What this is: Here's a brief guide to the new law and proposed regulations, which are subject to finalization in the coming weeks and will be fully effective on January 1, 2024.
What this means: Companies should proactively assess their activities to ensure adherence to the new regulations, promoting transparency and accountability while continuing to provide substantial online fundraising opportunities for charities.
Some Background
In a substantial improvement to charitable solicitations law, California passed a comprehensive statute (Assembly Bill 488), which partially took effect on January 1, 2023. Seeking to combat fraud and misleading solicitations in the domain of online charitable campaigns, the law introduces new rules for "charitable fundraising platforms," encompassing cause marketing campaigns and some commercial co-venture (CCV) initiatives. The regulatory landscape of CCVs (AKA charitable sales promotions) and cause marketing activities in California is experiencing a noteworthy change. Companies conducting these campaigns online with nonprofits (defined by the new law as “recipient charitable organizations”) need to be aware of the updated legislation’s impact. Here's a brief guide to the new law and proposed regulations, which are expected to be finalized in the coming weeks and will be fully effective on January 1, 2024.
California's Assembly Bill 488
In October 2021, Governor Gavin Newsom approved Assembly Bill 488, an amendment to the Supervision of Trustees and Fundraisers for Charitable Purposes Act (the Act). This legislative move reflects California's determination to regulate online platforms engaged in soliciting for charitable organizations. Though partially effective from January 1, 2023, the law delays registration and reporting requirements until January 1, 2024, allowing regulatory finalization. Certain provisions, like ensuring charity good standing and disclosures, are currently active.
Who's Impacted by the Law?
The Act introduces 2 new registration categories: "Charitable fundraising platforms" and "platform charities." Concentrating on the former, a charitable fundraising platform (platform or platforms) is defined as an entity using the Internet to facilitate acts of solicitation within California. This encompasses activities such as listing recipient charitable organizations, facilitating peer-to-peer fundraising and providing customizable platforms for soliciting donations. This includes platforms and online retailers incorporating charitable sales promotions and applies to nonprofit intermediaries raising funds via fundraising platforms.
Companies embracing cause marketing initiatives may find themselves falling under the "charitable fundraising platform" umbrella. For instance, e-commerce sites conducting point-of-sale consumer roundups or donation-at-checkout campaigns, as well as donors-choose programs and peer-to-peer donation initiatives via a platform or CCVs involving online components and interactions with more than 6 different charities annually, could be classified as such. Even companies allowing customers to direct donations from purchases to chosen charities may now fall within this category. Exclusions from this category are a charitable organization's own platform, technical/supportive service providers to platforms and sponsoring organizations of donor-advised funds.
As for CCVs, historically, California did not require CCV registration if companies adhered to certain conditions. The new law requires charitable fundraising platform registration if the online campaign targets California individuals and benefits more than 6 charities per year.
CCVs will continue following existing laws if they meet the following conditions:
- They are fully online CCVs benefiting 6 or fewer charities annually
- They are hybrid (in-person and online) CCVs benefiting 6 or fewer charities annually
- They are fully in-person CCVs
Would you like to read more about building a foundation for your mission? Start with our Nonprofit Services Resource Center.
Registration and Reporting
Companies deemed to be charitable fundraising platforms must register by completing Form PL-1 (Initial Registration for Charitable Fundraising Platforms) with the California Registry of Charitable Trusts before conducting these promotions online, along with a $625 fee. The registration must also be renewed annually by January 15 (Form PL-2) and an annual report is due by July 15 for the preceding calendar year (Form PL-4).
Engaging With Good Standing Charities
Charitable fundraising platforms must verify that the recipient charitable organizations they partner with are in good standing with California's Registry of Charitable Trusts and confirm that their tax-exempt status has not been revoked by the Internal Revenue Service or the Franchise Tax Board. Charities not in good standing can be found on California’s May Not Operate or Solicit for Charitable Purposes List.
Charity Consent and Exceptions
For donations from contributors, donors choose and peer-to-peer initiatives, charitable fundraising platforms must enter a written agreement with the charity allowing use of its name in solicitations. It must also specify the timeframe for sending donations and holding them in a separate account and ensure the prompt transfer of donations to the charity with an accounting. The accounting should detail any fees deducted from donations, including distribution and payment processing fees. The platform must also allow the charity to approve solicitation information or request removal.
No consent is needed from a charity if the company references only the charity's basic details. There should be a clear disclosure if consent is absent and the charity has not reviewed the content and be removed upon written request from the charity. As for CCVs, they require charity consent, with an agreement including the provisions listed above.
Disclosures, Tax Receipts and Remittance of Donations
For donations from consumers, donors choose and peer-to-peer initiatives, platforms must clearly disclose that donations may be used unrestrictedly by the charity regardless of donor designations. This should be conspicuously disclosed next to the main content.
Tax donation receipts should be provided to donors within 5 business days of the donation and shall provide an ability for donors to find out whether their donations or recommended donations were sent to a recipient charitable organization, an alternate charitable organization or a person engaging in peer-to-peer charitable fundraising, when applicable, if donors choose to learn this. Such information shall be made available to donors no later than 15 days after the donated funds are sent.
Remittance of Donations to Charities
When remitting donations to charities, platforms should include crucial details like donation amounts, fees and donor contact information.
- For consenting charities: Donated funds must be sent no later than 30 days after the end of the month in which the donations or recommended donations are made, unless the recipient charitable organization is not eligible to receive the funds.
- For non-consenting charities: Donated funds must be sent no later than 45 days after the end of the month in which the donations or recommended donations are made, unless the recipient charitable organization is not eligible to be sent the funds.
The Road Ahead
California platforms from January 1, 2023 must ensure a charity’s good standing, accurate disclosures and adherence to consenting and non-consenting charity requirements, among other requirements. Additional obligations for charitable fundraising platforms, including an initial registration and both annual renewals and reports, will take effect on January 1, 2024, following finalization of currently proposed regulations. California's new law brings significant changes, requiring thorough compliance for online charitable promotions. Companies should proactively assess their activities to ensure adherence to the new regulations, promoting transparency and accountability while continuing to provide substantial online fundraising opportunities for charities.
FAQs
What are some corporate and charitable compliance due dates for the state of California?
For charities registered to solicit donations in California, a charitable solicitation registration renewal on Form RRF-1 (Annual Registration Renewal Fee Report) is due 4.5 months after a nonprofit’s fiscal year end. Whereas the California corporate annual report (Statement of Information) is due on the last day of the month that a foreign nonprofit was qualified to conduct business in California. (The use of the word “foreign” in this context means a nonprofit not incorporated in California.) For California domestic nonprofits, the filing is due biennially on the last day of the incorporation anniversary month. This is further complicated by the fact that an initial report is required 90 days after a nonprofit (domestic or foreign) incorporates or qualifies to transact business in California. If you’d like to learn more, check out our article, The Challenge of Tracking Compliance Due Dates for Nonprofits.
Should nonprofits work with professional fundraisers that are not registered or licensed with the state charities offices?
Professional fundraisers that are not registered or licensed with the state charities offices might be reputable but at the very minimum, it could be considered a “red flag” if they are not registered. In some circumstances, there might be legitimate reasons for not registering, depending on their activities in a state, but nonprofits should consider this when contemplating working with professional fundraisers. Read our article, Why Charities Should Care About Registration Requirements for Professional Fundraisers, to learn more.
How do annual or periodic report filing requirements vary by state?
Some states do not require nonprofits to file an annual or periodic report at all (New York, North Carolina and Oklahoma), while others require it for domestic nonprofits, but not foreign nonprofits, such as Minnesota. In Alabama and South Carolina filing with the state department of revenue is required, but only if the nonprofit filed Form 990-T (Exempt Organization Business Income Tax Return) with the Internal Revenue Service. In Mississippi, voluntary filing is available but not required unless the state requests a Status Report. Some states require initial and either annual or biennial filings (California, Washington DC, Iowa, Nevada, New Mexico and Vermont), while others just require a biennial filing (Alaska and Nebraska). In the case of Texas, a periodic report is required every 4 years, but only if requested by the Texas Secretary of State. In New Hampshire and Ohio quinquennial (every 5 years) filing is required. Learn more by visiting our article, Nonprofit Corporate Compliance: Required Annual and Periodic Reports and the Consequences of Failing to Comply.
This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.
