Get the facts on charitable solicitation registration
Forty-five states and the District of Columbia regulate charitable solicitation. Charitable organizations are required to register and submit annual reports/registrations in 42 of those jurisdictions (including the District of Columbia). Many organizations are not aware that this requirement to register exists and some organizations are under the impression that they are exempt from such requirements.
Even among nonprofits aware of registration requirements, a number of points cause confusion. For those nonprofits that are unaware, the following points will help create an understanding of the registration requirements and aid the organization in compliance.
1. Exemptions are not automatic
While almost all states grant exemptions from registration for certain types of charitable organizations, each state's registration requirements will need to be closely reviewed to determine if a particular organization qualifies. In addition, most states require a formal request for exemption, whether it be on a form provided by the state or simply sending a letter with a copy of supporting documents.
2. Some states do not follow the Charleston Principles
A nonexempt charitable organization engaged in any fundraising activities is required to register in each state in which it requests a donation. One method of fundraising that is often problematic for charities is online solicitation — social media, a donate button on the organization's website, and online cause-related marketing promotions. Whether these types of solicitations trigger national registration or simply registration in a couple of states is a question many charities have. If the organization's offline activities don't trigger registration, in most instances, the Charleston Principles can be applied. However, there are now at least four states that have defined their registration threshold based on repeated and ongoing basis and/or substantial basis, which would likely trigger registration requirements for online solicitations.
3. Minimum receipts thresholds are based on charities' total gross receipts
Another common mistake among charitable organizations is failing to understand the minimum receipts threshold. In most states, charities that raise more than $25,000 are required to register. Many organizations assume the threshold applies solely to receipts within the state. However, the threshold is based on total national revenue as reported on Part I, line 12 of the organization's Form 990. The only state that has an exemption provision based on amount raised from within its borders is New York. New York exempts a charitable organization that raises less than $25,000 in the state and did not utilize the services of an outside paid fundraiser.
4. Penalties can amount to more than a financial penalty
States are increasingly imposing late fees and fines on organizations that conduct fundraising activity without proper registration. In addition to the fines and fees, failing to register can lead to an Assurance of Voluntary Compliance or Settlement Agreement that would need to be disclosed in other states. Failure to register can also lead to investigations that expand beyond the registration issue and that lead to an examination of overall operations.
5. Formal grant requests are solicitations
Many nonprofits seem to think their out of state grant solicitations do not trigger registration requirements. Unless an exemption applies and has been approved by the State, grant applications are solicitations that trigger registration under the law.
6. States actively search for charities that do not comply
Our clients have received notices from the California Attorney General based on grants reported on the grantmaker's Form 990s. All the Attorney General has to do to generate a list of nonprofits that are out of compliance is to cross reference the registration database with Schedule B of Form 990. The growth of electronic filing and information sharing among state regulators and the IRS makes it increasingly likely that the failure to register will be discovered and enforced.
For more from Ellis Carter, visit CharityLawyer.