CORPORATE TRANSACTIONS & COMPLIANCE BLOG

Charitable Registration FAQs with NCR's VP of Nonprofit Services Ron Barrett

By: Ron Barrett, COGENCY GLOBAL INC. on Wed, Oct 19, 2016
 
Want to learn more about charitable registration? In this video, our VP of Nonprofit Services and co-author of Nonprofit Fundraising Registration: Nolo’s 50-State Digital Guide, Ron Barrett, answers the most frequently asked questions we hear about fundraising registration requirements.

Download our white paper, “Charitable Solicitation Registration, Renewal and Compliance”, to learn more about the required filings and the consequences of failing to comply.
 
[Transcript]
 
Hello and welcome to COGENCY GLOBAL INC.'s Charitable Registration FAQs. I'm Ron Barrett the Vice President of Nonprofit Services at National Corporate Research, and I'm also the co-author of "Nonprofit fundraising registration: Nolo's 50 State Digital Guide", and though I know a lot about charitable registration and the statutes behind them and the registration requirements. I'm not an attorney or CPA so nothing I say today should be considered as legal or tax advice. So let's get started with our first frequently asked question.

Q: What is charitable solicitation registration and compliance?
A: Charities rely on fundraising to support their efforts and their charitable missions. They need to reach out to the public and solicit charitable donations, and when doing so it creates in many cases an obligation to register with states. Some states, most states have a requirement to register before they solicit, and so when they're soliciting whether it be by direct mail, online fundraising, peer-to-peer fundraising, reaching out to granters--whether it be the government or other foundations or corporations that fund nonprofits. Those actions requires charitable registration. It required them to register with the states who oversee and regulate their activities in states.

Q: Where is charitable registration required?
A: It's required in most states. There are exemptions to filings for smaller organizations. There are also exemptions for certain types of categories of industries such as religious organizations, educational institutions, hospitals, and membership organizations. But most states do require charitable registration. There are eight states that don't have a charitable solicitations statute, and so there's no registration requirement in those states. And the states are Delaware, Idaho, Indiana, Iowa, Nebraska, Vermont, South Dakota, and Wyoming. In addition to those eight states, Arizona only requires veterans organizations to register, and the same is true for Texas, which also requires law enforcement and public safety organizations to register in addition to veterans organizations. Also, Missouri oddly enough exempts all
501c3 charitable organizations after you file an exemption request with them, and then Louisiana only requires registration if you use the services of a paid professional solicitor. So if you're not using a professional solicitor, you don't need to register in Louisiana. So if I did my math correctly that comes out to 38 states where you need to register plus the District of Columbia.

Q: When should initial filings be made, and when are renewals due?
A: Generally speaking, you should register in advance of any solicitation campaign. There is one state, however, California that has an exception to that, and that is that you can register after 30 days after you first received charitable assets in the state from a donor, whether it be an individual corporation or government agency or foundation. You have 30 days in which to register in California. But all other states want you to register in advance of actually soliciting, and it doesn't matter that whether or not you receive donations or not. It's the actual act of soliciting that requires registration.
 
What was the second part of that question?

When are renewals due?

Renewals are due throughout the year. Once you initially register there's a compliance component. You need to file annually either a registration renewal or an annual report. It's usually in the form of an annual financial report such as your 990 and audit along with a form and a fee that is due to the state. And as far as the due dates, it's driven by different models in different states according to the statute.Usually, it's four and a half months after the fiscal year end, such that your renewal is due when your 990 is due. But other states have just statutory deadlines such as North Dakota, which is due September 1st, and Maine, which is due November 30th, so they'll just arbitrarily set in their statute when it renewal is due. And then there's a third grouping where annual renewal on the registration anniversary renewal is due such as Florida and Oklahoma. So once you register in Florida or Oklahoma, you need to renew exactly one year after your registration.

Q: What strategies can be taken to minimize the number of states where registrations are filed?
A: As I mentioned earlier, there are exemptions so you should make sure that you review the statutes carefully to see if there are any applicable exemptions for your type of organization. I mentioned religious organizations, educational
institution, and membership organizations. So you should check the specific state statutes to see if you might be exempt from registration. Now unfortunately, you're still required to file or an exemption application in some states, and in others you can just self declare. But if you are in one of those categories that receives broad exemptions then you can reduce the number of states where you register quite dramatically. And that's especially true for small organizations.The thresholds differ from state to state. It's as low as 1,500 in Washington D.C. It's as high as 50,000 in Connecticut. But on average it's about 3925,000 per year, and overall total fundraising--it's not state-specific--but overall fundraising, if you can be under that $25,000 threshold you can avoid registration in many states.
 
Other ways to avoid registration or to limit the number of states where you register is just to monitor your solicitation activities and simply make decision not to register in a state and not to solicit in a state.
 
The other side of the coin of that is that perhaps your solicitation activities are so minimal that your risk profile is so low that you might be able to continue to solicit in the state, but you do so at a risk of being discovered and having the state send you a letter. The Trump Foundation recently ran into that situation, and don't be-- I don't want to bring politics into this, but at the very minimum it was very damaging news report to the Trump Foundation when the New York Attorney General sent the organization a letter indicating that they had failed to register under one of the two statutes that require registration. They were in fact registered under one statute and have been and have been a compliance for the past 14 years, but their recent activities in New York and throughout the nation have warranted them registering under a separate statute in New York to comply with New York's law.

Q: Will states fine or penalized charities that solicited in the past but not registered?
A: What I just mentioned about the Trump Foundation is a great segueway. Generally speaking, they don't, but they will generate letters. The Attorney General or the Secretary of State will generate letters to your organization if they know that you're soliciting in the state while being unregistered. But if you haven't registered, and you're not in compliance, don't let fear of fine or penalty prevent you from coming into compliance. Generally speaking, the states will not fine or penalize you for having not registered in the past. They're more interested in getting organizations to comply with their
statutes and then once registered to maintain that registration going forward.
 
That's not to say though that there aren't any states that will fine you or penalize you. There are two that come immediately to mind. Florida is one of them. If they have any indication whatsoever that you're soliciting while unregistered in Florida, they will send you a $500 fine and open an administrative proceeding against your organization. And that's something
you can't ignore. You either do have to pay the fine or you have to contest it in the administrative proceeding. Similarly, Illinois will fine you up to $500 if you have an operating history over three years. They presume that you've been soliciting in their state without being properly registered, and unless you tell them otherwise in a letter on your letterhead that you're not actually an organization that has solicited in the past in Illinois and that you don't intend to solicit until you're properly registered then they will waive the $500 in fines. But if you can't do that then there is a $500 fine, and that's not to say that states won't take a more proactive stance against your organization in the future. Of course they could do that if they wanted, but generally speaking they're more interested in bringing organizations into compliance and to
have you maintain your registration going forward.

Q: Does online fundraising trigger registration requirements?
A: That is a very controversial question, and you'll get different answers from different people on that. Unfortunately, the scenario that we're dealing with with online fundraising for the large part is that you have a 21st century fundraising model where you have to apply statutes that were written in the 1950s, '60s, '70s, and '80s, and so you have that whole round peg square whole issue of a fundraising model that doesn't really keep in pace or so we say fundraising solicitation statutes that don't keep in pace with fundraising methods.
 
Generally speaking, just having a Donate Now button on your website doesn't necessarily mean that you need to register in every state. However, if you're then collecting information about the donors that are contributing online and adding them to your donor roles and then following up by email or phone or direct mail campaigns, then you are into the solicitation realm. And similarly, if you're sending out notices or newsletters or you're directing people to your website where there is a Donate Now button that could be construed as a solicitation, so it's not a cut-and-dried issue, and it's a little bit of a gray world area in terms of fundraising. Peer-to-peer fundraising, text giving, mobile giving, viral fundraising, all of those things aren't addressed directly in the statutes, but if it's a direct or indirect solicitation online, then it's safer to register and make sure that you're complying with the law.

Q: How do fundraising registration requirements differ from corporate registration and compliance?
A: That's a great question, and it's important to differentiate the two. It comes down to your activities in a state. If you're soliciting in the state you need to register to solicit if that state has a solicitation statute. However, if that's your only nexus with a state that might be all that's needed.
 
If you have other activities in the state though that constitute doing business, this is where you really need to
employ the services of an attorney or some legal counsel on this. Additional activities beyond solicitation can be construed as conducting business in the state and therefore require corporate qualification. So in other words, you
would need to register to conduct business in the state in addition to registering to solicit in the state, and so it's important to differentiate the two. And to make it even more confusing, in many states it's the Secretary of State that regulates both of these activities. It could be that you need to register as a charity with the Secretary of State's office in the charity's bureau, and it could be that you need to register in the Secretary of State's office under the corporate division as a foreign corporation. So when you say register be careful with your jargon because it could be that you need to do one or the other or both. And in terms of compliance, it gets it especially confusing because the annual reports and annual renewals that are due for both corporations and for charities in terms of filing with the state. It sounds the same, and it's similar,
so you might have an annual filing or an annual report or an annual renewal both on the corporate side and on the charity side, and they're both at the Secretary of State's office, and so it's important to differentiate the two in terms of what your needs are.

Q: Will using a professional fundraiser to solicit trigger registration requirements?
A: The short answer to that question is yes. Anytime that you reach out to professional paid fundraisers, professional solicitors, fundraising councils, also referred to as fundraising consultants, and even commercial co-ventures, which are for-profit organizations that enter into charitable sales promotion agreements where they promote a product or service in tandem with charities to raise awareness both for their products and for the mission of the charity, and so in these scenarios, when you're entering into agreements with paid fundraisers it can trigger a registration requirements so
if your organization wasn't previously registered and the professional fundraisers are because they frequently are required by statute as well to register, they have an obligation to report to the state who they're working with. And so if they're working with a new charity, if they're working with your organization, they have an obligation to report to the state that they're working with you, and if you're not registered that will trigger the state contacting you and vice versa. If you're registered nationwide or even only a handful of states and you start reporting that you engage professional fundraisers and that professional fundraiser or consultant or council is not registered in turn, it will generate the letters from the states to those fundraisers where they need to register, so it does have an impact on the requirement for registration.
 
And one last point with that respect this is that if you're exempt from registration in specific States you should look back at the statute because there are exceptions to the exemptions. If you start working with professional fundraisers and hadn't in the past there are certain states that have exceptions to the exemption. For example, in Maryland, if you haven't worked with professional fundraisers in the past, and you're exempt because maybe you're an educational institution--if you start using this professional fundraisers you no longer qualify for the exemption and now need to register. And that's true in several states, so it's something to keep in mind when engaging professional fundraisers.

Q: Are audited financial statements required?
A: For some organizations they are. If you're a smaller organization the answer's no, and states define what smaller is. In most cases, under $200,000 or $300,000 in revenue or contributions per year does not require you to have an
audit done, so no audited financial statements. However, once you go into the numbers that high and higher, especially the half million mark, most states are going to require you to provide audited financial statements
along with a copy of your 990. There are a few states that have higher thresholds than that. California's threshold is 2 million-- that's the highest in the country.

Q: Is a registered agent needed for charitable registration?
A: It is needed in in just a handful of states. And it's definitely needed in four states, always in the states of Colorado, the District of Columbia, Michigan, and North Dakota. However, there are a handful of other states where you can or you don't necessarily have to name a registered, agent and i'll give you a few examples of what I mean by that. In Virginia, for example, it's optional. You can name a registered agent if you want, but you don't have to. If you leave it blank on the form then the Secretary of the Commonwealth of Virginia is automatically designated as the agent for service of process. Another example is Utah, where a registered agent is in fact required, but it can be anyone anywhere, so it could be an officer or director at your headquarters. It can be any individual located anywhere, so if you want to avoid the expense of a registered agent you can take that route, but if you would prefer a professional registered agent to handle your service of process, in Utah, that's an option. A third example is South Carolina, and South Carolina domestic--that is in-state nonprofits--are required to name a registered agent, whereas foreign--out-of-state nonprofits--are not required in that they can name the Secretary of State as the registered agent. The trick with that though is that you do specifically have to name the Secretary of State and indicate the Secretary of State address on the form. So it's a way that you can name an agent, let the Secretary of State be designated as the registered agent, but you do in fact have to name them in the in the filing with South Carolina.

That's all the questions we have for today.

Well, thank you everyone for attending our charitable registration faqs. I hope that you found this interesting and enjoyable, and I hope you come back and visit us again in the future. Please visit us if you have any interest in learning more about COGENCY GLOBAL INC. and our nonprofit services at our nonprofit services page. Thank you very much.

 
This video is provided for informational purposes only and should not be considered, or relied upon, as legal advice.

Topics: Nonprofit Registration and Compliance, Charitable Solicitation Registration