Lately, my mail has been loaded with questions about
nonprofits having to register to solicit funds in various states. These
questions reflect a lot of confusion about the requirements. Since this blog
reaches so many people, I thought it was worth the time to try to clarify the
out-of-state registration issue.
The bare bones
explanation
First, these are charitable solicitation laws. They do not require you to create a new
corporation in all 50 states. You simply
register the one you already have.
They are intended to control, legitimize, and in most cases
account for revenue raised within a state. In many cases the laws are intended
to protect the charity from having to pay state taxes on the money raised and
they allow would-be donors some protection from fraud as well as the right to
deduct donations on their state returns. And, as you might expect, they also
allow states to generate some revenue from the registration fees.
Second, there is no all-encompassing Federal law that
requires states to have a uniform application process, or that limits states in
the amount of registration fees they charge.
Every state has different requirements and fee structures
for registration. Some require the IRS determination letter and some do not.
Some require an annual renewal and some do not.
It is not a given that you have to register in all the
states with such laws. It depends on the specific state guidelines.
Interestingly, many start-ups are of the opinion that if
they are only making a general online appeal, such as on their own website or
Facebook page, they don't have to register in any state but their own.
Not necessarily true! Depending on your particular
situation, you may or may not need to register in a given state.
Where did all these
regulations come from?
Back in 2001, a document called the Charleston
Principles was approved to provide advisory guidelines
by NASCO (National Association of State Charity Officials) to curb fraud in the
charitable giving arena, particularly through
online campaigns.
If you fundraise in a state other than the one you
incorporated in, even via an online donation page, Giving Day or Twitter
account, you may need to register as a charitable organization in all the
states that require it.
A fairly
comprehensive explanation is found on the GuideStar website at: http://www.guidestar.org/rxa/news/articles/2014/state-registration-requirements-for-fundraising.aspx
and http://counsel.cua.edu/nacuanote-reqs-for-charitable-orgs.cfm
If this all sounds confusing, expensive and cumbersome, it's
because it is. However, the penalties for soliciting without registering can be
substantial, so ignoring the laws is not an option. As of this posting, several
more states have been reported as considering or adopting registration
regulations, but currently the list includes 40 states and the District of
Columbia.
Laws change, so be sure that your information is current. For
instance, as of 2010, California removed the exemption from registration for
out-of-state charities. You may also be required to file an annual statement of
revenues obtained from state residents.
While many people think that educational institutions and
churches are exempt from registration, this is not always the case,
particularly if you hire a professional fundraising firm.
Arising from the aforementioned Charleston Principles, and
in an apparent attempt to standardize the application process, a form was
created known as the Universal Registration Statement (URS).
It is the name of
this document that I think creates the idea that there is some over-arching
Federal control of the process. Again, it doesn't do that, and it isn't even
universally accepted by the states.
Since the states still require a varying amount of
additional independent documentation, the form is becoming somewhat obsolete,
although a few states do still require it. For more info see: http://www.multistatefiling.org/
How do you do it?
Private firms such as mine, or your attorney or accountant
offer fee-based registration assistance, or you can do it yourself.
A source
citing a synopsis of the various state regulations as of 2013 and the governing state agency can be found at: http://www.nacua.org/nacualert/docs/CharitableSolicitation/2013_JurisdictionalRequirementsCharitableSolicitation.pdf.
The URS form is included at the end of the state listings and is worth looking
at, including the additional forms required.
What about costs? Fees vary from state to state, with some
states having a flat fee and others tying the cost to the nonprofit's revenue,
even going as low as zero for many small charities. Some states require
registration no matter how little you raise, while others may not require
registration until in-state donations reach a set amount.
In some cases, the registration of an aggregating or sponsorship
agency (such as the United Way for instance) may provide sufficient legal
protection, since these organizations usually require proof of legitimacy as a
condition of use.
Also, many of the documents that start-ups typically may not
have (such as the IRS determination letter and a financial statement or 990)
are often required to file with the states, so before you spend a lot of time
and money, be sure that you have everything on hand.
Given that fraud in the charity world remains an ongoing problem,
it is unlikely that these requirements are going to go away. Some organizations
are seeking
to update the Charleston Principles to reflect the realities of a world
where everyone carries a tiny computer cleverly disguised as a phone, but to
date that hasn't happened.
If you are saying "all of this sounds time-consuming and
a good way to eat up scarce start-up revenues", you are right.
Nevertheless, if you are contemplating starting a charity,
this is information you can't afford to ignore. The costs in both time and
money need to be a part of your advance planning.
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