What this is: There are a plethora of misconceptions that nonprofits have with regard to nationwide charitable solicitation registration requirements, which can lead to non-compliance and missed opportunities for taking advantage of available exemptions.
What this means: This article aims to clarify a few common misconceptions and provide accurate information on charitable solicitation registration.
Navigating the complexities of nationwide charitable solicitation registration can be daunting for nonprofits, especially for newer or smaller organizations. Even larger, well-established charities often grapple with these regulations. I’d venture to say that most hospitals, colleges/universities and houses of worship are not properly registered to solicit, either failing to register in some states, or worse yet, failing to take advantage of available exemptions. For these organizations, I encourage them to reach out to me at rbarrett@cogencyglobal.com to obtain a complimentary report detailing gaps that exist in their fundraising compliance.
However, that is not what I want to discuss in this blog. I am more concerned with the alarming number of misconceptions nonprofits have regarding nationwide charitable solicitation registration requirements. Misunderstandings about registration requirements can lead to non-compliance and missed opportunities for leveraging available exemptions. This article aims to clarify a few common misconceptions and provide accurate information on charitable solicitation registration.
False. A widespread myth suggests that any charity soliciting online must register in every state. The misconception here is that since online fundraising can potentially reach donors in every state, then charitable solicitation registration is required in all states. This is not accurate.
The propagation of this myth, dare I say falsehood, is a disservice to nonprofit organizations and their charitable missions and assets.
Here is an email I received from a nonprofit recently that demonstrates this:
“Since we get donations online, we should be registered in almost every state. Since most payments come in by PayPal, we don’t know the states they come from.”
Since most state charitable solicitations acts were written well before the Internet era, most state statutes and rules do not address the need to register when fundraising online. Generally, online-only fundraising does not trigger registration requirements in most states, except for Florida. States like Colorado, Mississippi and Tennessee have adopted their own rules, similar to guidelines from The Charleston Principles. According to these principles, charities must register in states where online contributions from donors exceed $25,000 (“substantial threshold”) annually or involve more than 50 donations (“repeated and ongoing threshold”). These annual thresholds were established in 2001 with the release of the 18-page, non-binding guidance known as The Charleston Principles. These are guidelines rather than legal mandates but are widely considered best practices. (For more information, see our on-demand webinar Nonprofit Compliance Requirements When Fundraising Online.)
There are other scenarios that can trigger registration when fundraising online, but the “substantial” and “repeated and ongoing” thresholds are the primary determinants for the need to register to solicit in a state. This creates a scenario where nonprofits need to track their online donations (both the amount and number of contributions) before determining where to register to solicit.
False. While some believe that soliciting donations requires registering to conduct business in every state, this is not correct. Nationwide charitable solicitation typically necessitates registration to conduct business only in a handful states (in addition to any state where they are already conducting business or incorporated): Washington, DC and North Dakota, which are prerequisites to obtaining a charitable solicitation license and sometimes California, Colorado and Oregon.
California, Colorado and Oregon consider solicitation as "conducting business," but they do not require a separate business registration as a prerequisite for charitable registration. Therefore, most charities soliciting in these 3 states opt not to register to conduct business there when their only nexus is soliciting donors via phone, email or direct mail.
Also, some states, like Illinois, appear to require corporate qualification, as there are questions in their initial charitable registration form relating to when a charity is registered to conduct business in Illinois. However, this is not statutorily required in Illinois. If a registrant indicates on the initial form that they are not conducting business in Illinois, then the state will approve their registration without also requiring a corporate registration. Claims suggesting a need to register in multiple states for business purposes are often exaggerated and self-serving, similar to stating that nationwide registration is required when soliciting online… these are red flags.
False. Only 3 states require a registered agent, one of which (Michigan) requires the naming of a special agency appointment as part of the charitable registration with the Charitable Trust Section, Department of Attorney General. The other 2 states (Washington, DC and North Dakota) require the naming of a registered agent as part of the corporate registration process described above. Also, other states may have different provisions or offer alternatives to using a registered agent. Therefore, it's crucial to verify the specific requirements for each state where your organization solicits.
You don’t need to register in every state simply because you have an online donation button. Registration is typically required only if your online contributions meet specific thresholds in certain states.
Soliciting donations does not automatically require business registration in most states, except for a few like Washington, DC and North Dakota. Charities generally don’t need to register as a business entity in states where they only solicit donations.
Most states do not require charities to appoint a registered agent for fundraising registration, despite some misleading claims. Verify the requirements for each state individually.
Understanding these aspects can help nonprofits better navigate the complexities of charitable solicitation registration and avoid unnecessary compliance issues. Always ensure to consult with specialists or legal advisors to get tailored advice for your organization's specific situation.
Unfortunately, there’s no easy answer for this as state statutes regarding charitable solicitation were written before the rise of these internet-era concerns.
At current count, 40 states (plus DC) require some form of charitable registration. What triggers the requirement? Solicitation of funds. Each state defines “solicitation” differently, so it is important for nonprofits to seek guidance to determine which states consider a “Donate Now” button as solicitation. To learn more, read our article, Top 10 Charitable Solicitation Registration FAQs From Nonprofits.
In the majority of states that have sales tax, excluding Alaska, Delaware, Montana, New Hampshire and Oregon, the key to earning a sales tax exemption is being designated a charitable, tax-exempt 501(c)3 nonprofit organization under the Internal Revenue Code. (For other types of tax-exempt nonprofits, state sales tax exemption is much less certain and requires a careful reading of each state’s tax code and regulations.) To read more on this topic, refer to our article, When Are Nonprofits Exempt From Sales Tax? Sales and Use Tax Exemption.
There are a few states that only require charitable solicitation registration if a nonprofit is engaged in specific activities or seeks assistance from professional fundraisers. For example, Texas has limited registration requirements that are only applicable to law enforcement, public safety and veterans organizations. Arizona requires charitable veterans organizations to register if they are soliciting money or other support in the state. Louisiana only requires registration if a charity engages paid, professional solicitors to fundraise in their state, while Missouri exempts 501(c)(3), 501(c)(7) and 501(c)(8) organizations, upon application. To learn more, read our article, Which States Require Charitable Solicitation Registration for Nonprofits?
This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.