Many charitable organizations may not know that most states require them to register to solicit donations if their charity is not based in that state. In fact, they might be reaching donors in other states without realizing it. This is especially true in a world where fundraising has gone digital. Without proper registration to solicit, charities can incur penalties or worse.
Here's what your nonprofit needs to know and some tips for making things right.
What You Should Know About Out-of-State Fundraising
Some nonprofits may be flying under the radar when it comes to registering to fundraise outside their home states. Most states do have some form of charitable solicitation laws that require out-of-state charities to register before soliciting donations in their states. However, while these requirements were not tightly enforced in the past, in the digital age, where many organizations do end up fundraising out of state, officials have started cracking down.
Fundraising registration is state-imposed and enforced. But recent versions of Internal Revenue Service (IRS) Form 990, the annual federal tax return required of most charities, asks nonprofits (with incomes of more than $25,000 per year) to report information about where organizations are registered to fundraise. For example, Schedule G, Part I, Question 3 reads: "List all states in which the organization is registered or licensed to solicit funds or has been notified it is exempt from registration or licensing."
Consequently, it has become more difficult for charities to avoid registering. Most states plus D.C. require nonprofit organizations to register in some form to solicit donations.
But there is not much uniformity state to state in the requirements. Some require full registration, some partial, and some only for online solicitation. Some states require "disclosures" that the nonprofit is registered in that state when it sends confirmations of donations.
There has been an effort to standardize registration guidelines for online fundraising via the Charleston Principles, established in 2001 by the National Association of State Charity Officials (NASCO). But few states adopted those guidelines, and most developed their own criteria regarding registration and online fundraising.
Even if you raise funds only online, there is no escape from registration. The term "solicitation" usually includes oral, written, or online requests for donations as well as the selling of goods and services that benefit a charitable cause. A charity does not have to be physically in the state or jurisdiction to be subject to registration rules.
There are some exemptions in most states from registration requirements. Organizations that may be exempt include hospitals, religious organizations, and some schools. Also, there may be a threshold based on a charity's annual budget or the amount of money raised that may exempt smaller charities.
Even having a "Donate Now" button on your website might trigger the need for registration. If out-of-state residents use that button to a great extent, registration rules might apply.
Fundraising registration applies to the solicitation, not the actual receipt of donations. So, even if you never collect a contribution from one of these states, you may still be required to register before you solicit. Since rules differ from state to state, you must research all the states in which you may be fundraising or use a service that does this task for you.
Registration may be necessary for most types of fundraising. For instance, person-to-person fundraising, phone calls, direct mail, online fundraising, email, social media, events and participation fees, and perhaps even product sales could trigger the need to register. Also, funds raised through crowdfunding sites, through third parties, or by consultants, may require registration. Even some foundations require their in-state registration for all grant applicants.
How to Register for Out-of-State Fundraising
Unfortunately, there is not a standard federal registration procedure. Each state is different. But, generally, you will likely need to follow these steps:
Research each state where you might be considered to be raising funds. Information can be found through NASCO's website. The links on this site will take you right to each state's information on charity registration.
Submit Required Documentation and Pay Fees
Submit supporting documentation and pay a filing fee to the correct state agency. Fees, according to a report produced by The National Council of Nonprofits and Harbor Compliance, a firm that helps nonprofits register for fundraising, could range from $1,400 to $5,000.
Typical documentation required may include:
- IRS Determination Letter.
- Articles of incorporation and bylaws.
- IRS 1023 application.
- List of officers, directors, trustees, key executives.
- Form 990.
Renew Your Registration as Required by Each State
After initially registering, you may need to file an annual or biannual report to maintain good standing or renew the registration. Late renewals or failure to register carry consequences ranging from fines to revocation of the right to solicit.
Renewal dates also vary across states. For instance, one state might require renewal on the anniversary date each year, while another may have a fixed date regardless of the anniversary, or insist on the end of the organization's fiscal year.
Get Help If Needed
The complexity across states is why many charities have contracts with third parties to take care of the task for them. Here are some companies that your organization might want to look into. All of these firms have useful information on their websites.
Tips for Nonprofits
Here are some tips about fundraising registration. However, be aware that you'll need to do your homework on this issue or get legal or specialized advice for your particular nonprofit.
- Register before you start fundraising. Registration is for solicitation, not just for actual donations.
- Register in your home state. This is called your state of domicile. Also, register in any state where you have a physical presence or regular contact with alumni or members.
- Register in every state where you solicit funds. If you receive an insubstantial amount of donations from a particular state, check to see if that amount breaks through the triggering registration threshold.
- Register in all states that apply. If you solicit online donations, consider registering in all states that require registration. Online fundraising is so ubiquitous and multi-channel that you will need to register nationwide unless your charity is hyperlocal. When you qualify for an exemption (by type of organization, low annual budget, or few donations), file for that exemption.
- Follow the rules. Make sure to comply with each state's laws for registration, reporting, documentation, and renewal.
- In most states that require registration, you have to renew annually. Each state's requirements are different, and deadlines for renewal vary. Registration fees differ from state to state.
- Beware of penalties. If you do not register correctly in other states before you fundraise, your organization risks penalties and even felony charges. A charity could also be subject to an investigation, possible revocation of exempt status in that state, revocation of the right to solicit, and more. Since the IRS Form 990 requires organizations to report where they fundraise, it is impossible to ignore out-of-state fundraising registration.
- It is nearly impossible to avoid out-of-state solicitation laws in an age of ubiquitous online fundraising and national fundraising campaigns.
- Most charities will likely need to abide by these laws, even though they are not uniform state-to-state. Many charities will have to seek help in researching the state laws they need to obey and register and pay fees.
- The benefits of registering wherever needed include the freedom to fundraise across states without fear of penalties. It may also lead to more trust in their organizations as their fundraising will be transparent.