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Illustration by Jocelyn Ruiz
Nonprofits solicit and raise funds as a fact of their existence. To protect nonprofits and the general public, most states enforce certain compliance requirements on nonprofit organizations soliciting within their borders. With the advent of various communication technologies, nonprofits have broadened the reach of their programs and fundraising efforts greatly, and at a much lower relative cost. When it comes to compliance with state laws, online fundraising initiatives have created a regulatory challenge for nonprofits everywhere. Most existing state laws were written in the pre-internet era, and so what originated as a straightforward, easily discernible process, has quickly become confusing and burdensome for organizations trying to understand and comply with complex requirements.
The purpose of this post is twofold. First, to introduce nonprofits to the concept of fundraising compliance and second, to consider two strategies for nonprofits soliciting online to comply.
Approximately 45 states have laws regulating charitable solicitation activity. The term soliciting is broadly defined, but generally refers to the act of asking for contributions by a variety of methods. Traditional solicitation methods are what you might expect, such as sending letters, making phone calls, and applying for grant funding. In certain states, soliciting has also come to mean sending emails, using social media or crowdfunding platforms, and maintaining a website with a “Donate Now” button, which of course is accessible from anywhere.
In the majority of those states, the primary (though not only) lever of compliance is registration and annual reporting with the state charity official, typically the Attorney General or Department of Consumer Protection. The process of registration consists of submitting an application of basic contact and leadership information, details on the organization’s solicitation activities, copies of organizational records, Form 990 and financial statements and a filing fee. Some states may also enforce additional requirements, such as for a registered agent for service of process.
Almost every state requires nonprofits to file annually to renew their license to solicit. The materials submitted again include the most recent Form 990 and financial statements, any updates to the original information submitted, and another filing fee. Each state has a separate registration and reporting process, including schedule of due dates, which means nonprofits soliciting in multiple states are faced with the responsibility of understanding and managing diverse and, at times, complex requirements and deadlines.
Put together, the chances are that a given nonprofit solicits by a mix of online and traditional methods and that those activities reach the residents of other states. Therefore, many organizations are faced with the specific reality of registration beyond its home state, often in multiple jurisdictions. This may be particularly surprising to groups based in Arizona, which is one of the few states that does not require registration for most organizations.
Once the initial surprise subsides, nonprofit boards and leadership are charged with developing a strategy to comply. While the exact details vary by organization, the overall framework is the same for most nonprofits, and comes down to two high-level options:
The first option is simply to pursue nationwide registration. Organizations with mature programs and fundraising efforts often reach donors in all states by a variety of methods, which generally trigger requirements on a broad scale. Larger groups also frequently find that registration in every state is easier, most cost-effective and less time-consuming than researching state requirements and conducting perpetual gap analyses against their present and planned solicitation activities. By registering and maintaining licenses to solicit wherever requirements exist, nonprofits not only can solicit by any lawful means, but they also can leverage their registration status to seek additional funding opportunities in those states.
The second option pertains to organizations with smaller budgets or bases of support. This strategy requires the nonprofit to review its “fundraising footprint,” that is, where their existing and planned program and fundraising activities take place, and again submitting registration materials to state charity officials. When it comes to online activity, that may mean reviewing where the organization receives repeated or substantial contributions. The key difference is that these nonprofits confine their solicitation activities to where they are registered, exempt or otherwise not required to file. This means that organizations should exercise a greater degree of caution when planning their solicitation activities, and generally may need to include language on their online solicitation materials that inform donors where the organization is authorized to accept donations.
In all cases, it’s important to know that states encourage proactive filing of registration materials. They rarely penalize groups registering in good faith. Nonprofit leadership should develop a plan to determine where the organization needs to register, form a budget for annual compliance-related costs, get registered in a timely fashion and review its compliance strategy periodically to adjust to any new opportunities or changes in its operations.
Online fundraising is now a fact of existence, and so too are state registration requirements. However, nonprofits can view their requirements in a positive light by registering proactively, using registration status to ramp up development efforts, and talking about compliance as a point of pride when engaging with donors, grant makers, and other funding sources. The conversation within your organization starts with you, but it ends by benefiting all, and soon you will realize that compliance is a very achievable goal.
Harbor Compliance is not an accounting or law firm and does not provide tax, financial or legal advice.
About Harbor Compliance: Founded by a team of government licensing specialists and technology trailblazers, Harbor Compliance is a leading provider of compliance solutions for companies of all types and sizes. Since 2012, they have helped more than 15,000 organizations apply for, secure, and maintain licensing across all industries.