Legislation Expands Definition of California “Qualified Nonprofit Organization” for Purposes of State Grants and Contracts

The California legislature has passed AB 1318, which expands the definition of “qualified nonprofit organization.” The legislation adds a new section to the Government Code and amends various portions of the Welfare and Institutions Code. AB 1318 went into effect immediately.

The Corporation Tax Law provides tax exemptions for specified organizations. Before AB 1318, laws that prioritize tax-exempt organizations or require tax-exempt status for certain grants and service contracts referred to federal tax law. AB 1318 states that laws that reference federal tax law to determine eligibility for state grants or service contracts, or the disbursement of state or local funds, now also reference the relevant provision of the Corporation Tax Law.

More specifically, AB 1318 expands the definition of “qualified nonprofit corporation” to include not only charitable organizations that are tax-exempt under federal law, but also those that qualify as tax-exempt under state law. AB 1318 states:

Qualified nonprofit organization means a nonprofit organization that is either exempt from federal income taxation pursuant to Section 501(c)(3) of the Internal Revenue Code or exempt from state income taxation under Section 23701d of the Revenue and Taxation Code and that satisfies any additional eligibility criteria established by the department.

The purpose of this expansion is to prevent certain organizations that may be in danger of losing federal tax-exempt status under the current federal government administration from being categorically excluded from state grants or service contracts based on the loss of federal tax-exempt status.

The bill focuses on the administration of public social services, which, by law, necessarily include services for refugees, immigrants, and asylees. Currently, some grants and service contracts serving those populations require the disbursement of federal funds to qualified nonprofit organizations, including certain immigration-related legal services, resettlement services for persons granted asylum, and refugee social services, including, but not limited to, English language and employment training.

Current state law provides specifically for the following types of services for these populations:

• Medical screening and treatment needs identified by that screening;
• Temporary shelter that meets minimum habitability standards, including access to a bathroom, shower, and safe sleeping space, which may include
  • Securing physical space and making any necessary modifications to that space as required by a fire marshal or other legal authority;
  • Personnel to oversee the shelter, including security officers;
  • Janitorial services;
  • Laundry services;
  • Insurance; and
  • Any other associated and necessary costs of operating a shelter.
• Food;
• Clothing and other essential supplies;
• Transportation;
• Communications, including telephone and internet access, and translation services; and
• Outreach and case management to support the delivery of these services.

Frequently Asked Questions (FAQ)

How might the LHC recommendations change the way nonprofits apply for state grants?

If implemented, the recommendations could lead to more consistent application procedures across agencies. Charitable organizations may see clearer guidance, standardized templates, and more predictable timelines. This change would reduce the guesswork that often accompanies state grant applications and help organizations prepare stronger, more complete submissions.

Will the proposed reforms affect how quickly nonprofits receive funding after being awarded a grant?

Yes. One of the LHC’s goals is to reduce delays that disrupt program delivery. By improving payment schedules, streamlining administrative processes, and creating dedicated units to process grant payments, the state could significantly shorten the time between award and disbursement. Faster funding would help nonprofits maintain stable operations and avoid cash‑flow strain.

How could these recommendations improve communication between state agencies and charitable organizations during the grant cycle?

The proposals emphasize clearer, more consistent communication at every stage—from application to reporting. Improved communication would include providing meaningful feedback on rejected submissions, offering technical assistance, and establishing a centralized liaison office. These changes aim to reduce confusion, minimize back‑and‑forth delays, and help charities better understand expectations throughout the grant period.

Protect Your Qualified Nonprofit Organization

Staying compliant isn’t simply about meeting legal obligations—it’s what helps your charity operate with integrity, stability, and the confidence of those you serve. California’s nonprofit laws can be complex, but you don’t have to interpret them on your own. The California Center for Nonprofit Law offers clear, actionable guidance so you can stay focused on the mission that matters most. For tailored support, call (949) 892‑1221, email info@NPOlawyers.com, or connect with us online to keep your organization strong, compliant, and positioned to make a meaningful impact.