by Ryan Olson, Senior Accountant, CPA
Nonprofits that solicit funds online — or use other fundraising methods that cross state boundaries — may need to register in multiple jurisdictions. Here, we provide answers to several common questions about multistate registration, including “what does it cost to register?” and “what are the consequences of not registering?” It stresses that rules vary greatly by state.
Commonly asked questions
My charity receives only occasional contributions from out-of-state donors. Do I need to register with those states?
Yes, but only if you’re actually asking for donations in those states. The critical activity is soliciting, not accepting, funds. But remember, email and text blasts and Twitter and Facebook appeals are likely to be considered multistate solicitations.
That said, some nonprofits are generally exempt from registering or may need to register but aren’t required to file annually. For example, many states exempt churches, synagogues and other religious congregations, as well as nonprofits with total annual incomes from all sources of less than $25,000. Some exceptions include Illinois and California, which require even charities with income of less than $25,000 to register and file annually.
It sounds like registration rules vary by state.
Yep, that’s what makes the registration process so difficult! A handful of states don’t require charities to register at all. The remaining ones have varying rules, income thresholds, exceptions, registration fees and fines for violations. Even the agencies that regulate charities differ by state. For example, if your charity wants to raise funds in Utah, you register with the Department of Commerce; in Connecticut, the Department of Consumer Protection; and in Alabama, the Office of the Attorney General, to name a few variations. The National Association of State Charity Officials provides a list of the state offices that regulate charitable solicitations at http://www.nasconet.org/documents/u-s-charity-offices.
How much does it cost to register?
Again, this varies by state — ranging from $0 to $2,000. And some states require nonprofits to jump through additional hoops. In West Virginia, charities receiving more than $200,000 must submit audited financial statements when they register. In Pennsylvania, nonprofits with contributions totaling $300,000 or more must submit such statements annually. Some states require charities to prepare “disclosure statements” and include them in all solicitation materials.
Is there a simple way to register with every state?
Unfortunately not. Most states require you to complete a general information form and submit it with your last financial statement, a list of officers and directors, a copy of your originating document and your IRS-issued tax-exempt determination letter. First-time registrants can use a Unified Registration Statement in 37 states. However, even in those states, annual renewals and reports must be submitted using individual state forms.
What are the consequences of not registering in states where my nonprofit raises funds?
Your organization, officers and board members could face civil and criminal penalties, including fines as high as $25,000. Your charity might lose its ability to solicit funds in certain states or even lose its nonprofit status with the IRS. Note that states expect charities to register before they begin soliciting funds. If you’ve been accepting donations in a state where you’re not registered, you may be vulnerable to penalties.
Do I need to tell the IRS where my nonprofit is registered?
Yes, Form 990 asks you to list the states where you’re required to file a copy of your return.
Weighing benefits and drawbacks
Given the resources involved, think about whether the amount your charity collects from cross-border solicitations is worth all the trouble. For some nonprofits, it may make sense to pull back and focus exclusively on local fundraising.
But if out-of-state contributions are critical to your nonprofit’s health and you can’t spare the time to register your nonprofit in every last state, consider outsourcing the task. Several companies specialize in registering nonprofits. Also talk to your VonLehman advisor for ways to make the job less onerous. For example, because IRS and state filings cover similar ground, your tax advisor might be able to prepare and submit them at the same time.