Co-authored by David Harrison, Senior Accountant, CPA
Having a 501(c)(3) status recognized by the IRS is just the start, and it does not mean a charity can solicit donations wherever they want. Most states have their own laws regulating charitable solicitations. States have an interest in protecting their residents from fraudulent or dishonest practices. Registration requirements are designed to increase transparency and improve public trust in your nonprofit.
As of this writing, 41 states have laws governing charitable solicitation registrations. After the initial registration, annual renewals are often required to maintain compliance. Each state having its own set of rules has led to a complex maze which charities must navigate to be compliant. Despite the state-by-state nature of these laws, many common themes emerge regarding when a charity should register to solicit in a state. This article will discuss the most common reasons a charity should register. This list is not intended to be all inclusive. It is intended for your organization and its board of directors to start thinking how the registration requirement may affect your organization.
What triggers a requirement to register?
1. You are soliciting donations from people or organizations in a state.
This is of course the main concern and, on some levels, it is obvious. However, almost every state has a broad yet varied definition of ‘solicitation activities.’ There are many “easy to overlook” scenarios in which states define a solicitation. The most important factor is that, almost universally, the simple act of asking for a donation triggers the requirement to register. It is not always based on the amount of money, or value of property, received.
2. You are receiving donations from donors in certain states.
In addition to solicitation activities which trigger filing requirements, some states require charities to register after they receive any donation from a donor in that state, regardless of whether the charity solicited the donor. Other states will require registration if a charity receives “repeated” and “substantial” gifts from donors within a state. Again, these requirements are not always based on your activities, but also on where your donors are located. Best practices include regularly reviewing donations by state to better understand your registration requirements.
3. You are incorporated in a state which requires solicitation registration.
Being incorporated in a state is not necessarily the same thing as being authorized to solicit donations. Naturally, board members, volunteers, donors, or others involved with your organization will live in the incorporation state, and much of your solicitation activity will be taking place in that state. Your state of incorporation is the first place to look to review your compliance.
4. Your officers and directors live in different states.
Very often, a charity’s officers or directors may live in a state other than where the charity is set up and headquartered. When an officer or director of a charity asks friends or neighbors for a donation, they are engaged in charitable solicitation activity in that state, which can give rise to registration requirements. The home states of your key personnel are another important place to look when reviewing compliance.
5. You have events in a state.
Hosting events such as dinners, golf outings, bake sales, etc. can create a filing responsibility. Other fundraising events such as raffles, bingo games, or auctions can also trigger filing requirements. These events usually require a lot of coordinating and preparation. Part of the preparation should be registering for charitable solicitation in the state where the event will be held. Registrations can take anywhere from a few days to a few months to process, so plan accordingly.
6. You are sending requests into the state.
Direct mailing, phone calls, email campaigns, radio and television ads can all trigger registration requirements. These do not have to be formal campaigns. An informal phone call or email to a friend requesting a donation may be enough. A donor letter or newsletter which contains a request for donation also counts. In addition, applying for grants can trigger requirements in states where the grant maker is located.
7. You are soliciting online.
This is distinct from the emails discussed above. Your website can be a huge driver of charitable donations. Having a “Donate Now” button has created a wide range of complicated questions in the area of charitable solicitation. Some states, like Florida, have taken the position that simply having such a button necessitates registering. Other states only require registration if the charity receives repeated and substantial donations. Very often, a website will obtain email and street address information from visitors who click the ”Donate Now” button, and that information may be added to email and mailer lists. If that happens, then you are back to issue number 6 above. It is important to review the mechanics of your website to ensure compliance.
8. You are contracting with a professional fundraiser.
Contracting with outside organizations to perform fundraising activities and formulate fundraising strategies can create additional filing responsibilities. Charities will be required to disclose additional information, including copies of any contracts. Make sure the consultants you are engaging with are reputable and compliant.
Why maintain compliance?
9. Avoid bad press and boost credibility with donors.
Many states post public lists of delinquent or illegitimate charities. In addition, many grantmaking bodies and other donors will confirm the legitimacy of a charity by checking with the state before making gifting decisions. Don’t let a lack of compliance stand in the way of your charity accomplishing its mission.
10. It’s the law.
Ultimately, these requirements are the law, passed and enforced by states to protect their residents. Following the law and maintaining compliance is a best practice in the nonprofit world, where community standards and a premium on reputation are particularly high. States are willing to work with nonprofits to come into compliance with these laws.
Understanding and complying with multiple state registration and reporting requirements can be a confusing and time-consuming task with many challenges. VonLehman’s State Charitable Registration Services Team can help your nonprofit understand the various state rules and guide you through what your obligations are in other states where you solicit donations. Please contact Bryan Pautsch or David Harrison at 859.331.3300 for more information.