How to Register to Fundraise Out-of-State
It Is Neither Legal Nor Wise to Avoid Regulations
Many nonprofits don't know that they should register in all the states where they fundraise. That's especially true given that more charities now use crowdfunding to raise money. They might be reaching donors in other states without realizing it. Here are the facts and how your nonprofit can catch up.
Some nonprofits may be flying "under the radar" when it comes to registering to fundraise outside their home states. This is according to Gary Curtis Cannon, Attorney, and Marc Lee, CFRE, of Affinity Registration Services, a firm that handles solicitation registration for many nonprofits.
IRS Form 990 requires 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."
Most states plus the District of Columbia (list and map) require nonprofit organizations to register to solicit donations. A few states don't require registration at all, and there is not much uniformity state to state in the requirements. For instance, although churches are often exempt from registering, each state defines what constitutes a religious organization differently.
Even if you raise funds only online, there is no escape from registration. The term "solicitation" usually means 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 the rules around registration.
Also, the registration applies to the solicitation, not actual receipt of donations. So, even if you solicit and never collect a donation from one of these states, you may still be required to register before you solicit. Rules differ from state to state, so you must research or use a service that does this task for you.
Even having a donate now button on your website might trigger the need for registration. If out of state residents use that button to any extent, registration rules might apply.
What Your Nonprofit Should Do
Here are some tips about fundraising registration. Be aware, however, 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.
- 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 less than $250 in donations from a particular state, consider not registering and not sending postal mail or email to that state. The cost of registering may outweigh any value. Even a follow-up email or letter to a state can be considered a solicitation. Several donation processing programs allow you to screen out states.
- If you accept online donations, do register in Florida and New York state, even if you don't solicit there. Those states require registration for merely taking a donation from the state. If you are a local or regional organization, consider donation software that will allow you to block contributions online from other states.
- Follow the rules of each state for registration, reporting, documentation, etc.
- Many states do accept the Unified Registration Form, but they often differ in the documentation that they require. So you can't just submit one registration to all of those states and forget it. You'll need to customize each registration with the required documents. Watch for advancements for Unified Registration that might in the future make things easier.
- In most states that require registration, you also have to renew annually. Each state's requirements are different, and deadlines for renewal vary. Fees for registration differ state to state.
- If you do not register correctly in other states before you fundraise, your organization risks penalties and even felony charges. Some donations have had to be given back as a result of not registering or registering too late. Your auditors and grantors will also require that your registrations are in order. Since the 990 requires organizations to report where they are registered, it is impossible to ignore out-of-state fundraising registration.
- Do not argue with the IRS or the State Attorney Generals about fundraising registration.
How to Register
You must submit a registration statement, supporting documentation, and sometimes pay a filing fee to the correct state agency (online or in hard copy). The Unified Registration Statement (URS), although meant to make things easier does not always suffice. It may be simpler to fill out the state-specific forms available on the states' websites.
Documentation might include your IRS Determination Letter, Articles of Incorporation and Bylaws, a Form 990, and more. Later, you may need to file an annual or biannual report to maintain good standing or renew the registration. Late renewals could result in revocation of registration or a fine.
The rules for registration are not uniform and are in flux, and the paperwork and staff time to keep up can be overwhelming, That's why many charities contract with third parties to take care of the chore for them. Here are some companies that your organization might want to look into. All of these firms also have useful information on their websites.
This article is just for informational purposes. It is not intended to be legal advice. Check other sources, such as the IRS, and consult with legal counsel or an accountant.