In most states, the need to register, in advance, to legally solicit charitable donations can be triggered with just one phone call, email, letter or in-person solicitation from a charity to a potential donor. With up to 40 states requiring nonprofits to file initial registrations followed by renewals every year, state charitable solicitation registration can be an extremely time consuming and expensive distraction from your mission. Depending on the size of your organization, complying with state fundraising laws can cost your organization hundreds of hours and thousands of dollars in fees per year. Fortunately, there are some strategies nonprofits can embrace to limit the number of states where they have to register.
Start with Your Home State and Where You are Domiciled
A good starting point is to register to solicit in the state where your organization is headquartered. You may also want to register in other states where you have offices, chapters, branches or affiliates, but only if your organization is actively soliciting in these states or if the state has a charitable solicitation act that requires registration. Also, you will likely need to register to solicit in the state where your nonprofit is incorporated; again, presuming your nonprofit solicits in this state and registration is required there.
Don’t Worry About These States
Fortunately, not all states require charitable registration and there are a few states where most nonprofits are exempt from these persnickety filings. The following 10 states do not require charitable registration: Delaware, Idaho, Indiana, Iowa, Montana, Nebraska, Nevada, South Dakota, Vermont and Wyoming. Note that Nevada does not have a Charitable Solicitation Registration act, but recently amended its corporate statute to require nonprofits soliciting in the state to qualify as a foreign corporation and file a Charitable Solicitation Registration form with the corporate filings (see COGENCY GLOBAL INC.'s blog post Nevada Establishes Charitable Registration Requirement for Nonprofits). (Nevada’s Charitable Solicitation Registration form is only one page and is much easier to complete than the typical form with the same name that must be filed with charities bureaus or attorney general offices in other states.) Also, Texas has a limited registration requirement that is only applicable to law enforcement, public safety and veterans organizations. Similarly, Arizona only requires veterans organizations to register. Finally, Louisiana only requires registration if you engage paid, professional solicitors to fundraise in the state, while Missouri exempts 501c3 organizations, upon application.
Consider the “Embarrassment Factor”
Sometimes, one donor or fundraiser can justify the need for registration in a state. Take for example a large donor from California who has given your organization $100,000 every year for the past five years. If you want to help ensure that your organization continues to receive this regular donation, then consider registering to solicit in California, even if you have no other donors from the state nor solicit other persons. States and the media are getting much better about communicating the need for registration and where donors can look online to check if their favorite charities are complying with state laws. If this is a donor that takes pride in due diligence and searches California’s database of registered charities, imagine the embarrassment when your Executive Director or Board Chair receives a phone call from a disappointed, dismayed and disgruntled donor.
Speaking of embarrassment… in 2014, the Ohio Attorney General, Mike DeWine, the state charities official in charge of the office that administers and enforces Ohio’s Charitable Solicitation Act, was embarrassed to discover, according to reliable news sources, that the charity he publicly supported was not registered to solicit in the state of Ohio. (See “AG Mike DeWine fundraised for unregistered charity”.) The irony of Ohio’s highest law enforcement official soliciting on behalf of an unregistered charity cannot be understated.
Public officials, celebrities, and corporate/philanthropic moguls are also worthy of your attention when trying to determine in which states to register. A judge recently appointed to the board of directors of a small nonprofit that held fundraising events in multiple states was concerned about a lack of registration in any of these states and the potential negative impact to her as an elected official. This concern led to the registration in all eight states where the charity was conducting very public, highly-publicized events. To protect the reputation of any high-profile directors on your board, consider registering in the states where they work or reside.
Follow the Money…and the People
Nearly half of the population in the United States is concentrated in just 10 states (largest to smallest – excluding Texas, which mostly does not require registration): California, Florida, New York, Illinois, Pennsylvania, Ohio, Georgia, North Carolina, Michigan and New Jersey. Also, the concentration of wealth in the U.S. might consist of even fewer states. If you base your registration on the states with the highest median income, then the states that require registration are as follows: Maryland, New Jersey, Alaska, Connecticut, Hawaii, Massachusetts, New Hampshire, Virginia and Minnesota. Limiting your solicitation and registration to just these states might be an efficient, cost-effective strategy to comply with fundraising statutes and registration requirements.
Conversely, if your fundraising results are insignificant in less populous states such as Alaska, North Dakota and Rhode Island, or in states with the lowest median income, such as Mississippi, Arkansas and West Virginia, then it might make sense to forego registration and solicitation in these or similar states, as the time and fees associated with registration and ongoing compliance might outweigh the value of the donations received from residents in these states. However, please remember that it is solicitation activities that result in the need to register, not the number or amount of donations received.
Strategic Approach to Charitable Registration Can Reduce Risk and Limit Costs
In the past, states didn’t devote much attention, resources or effort to enforce charitable registration requirements, so it’s understandable why some organizations are reluctant to register. However, since the advent of the internet and its impact on fundraising, along with the changes brought about by the Pension Protection Act of 2006, nonprofits are increasingly discovering that states are becoming much more proactive and donors are doing more due diligence. The cost of one state fine for failing to register could exceed the cost of registering nationwide, not to mention the potential reputational risk to a nonprofit, its officers, directors, fundraisers, volunteers and related organizations. A strategic approach to state charitable solicitation registration in the states where fundraising matters most to your organization might make sense, reducing risk to your organization, while limiting potential costs.
For more details relating to some of the reasons why your organization might want to register in some states or nationwide and to learn more about each state’s specific requirements, consider subscribing to the soon-to-be released, quarterly online publication, Nonprofit Fundraising Registration: Nolo’s State-by-State Guide. The expected release date is September 2015. (Full disclosure: I am the co-author of this publication.) To be kept informed of the release, sign up for “COGENCY GLOBAL INC. News and Events” email updates.
This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.