In the world of nonprofit corporations, much of the focus is on charitable organizations. Charities pose many unique and recurring questions, especially as they relate to fundraising and required state compliance requirements. Here, we address those most frequently asked, along with links to past blog posts and an embedded podcast from Through the Noise, where we discuss the fact that nonprofits receive an extra dose of regulatory compliance when they are fundraising across state lines.
Click here to access the Through the Noise podcast:
The “When, Where and Who”
1. When must charities register to solicit charitable donations?
In most states, barring an applicable exemption, of which there are many, most charities must register to solicit charitable donations when they are directing fundraising solicitations to individuals, corporations or foundations within a state. California is an exception in that it allows for a 30-day grace period from the time that charitable assets are first received by a charity from donors in the state. Are you soliciting in a state that requires charitable solicitation registration?
2. Where do charities have to register?
Most states require registration if a charity is directing solicitations to anyone in their state, regardless of where the charity is located or the method of solicitation. All but the following 9 states require registration: Delaware, Idaho, Indiana, Iowa, Montana, Nebraska, South Dakota, Vermont and Wyoming. Arizona requires veterans organizations to register; Louisiana only requires registration if professional fundraisers are used to solicit in the state; Missouri exempts 501c3 organizations; and Texas requires registration by law enforcement, public safety and veterans organizations. Sometimes the registration process is accomplished through a licensing or consumer protection office, while most states handle this compliance requirement at the Secretary of State’s Office or at the Office of the Attorney General. (See blog post Which States Require Charitable Solicitation Registration for Nonprofits? and our List of State Charity Regulators.) Just because your charity is in a state that doesn’t require registration doesn’t mean you are free of charitable registration when you raise funds across state lines.
3. Who is required to register?
With the exception of religious organizations that are not required to file any version of the IRS Form 990, most charities that are soliciting in multiple states must register. There are broad exemptions in many states for small organizations that raise less than $25,000 per year, and the same is true for educational institutions, hospitals, and political or membership organizations. However, there are frequently exceptions to the exemptions, and many states require an application or request for exemption. If an exemption is not applicable, and you are fundraising in a state that requires registration, solicit in multiple states or receive donations online, your nonprofit organization is required to register to solicit charitable donations. Also, depending on other activities, your organization might also need to register to conduct business in multiple states.
(For additional details on “When, Where and Who”, see blog post Charitable Solicitation Registration, Renewal and Compliance: Required Filings and the Consequences of Failing to Comply)
Additional Corporate-Related Requirements
4. How do we know if our charity needs to be qualified in a given state?
Only Washington D.C. and North Dakota require that a charity be qualified as an entity prior to being registered to solicit charitable donations. However, not being required to qualify in order to register as a charity does not preclude a nonprofit from needing to qualify in other states in order to conduct its business affairs. Each state will have its own requirements for what constitutes doing business in its jurisdiction. In California, Colorado, and Oregon, charitable solicitation across state lines is considered “conducting business,” and therefore requires registration as a corporation in these states.
5. Does our charity need a registered agent in every state in which it is registered for charitable solicitation?
Fortunately, most states do not require a registered agent for a charity to solicit. In states in which a registered agent is required for charities, one should not confuse it with the statutory requirements for registered agent for business entities. These are separate and distinct obligations and must be addressed as such. (See blog post, Is a Registered Agent Required for Nonprofit Fundraising Registration?, for additional details.)
Activities that Impact Registration as a Charity
6. Does a “Donate Now” button on our website require that we register as a charity?
Forty-one states and D.C. require some form of charitable registration, and what triggers the requirement is the solicitation of funds. Each state will define “solicitation” differently, so it is important that a charity seek proper legal advice to determine which, if any, states will regard a “Donate Now” button as solicitation of donations. (For more on this topic, see blog post “Does Our ‘Donate Now’ Button Require Charitable Registration?” Triggers and Thresholds and Exemptions… Oh My!)
7. What are the registration consequences when a charity hires a professional fundraiser?
One major consequence a charity needs to be on the lookout for is whether the hiring of a professional fundraiser will trigger the loss of its registration exemption. In several of the forty states in which charities need to register, exemptions are afforded under certain circumstances, such as monetary thresholds, membership, fraternal and social organizations and hospitals and hospital auxiliaries. Loss of the exemption due to the engagement of a professional fundraiser can be costly, especially to small organizations. In addition, charities that are already registered may need to amend their registrations, along with filing a copy of the fundraising contract. (More information on this topic can be found in the blog post, The Impact of Engaging Professional Fundraisers on State Charitable Solicitation Registration for Nonprofits.)
Financial and Annual Reporting
8. Are there ongoing filing requirements?
In addition to one-time or annual registration, most states require filings in the form of an annual report, renewal, update or some form of compliance filing to remain in good standing with the state charity regulators. Documents that must accompany annual charitable solicitation compliance filings usually include the nonprofit’s Form 990, audited or reviewed financial statements and/or state-specific financial reports. Unfortunately, the audit threshold is very low in some states, such as Illinois where the threshold is $300,000 in gross contributions received, but is lowered to $25,000 of contributions if your organization engages the services of a professional fundraiser. (See blog post Audit Requirements for State Charitable Solicitation Registrations and Renewals.)
Extensions and Outliers
9. When should a charity file an extension for its IRS Form 990 filing, even if it plans to file on time?
The best reason for getting an extension with the IRS is to be eligible for extensions with many of the state charity offices. Often the deadlines for state charitable renewal filings mirror that of the IRS. A charity may find that it needs additional time to meet the multiple concurrent deadlines. Without first being granted the federal extension, there are several states that will not allow an extension for their filings, which can lead to late fees, possible fines and, in some states, the need to re-register. (Specific examples can be found in the blog post Why Charities Should Consider Extending the Deadline for Filing IRS Form 990..).)
10. What are the requirements for charitable solicitation in D.C.? What’s new in Nevada?
Obtaining a charitable solicitation license in D.C. is no easy task, exacerbated by inaccurate information posted to sources that are expected to be reliable. Be advised that there are several prerequisite items required for filing along with the Basic Business License form “BBL-EZ.” All the necessary and correct information for navigating the process can be found in this previous blog post: The Challenge of Obtaining a Charitable Solicitation License in Washington, D.C.
Nevada does not have a charitable solicitation statute, but its corporate law was amended to require charitable solicitation registration with the Nevada Secretary of State’s office by nonprofits before soliciting tax-deductible charitable contributions from a location within the state or solicitations from persons or corporations in Nevada. The new law was effective on October 1, 2015, but the state’s registration form, website and instructions, until recently, did not comply with the amended law or the actual requirements mandated by it.
For additional information, please post a question or comment here or contact the author directly (Ron Barrett, email@example.com or 202-370-4755).
This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.