Rufus L. Edmisten, Attorney General, by William F. O'Connell, Special Deputy Attorney General, and Robert R. Reilly, Assistant Attorney General, for the State.
Justice HUSKINS dissenting.
Justices COPELAND and BROCK join in the dissenting opinion.
This case involves a variety of challenges based on state and federal constitutional grounds to G.S. 108-75.1 et seq., the "Solicitation of Charitable Funds Act" (Act). We hold that Section 75.7(a)(1) of the Act, which exempts from compliance all religious organizations except those whose "financial support is derived primarily from contributions solicited from persons other than its own members" deprives the Act of that neutrality toward religion required by the Establishment Clause of the First Amendment and Article I, 13 and 19, of the North Carolina Constitution. We also hold that other provisions of the Act generally cause the state to become excessively entangled with religion so as to violate these same constitutional provisions. We find it unnecessary to address other challenges to the Act.
The Act seeks to "protect the general public and public charity in the State of North Carolina" and to "prevent deceptive and dishonest statements and conduct" in the solicitation of funds for charitable purposes. G.S. 108-75.2. Its provisions are designed "to require full public disclosure of facts relating to persons and organizations who solicit funds from the public for charitable purposes, the purposes for which such funds are solicited, and their actual uses." Ibid. To this end the Act empowers the Department of Human Resources (Department) to issue licenses to charitable organizations and professional solicitors who wish to solicit funds for charity, in accordance with rules and regulations promulgated by the Social Services Commission (Commission) and with the provisions of the Act. G.S. 108-75.4. The Commission is to be aided by the Committee on Charitable Organizations (Committee), an appointed body which is to recommend appropriate rules and regulations to the Commission. G.S. 108-75.5. Some of the factors the Committee is to take into account in formulating its recommended rules are specified in section 75.5(c):
"The rules and regulations shall take into consideration the existence of an adequate, responsible and functioning governing board of the charitable organization, professional fund-raising counsel or professional solicitor; its chartered responsibility; its need to conduct public solicitation; the proposed uses of solicited funds; the percentage of solicited funds used for management and fund-raising expenses, fund-raising activities, including but not limited to sale and benefit affairs and program services; the accountability of the charitable organization, professional fund-raising counsel or professional solicitor and disclosure of information and financial reports to the general public; and other matters proper for the protection of the public interest with respect to public solicitation."
The Act requires that a charitable organization which intends to solicit funds within the state first apply to the Department for a license. The application must divulge such information as the names and addresses of the organization and its chapters and affiliates; its place, form, and mode of organization; the names, addresses, and occupations of its "key personnel"; the location of its financial records; the method, purposes, and extent of its fund-raising activities; and such other information "as may be reasonably required by the Commission." G.S. 108-75.6. In addition, pursuant to section 75.6(6), an applicant must furnish:
"A copy of the balance sheet and income and expense statement audited by an independent public accountant for the organization's immediately preceding fiscal year, or a copy of a financial statement audited by an independent public accountant covering, in a consolidated report, complete information as to all of the preceding year's fund-raising activities of the charitable organization, showing the balance sheet, kind and amounts of funds raised, costs and expenses incidental thereto, allocation or disbursement of funds raised, changes in fund balances, notes to the audit and the opinion as to the fairness of the presentation by the accountant. This report shall conform to the accounting and reporting procedures set forth in the `Audit Guides' published by the American Institute of Certified Public Accountants, and as may be modified from time to time by said Institute or its successor. . . ."
All information filed with the Department is treated as a public record and is open to the public for inspection. G.S. 108-75.9. Furthermore, applicant organizations are required by section 75.12 to maintain fiscal records "in accordance with the rules and regulations promulgated by the Commission" and to make such records available for inspection, upon demand, to the Department, the Commission, or the Attorney General.
Section 75.18 specifies that the Secretary of the Department (Secretary) shall revoke, suspend, or deny issuance of a license to solicit charitable funds upon a finding of one or more of the following:
"(1) One or more of the statements in the application are not true.
(2) The applicant is or has engaged in a fraudulent transaction or enterprise.
(3) A solicitation would be a fraud upon the public.
(4) An unreasonable percentage of the contributions solicited, or to be solicited, is not applied, or will not be applied to a charitable purpose.
(5) The contributions solicited, or to be solicited, are not applied, or will not be applied to the purpose or purposes as represented in the license application.
(6) Solicitation and fund-raising expenses . . . will exceed . . . thirty-five percent (35%) of the total . . . received by reason of any solicitation and/or fund-raising activities or campaigns. . . .
(7) The applicant or lessee [sic] has failed to comply with any of the provisions of this Part, or with any rules and regulations adopted by the Commission pursuant to this Part." (Emphasis supplied.)
Charitable organizations subject to the provisions of the Act include those organizations operated for "religious" purposes. G.S. 108-75.3(1), (2). Section 75.7(a)(1), however, specifically exempts from the licensing requirements:
"A religious corporation, trust, or organization incorporated or established for religious purposes, or other religious organizations which serve religion by the preservation of religious rights and freedom from persecution or prejudice or by the fostering of religion, including the moral and ethical aspects of a particular religious faith: Provided, however, that such religious corporation, trust or organization established for religious purposes shall not be exempt from filing a license application . . . if its financial support is derived primarily from contributions solicited from persons other than its own members, excluding sales of printed or recorded religious materials. . . . (Emphasis supplied.)
The enforcement provision of the Act, section 75.22, provides in pertinent part that failure to file a license application, a report, document, statement, "or any other information required to be filed with the Department" may lead to the denial of issuance of a license or to the revocation or suspension of the license then in effect. If any charitable organization "in any other way violates the provisions" of the Act, the Secretary may also deny or revoke the license. The Secretary is given authority, "upon his own motion or upon the complaint of any person," to investigate any charitable organization for possible violations of the Act. (Emphasis supplied.) Finally, the Secretary may exercise the authority granted by this section "against any charitable organization which operates under the guise or pretense" of being an organization exempted from the Act but which "is not in fact an organization entitled to such an exemption."
Plaintiff Heritage Village Church and Missionary Fellowship, Inc., filed this action in Mecklenburg Superior Court seeking declaratory and injunctive relief to bar application of the Act to its charitable solicitation activities. Plaintiff Holy Spirit Association for the Unification of World Christianity was subsequently allowed to intervene with a complaint seeking substantially the same relief.
Both plaintiffs are non-profit entities which engage in substantial religious activities throughout the state. Both derive their financial support "primarily" from contributions solicited from the general public. Both contend that, as applied to them, the Act violates the First and Fourteenth Amendments to the United States Constitution and Sections 1, 13, 14 and 19 of Article I of the Constitution of North Carolina. The state does not contest that the solicitation of funds from the general public by plaintiffs is a religious activity conducted pursuant to the religious beliefs of each plaintiff respectively.
By order of 27 June 1978 Judge Ervin found in favor of plaintiffs and permanently enjoined defendants from taking any action against plaintiffs under the Act in consequence of plaintiffs' solicitation activities. In the subsequent appeal, the Court of Appeals generally affirmed Judge Ervin's conclusions that the Act, as applied to religious activities, was constitutionally infirm in numerous respects. More particularly, the Court of Appeals held inter alia that:
(1) The licensing provisions of sections 75.6 and 75.18(4) act as an impermissible "prior restraint" on the exercise of religion;
(2) Paragraphs (2), (3), and (4) of section 75.18 constitute an impermissible delegation of legislative powers;
(3) The qualified exemption provision in section 75.7(a)(1) constitutes an impermissible establishment of religion;
(4) The thirty-five percent limitation on solicitation and fundraising expenditures contained in section 75.18(6) violates plaintiff's rights of association.
We affirm the Court of Appeals' holding that the partiality of the qualified exemption provided by section 75.7(a)(1) works an unconstitutional "establishment" of religion. That section's proviso, which excepts from the general exemption those religious organizations which derive financial support primarily from nonmembers, constitutes on its face a violation of Sections 13 and 19 of Article I of the North Carolina Constitution and the First Amendment to the Constitution of the United States. Since the proviso cannot be constitutionally applied to deny plaintiffs an exemption from the requirements of the Act, we find no occasion to address or pass upon the merits of the other holdings of the Court of Appeals.
We start from the premise, undisputed in the case before us, that both plaintiffs essentially are religious entities which engage in the solicitation of funds in connection with the dissemination of religious literature and the espousal of religious beliefs. Accordingly, both their organizational structures and the fund-raising activities which support them come under the constitutional protections of religious freedom. Murdock v. Pennsylvania, 319 U.S. 105, 109 (1943); Cantwell v. Connecticut, 310 U.S. 296, 304-05 (1940); International Society for Krishna Consciousness v. Rochford, 585 F.2d 263 (7th Cir. 1978). It matters not that plaintiffs' evangelism may fall outside the pale of more established orthodoxies; religious freedom is constitutionally extended to the unorthodox as well. Follett v. McCormick, 321 U.S. 573, 576-77 (1944); In re Williams, 269 N.C. 68, 78, 152 S.E.2d 317, 325 (1967). We focus, then, on whether the challenged provisions of the Act exceed state and federal constitutional limitations.
Article I, Section 13 of the North Carolina Constitution guarantees to all persons the right to worship according to the dictates of their own conscience and provides that "no human authority shall, in any case whatever, control or interfere with the rights of conscience." Article I, section 19 of the North Carolina Constitution proscribes "discrimination by the State because of . . . religion . . . ." The First Amendment to the Constitution of the United States provides that "Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof. . . ." Both these clauses apply to state as well as federal action. Everson v. Board of Education, 330 U.S. 1 (1947) (Establishment Clause); Cantwell v. Connecticut, supra, (Free Exercise Clause).
Taken together, these provisions may be said to coalesce into a singular guarantee of freedom of religious profession and worship, "as well as an equally firmly established separation of church and state." Braswell v. Purser, 282 N.C. 388, 393, 193 S.E.2d 90, 93 (1972). The Legislature oversteps the bounds of this separation when it enacts a regulatory scheme which, whether in purpose, substantive effect, or administrative procedure, tends to "control or interfere" with religious affairs, or to "discriminate" along religious lines, or to constitute a law "respecting" the establishment of religion. Stated simply, the constitutional mandate is one of secular neutrality toward religion.
We proceed to examine the Act for aspects of religious partiality. Since the contours of the neutrality requirement have been most thoroughly defined in the jurisprudence of the First Amendment's Establishment Clause, we may usefully turn to that body of law for analytical guidelines.
Although the remainder of our discussion borrows heavily from the Establishment Clause analysis developed by the United States Supreme Court, our decision today is grounded no less on the requirements of Sections 13 and 19 of Article I of the North Carolina Constitution. It has long been recognized that the organic law of our state "expressly denies religion any place in the supervision or control of secular affairs." Rodman v. Robinson, 134 N.C. 503, 509, 47 S.E. 19, 21 (1904). And although the differences in terminology in the relevant North Carolina and federal constitutional provisions may support in some cases differences in scope of their application, we recognize today that the neutrality demanded by the First Amendment is also compelled by the conjunction of Sections 13 and 19 of Article I. It will be a rare case in which an instance of religious discrimination on the part of the state, prohibited by Section 19, will not also occasion a species of religious favoritism which tends to "control or interfere with the rights of conscience" protected by Section 13.
It "is surely true that the Establishment Clause prohibits government from abandoning secular purposes in order to put an imprimatur on one religion, or on religion as such, or to favor the adherents of any sect or religious organization." Gillette v. United States, 401 U.S. 437, 450 (1971). However, the state is not required to pretend a sterile disinterest in all affairs of religion; "[n]o perfect or absolute separation is really possible." Walz v. Tax Commission, 397 U.S. 664, 670 (1970). Rather, "[t]he problem, like many problems in constitutional law, is one of degree." Zorach v. Clauson, 343 U.S. 306, 314 (1952). Certainly Government may "effect no favoritism among sects," Abington School District v. Schempp, 374 U.S. 203, 305 (1963) (opinion of Goldberg, J.), and the circumstances of legislative categories that may net religious activities or organizations must be strictly reviewed by this Court "to eliminate, as it were, religious gerrymanders." Walz v. Tax Commission, supra at 696 (opinion of Harlan, J.). Moreover, adherence to the policy of neutrality will prevent the kind of governmental involvement in religious affairs "that would tip the balance toward government control of churches or governmental restraint on religious practice." Id. at 670. As the Supreme Court noted in Lemon v. Kurtzman, 403 U.S. 602, 612 (1971):
"[The authors of the First Amendment] did not simply prohibit the establishment of a state church or a state religion, an area history shows they regarded as very important and fraught with great dangers. Instead they commanded that there should be `no law respecting an establishment of religion.' A law may be one `respecting' the forbidden objective while falling short of its total realization. A law `respecting' the proscribed result, that is, the establishment of religion, is not always easily identifiable as one violative of the Clause. A given law might not establish a state religion but nevertheless be one `respecting' that end in the sense of being a step that could lead to such establishment and hence offend the First Amendment." (Emphasis original.)
Thus, for a statute to pass muster under the strict test of Establishment Clause neutrality, it must pass the three-prong review distilled by the Supreme Court from "the cumulative criteria developed . . . over many years":
"First, the statute must have a secular legislative purpose; second, its principal or primary effect must be one that neither advances nor inhibits religion . . . finally, the statute must not foster `an excessive government entanglement with religion'." Id. at 612-613 (Citations omitted.) (Emphasis supplied.) See also, Roemer v. Maryland Public Works Board, 426 U.S. 736, 748 (1976).
Applying these criteria to the statutory provisions before us, we note first that there can be little argument that the whole tenor of the Act reveals a valid secular purpose. The clear intent underlying the enactment is to protect the public from fraudulent and deceptive conduct in the solicitation of funds in the name of charity. See G.S. 108-75.2. It is well within the police power of the state to enact appropriate laws to protect the public from incapacity, fraud, or oppression in the conduct of a business or a general activity. State v. Harris, 216 N.C. 746, 755-56, 6 S.E.2d 854, 861 (1940); see 16 Am. Jur.2d, Constitutional Law 423 and cases cited therein. Our inquiry thus turns to whether the Act is "appropriate" in the context of its regulatory effect on religious organizations.
"It is well to emphasize, however, that the tests must not be viewed as setting the precise limits to the necessary constitutional inquiry, but serve only as guidelines with which to identify instances in which the objectives of the Establishment Clause have been impaired." Meek v. Pittenger, 421 U.S. 349, 358-59 (1975).
Since our decision today applies Establishment Clause analysis to find that the Act engenders constitutionally inappropriate burdens on and governmental surveillance of some religious organizations but not others, we express no opinion as to whether the prevention of fraud in charitable solicitations may be characterized as one of sufficient overriding public concern or represents a "compelling state interest" such as to justify under the Free Exercise Clause a less intrusive manner of state regulation of religious solicitation. It should be noted, however, that to pass muster under the Free Exercise Clause, any statutory restrictions on religious freedom must represent the least restrictive means of achieving a compelling state end, and it would be incumbent upon the state to demonstrate that no alternative modes of regulation would combat abuses in religious solicitation without equally infringing First Amendment rights. See, e.g., Sherbert v. Verner, 374 U.S. 398 406-07 (1963). These aspects of Free Exercise analysis are extensively discussed in Tribe, American Constitutional Law 14-10 (1978).
To the degree that the Act imposes restraints or requirements upon activities and institutions within the religious sphere, its "principal or primary effect" must neither "advance" nor "inhibit" religion. This prohibition represents the essence of the Establishment Clause in its most basic sense: the state may not enact laws which "aid one religion, aid all religions, or prefer one religion over another." Everson v. Board of Education, 330 U.S. 1, 15 (1947). (Emphasis supplied.) However, an across the board exemption from state regulation of a broadly defined class of religious entities may avoid First Amendment problems by the very breadth of the class immunized from governmental interference. Although such an exemption represents some contact between church and state, in the sense that the Legislature has spoken to the position of religion in the context of the regulatory scheme, its effect is one of benevolent neutrality, partaking of neither sponsorship nor hostility toward religious affairs. See, e.g., Walz v. Tax Commission, supra, 397 U.S. at 672-73. On the other hand, a more narrowly drawn exemption might benefit some religious organizations — those which meet the criteria of its classifications — while leaving others falling outside its ambit open to the burden of state regulation. In such a case, the exemption's particularity may effect a preference for some identifiable types of religion over others, and the classification must be strictly scrutinized for potential, impermissible divisiveness. See, e.g., Committee for Public Education v. Nyquist, 413 U.S. 756, 794 (1973) (narrowness of the benefitted class is "an important factor" in measuring the potential religious divisiveness of a legislative measure affecting religion); Public Funds for Public Schools of N.J. v. Byrne, 590 F.2d 514, 518 (3d Cir. 1979), aff'd mem., 99 S.Ct. 2818 (1979) ("breadth in the benefitted class helps to guarantee that the advantages to religious institutions will be incidental to secular ends and effects"); Kosydar v. Wolman, 353 F. Supp. 744, 753-54 (S.D.Ohio 1972), aff'd mem. sub nom. Grit v. Wolman, 413 U.S. 901 (1973) (classifications which disproportionately benefit some religions are "highly suspect"). "Obviously the more discriminating and complicated the basis of classification for an exemption — even a neutral one — the greater the potential for state involvement in evaluating the character of the organizations." Walz v. Tax Commission, supra, 397 U.S. at 698-99 (opinion of Harlan, J.).
In Walz, the Supreme Court held that the First Amendment was not violated by the granting of property tax exemptions to a broad class of non-profit organizations, including religious organizations. As was noted by Chief Justice Burger: "The general principle deducible from the First Amendment and all that has been said by the Court is this: that we will not tolerate either governmentally established religion or governmental interference with religion. Short of those expressly proscribed governmental acts there is room for play in the joints productive of a benevolent neutrality which will permit religious exercise to exist without sponsorship and without interference." 397 U.S. at 669.
I. THE ACT'S UNEQUAL TREATMENT OF RELIGIOUS ORGANIZATIONS
With these principles in mind, we note that section 75.7(a)(1) of the Act grants an exemption from the licensing and reporting requirements to a broadly defined class of religious organizations. The very indefiniteness of the exemption guarantees that its scope is wide; indeed, it is difficult to imagine how any organization with a colorable claim to bona fide religious purposes or activities would not fall within one or another of the exemption's classifications. The proviso, however, which immediately follows in the same section denies the benefits of the exemption to those religious organizations which derive their financial support "primarily" from contributions solicited from "persons other than [their] own members." The Court of Appeals held that this qualification to the general exemption works an impermissible establishment of religion. We agree.
The part of section 75.7(a)(1) under discussion exempts any religious organization "established for religious purposes" and any other religious organizations which "serve religion" by the fostering of religion or the preservation of religious rights. The Act defines "religious purposes" as "maintaining or propagating religion or supporting public religious services, according to the rites of a particular denomination." G.S. 108-75.3(17). "Religion" however, is nowhere defined. The result is an exemption sufficiently broad to satisfy the requirement of religious neutrality. All groups that can fairly be considered "religious" in nature fall within the exemption's perimeters.
Although "member" is nowhere defined in the Act, section 75.3(12) does define "membership" as a "status . . . which provides services and confers a bona fide right, privilege, professional standing, honor or other direct benefit, in addition to the right to vote, elect officers, or hold office." Assuming arguendo that the term "member" as used in section 75.7(a)(1)'s proviso connotes someone with "membership" status, and considering the spirit of the Act and the purposes which it seeks to accomplish, see, e.g., Stevenson v. City of Durham, 281 N.C. 300, 303, 188 S.E.2d 281, 283 (1972), we presume the intent of the proviso is (1) to distinguish between religious organizations presumably somehow accountable to persons providing financial support, i.e., their "members," and those religious organizations which are not presumably so accountable because their financial support is largely provided by non-members, and (2) to insure that only the latter are subject to the Act's accountability requirements. The intended purpose of the proviso may thus be secular in nature, in that it seeks to promote the Act's policy "to require full public disclosure of facts relating to . . . organizations [which] solicit funds from the public for charitable purposes. . . ." G.S. 108-75.2. (Emphasis supplied.) Nevertheless, the effect of the proviso is to alter the original exemption's religious neutrality. The result is a qualified exemption which favors only those religious organizations which solicit primarily from their own members. The inescapable impact is to accord benign neglect to the more orthodox, denominational, and congregational religions while subjecting to regulation those religions which spread their beliefs in more evangelical, less traditional ways. This the state may not do.
The burden imposed by the Act's reporting requirements are in no wise de minimis. To note but one, section 75.6(6) requires as a condition of licensing that an applicant organization furnish the state with a detailed financial statement, independently audited according to nationally accepted accounting and reporting procedures. However commendable as a sound business practice, such an audit does not spring full blown without considerable expense and administrative coordination. The primary effect of the proviso is to place the full range of burdens attendant to the licensing procedure, including the audit requirement, solely upon those religious organizations which primarily go to the public with their religious messages and requests for the financial support needed to propagate them. The result is an inhibition by the state of a specific mode of religious practice — that of spreading one's religious beliefs via personal visitations, use of the news media, and distribution of literature among the public at large. Yet such "an age-old type of evangelism," whether carried out in the public streets or over the public media, has "as high a claim to constitutional protection as the more orthodox types" of congregational practices. Murdock v. Pennsylvania, supra, 319 U.S. at 110.
The state argues that when a religious organization solicits primarily from non-members, the state's interest in regulating the accountability of public solicitation thereby increases. There is no showing in the record, however, that "member" or "membership" status in a religious organization ipso facto carries with it a legally enforceable right to demand and receive an accounting of the organization's fund-raising and solicitation activities. Nor is there the slightest suggestion that member funded religious organizations do in fact regularly account to their members with the same degree of specificity and audit safeguards as that which the Act requires of non-member funded organizations. Thus the conclusion is unavoidable that the proviso works to place member funded and public funded religious organizations on an unequal footing in the marketplace of religious ideas. Moreover, even if it could be shown that member funded religious groups were accountable to their members with the same kind of specificity required in the Act, this would not provide support for making only non-member funded religious groups so accountable to the state.
The state concedes that the acts of soliciting monies for the support of religious organizations, including those in this case, and the giving of those monies, are expressions of religious faith. These acts are seen by those who engage in them as the soliciting for, and the giving to, God that which is God's. Some religious organizations, such as plaintiffs' here, as we have noted, see their mission as being to evangelize and solicit from the public at large. They eschew the "membership" form of organization. Others receive support from both members and non-members in varying degrees. Still others rely solely on members. All do so on the basis of their religious tenets. A statute which on its face seeks to regulate all of the first kind of religious organization, only some of the second, and none of the third must, finally, make its classification on the basis of a religious test. The clear import of the Establishment Clause is, therefore, that a statute cannot on its face subject some religious organizations to state regulation and at the same time exempt others on the basis of the percentage of "members" which contribute, respectively, to their support.
We note that two recent federal district court decisions have reached similar conclusions in dealing with the partiality of exemptions granted religious organizations. In Valente v. Larson, Civil No. 4-78-453 (D.Minn., prelim. inj. granted July 5, 1979), U.S. District Court Judge Miles Lord granted a preliminary injunction barring state officials from requiring plaintiff Holy Spirit Association for the Unification of World Christianity to comply with the provisions of the Minnesota Charitable Solicitations Act, Minn. Stat. 309.50 et seq. Substantially equivalent to the Act challenged in the instant case, the Minnesota statute exempts from its reporting requirements those religious organizations which receive more than one-half of their contributions from "members." Minn. Stat. 309.515. Judge Lord's order upheld the Report and Recommendation made by United States Magistrate Robert Renner, which pointed out, id. at 19, that:
"Members of the public who contribute to a church which solicits 49% of its contributions from the public have no more contact with it, nor is that church any more answerable to them, than if the church solicited 51% of its contributions from the public. Yet, in both instances, good faith solicitors, as well as the public, have the same interest to be protected by the State. Clearly, whatever its legislative purpose, the [Minnesota] Act has the immediate effect of subjecting some churches to far more rigorous requirements than others." (Emphasis supplied.)
In Bob Jones University v. United States, 468 F. Supp. 890 (D.S.C. 1978), the court rejected the government's contention that the exemption from federal taxes generally granted to charitable organizations by I.R.C. 501(c)(3) should be applied only to those organizations which operate in harmony with federal desegregation policies. Noting that "[c]onflict with the Establishment Clause lurks within the [government's] construction of the exemption provision," the court concluded that:
"The construction of 501(c)(3) argued by the government would do away with the general grant of tax exemptions to all religious organizations, which was found in Walz to constitute an act of benevolent neutrality, and, in effect, transforms the statute into a law that provides a special tax benefit, because favorable tax status will be accorded only to some, not all, religious organizations. Since only selected religious institutions would receive exemption under defendant's interpretation of the law, tax exemption provided by the section no longer manifests neutrality towards all religions but, rather, favors some over others. The effect is to strengthen those religious organizations whose religious practices do not conflict with federal public policy and to discriminate against those religious groups whose convictions violate these secular principles. The unavoidable effect is the law's tending toward the establishment of the approved religions." 468 F. Supp. at 900-901. (Emphasis supplied.)
Our decision today accords with the Establishment Clause principles affirmed in these cases. Neither the First Amendment nor Article I, Sections 13 and 19, of the State Constitution permit the state to aid some religions by burdening others.
II. THE ACT'S EXCESSIVE ENTANGLEMENT WITH RELIGION
Considerations of the excessive entanglement between church and state threatened by the Act's substantive requirements additionally compel us to conclude that plaintiffs may not constitutionally be denied an exemption under section 75.7(a)(1). Should plaintiffs or any other religious organization be subjected to the full panoply of strictures contemplated by the Act, we would be faced with precisely the sort of "sustained and detailed administrative relationships for enforcement of statutory or administrative standards," Walz v. Tax Commission, supra, 397 U.S. at 675, that have been repeatedly condemned by the Supreme Court. See, e.g., NLRB v. Catholic Bishop of Chicago, 59 L.Ed.2d 533, 542 (1979); Committee for Public Education v. Nyquist, supra, 413 U.S. at 794-95; Lemon v. Kurtzman, supra, 403 U.S. at 619-622. A continuous state surveillance of the financial records of applicant organizations inheres in the Act's auditing requirements, discussed above, as well as in the requirement that applicants maintain fiscal records in accordance with Commission regulations and make such records available for inspection upon demand. G.S. 108-75.12. The potential result of such a course of state inspection and evaluation can be seen in section 75.18(4)-(6), wherein the Secretary is empowered to suspend or deny a license upon a finding that the applicant has or will apply "an unreasonable percentage" of the funds solicited to other than "a charitable purpose," or that the contributions solicited are not applied to the "purposes represented in the license application," or that expenses of an organization "fairly allocable" to the costs of fund-raising have exceeded or will exceed 35 percent of the total funds solicited. As applied to religious organizations, the enforcement of these provisions inevitably entangles the state and its agencies in a persistent inquiry into whether particular expenditures of a religious organization are secular or religious in nature, or whether the religious expenditures support the same religious purposes represented in the organization's license application. In Lemon v. Kurtzman, supra, 403 U.S. 602, the Supreme Court struck down certain government subsidies to church-related schools on the grounds that an excessive monitoring of the schools' affairs would be required to guarantee that the grants would be used solely for secular purposes. Certainly no less of an "entanglement" defect is latent in a statutory scheme requiring the state to ensure, through a "comprehensive, discriminating, and continuing state surveillance," id. at 619, that a "reasonable" quantum of a religious organization's expenditures are devoted to religious purposes. See, e.g., Fernandes v. Limmer, 465 F. Supp. 493, 504-05 (N.D.Tex. 1979); see also Surinach v. Pesquera de Busquets, 604 F.2d 73, 76-78 (1st Cir. 1979).
Moreover, the scope of entanglement posed here goes far beyond the state's policing a religious organization's administrative records. The potential exists for the state not only to substitute its own judgment as to the substantive "purpose" of a particular expenditure, but also to inject itself into the very center of religious disputes. Absent narrow circumstances of outright fraud or collusion or other specific illegality, the propriety of a religious organization's expenditures can be evaluated only by reference to the organization's own doctrinal goals and procedures. The question of proper purpose is an ecclesiastical one, and its resolution necessarily entails an interpretative inquiry into possible deviations from religious policy. "But this is exactly the inquiry that the First Amendment prohibits . . . ." Serbian Orthodox Diocese v. Milivojevich, 426 U.S. 696, 713 (1976). See also Presbyterian Church in the United States v. Mary Elizabeth Blue Hull Presbyterian Church, 393 U.S. 440 (1969); Atkins v. Walker, 284 N.C. 306, 200 S.E.2d 641 (1973); Trustees v. Seaford, 16 N.C. 453, (1 Dev. Eq.) (1830). Constant state evaluation of the religious "purpose" of an organization's expenditures is no less than constant state evaluation of the religious content of the organization's activities. The result is "a relationship pregnant with dangers of excessive government direction." Lemon v. Kurtzman, supra, 403 U.S. at 620.
Section 75.22(b) of the Act enables the Secretary, "upon the complaint of any person," to investigate any organization for possible violations of the Act. Section 75.22(e) empowers the Attorney General to bring an action for injunctive or other relief against an organization "whenever the funds raised by solicitation activities are not devoted or will not be devoted to the charitable purposes of the charitable organization." It is not unthinkable that an interested party, whether a dissenting member, a disgruntled contributor, or an advocate of opposing doctrine, would seek to use these provisions to involve the state in a dispute over the fiscal decisions of a religious organization.
We do not intend to intimate that the state will inevitably seek to apply the Act's provisions to religious organizations in such a way as to dictate the bounds of religious purpose. But the potential for such abuse is clear when the factors discussed above are considered cumulatively. We find that the Act, as applied to plaintiff religious organizations, is characterized by excessive entanglements between the state and religion and poses significant risks of secular interference with the rights of conscience.
For all the foregoing reasons, we hold that plaintiffs may not constitutionally be denied an exemption from the Act. The Court of Appeals' decision that the qualification to the exemption in section 75.7(a)(1) of the Act effects an unconstitutional establishment of religion is
Affirmed.