Charitable Solicitation

On today’s episode we will cover Charitable Solicitation Registration! If your nonprofit asks people for donations, you probably need to register with state regulators before you make the ask, and the rules are different in every state. We’ll break down what charitable solicitation is, how it differs from your IRS tax-exempt status, what the most common misconceptions are, and what organizations should do to stay compliant with these laws. Today we are thrilled to be joined by our BA Summer Legal intern, Lina Zuluaga.

On this Episode

Brittany Leonard

Tim Mooney

Lina Zuluaga (Legal Intern)

Shownotes:

Opening: Intros (, Brittany, )

1.         - Intro about  

a.        Lina’s summer internship experience

2.         - Starting with the basics: What is charitable solicitation and why does it exist?

a.        Charitable solicitation registration is a state law consumer protection requirement

                                                                                             i.         It is not a federal obligation

                                                                                          ii.         States require organizations that ask the public for charitable donations to register with a state regulator, usually the Attorney General or Secretary of state, before they begin soliciting

b.        The purpose is fraud prevention and transparency, not taxation.

                                                                                             i.         States want to know who is asking their residents for money and how those funds are being used.

c.        Roughly 40 states, plus D.C. have some form of registration requirement. About 10 states have no general charitable solicitation law. T[LZ1] [BL2] hese states don't have a general pre-registration requirement, though some still impose disclosure or other obligations

                                                                                             i.         States with no registration requirements include Delaware, Idaho, Indiana, Iowa, Montana, Nebraska, South Dakota, Vermont, Utah and Wyoming.

                                                                                          ii.         States with limited, or conditional registration requirements include Texas and Arizona. Their requirements are triggered by fundraising activities rather than a charitable solicitation act.

d.        The key definitions to understand:

                                                                                             i.         Solicitation: a request for a contribution for a charitable purpose, through any medium.

1.        Example: sending mail to citizens of a particular state, asking them to donate to your cause!

                                                                                          ii.         Contribution: a gift of money or property

1.        Example: receiving a check in the mail from a new donor you’ve never contacted!

3.        -Three registrations commonly confused: IRS tax exempt status, state business registration, and charitable solicitation registration

a.        IRS 501(c)(3) determination – refers to federal tax-exempt status. The organization is exempt from federal income tax, and donors can deduct contributions.

                                                                                             i.         Tax exempt status on its own does not authorize fundraising in every state.

b.        State business registration – is required when a nonprofit has a presence or does business in another state. It’s a corporate filing with the Secretary of State.

c.        Charitable solicitation registration – separate, additional obligation triggered by asking for donations. Many states require nonprofits to submit their IRS determination letter as part of the state registration, underscoring that federal status is a prerequisite, not a substitute.

d.       Myth #1 – Tax exempt status gives you nationwide solicitation coverage

                                                                                             i.         Scenario: A newly formed 501(c)(3) receives its IRS determination letter. The board treasurer says: “Awesome! We’re good to fundraise everywhere now!” Is that right?

                                                                                          ii.         No! That’s a common misconception. The IRS determination letter means the federal government recognizes the organization as tax-exempt. It says nothing about whether you can legally ask for donations in California, New York, or any other state. There are separate state-level obligations with their own applications, fees, and renewal deadlines to be aware of.

e.        An IRS determination letter is not a license to fundraise. Federal tax-exempt status and state solicitation registration are separate legal obligations.

4.         - Common misconceptions (FAQs)

a.         - Do I need to register in every state we receive a donation from? For example, my nonprofit is based in Florida, and I receive a donation from someone in Indiana.

                                                                                             i.         - No. Receiving a donation is not the same as soliciting one. Registration is triggered by making the ask, not by the receipt.

                                                                                         ii.         - Also, Indiana is one of the states that doesn’t have a charitable solicitation registration requirement. So, in this instance, registration wouldn’t be required either way.  

                                                                                       iii.          – But this analysis would be different if the donation came from New York after you specifically solicited New York residents. Sending fundraising emails to residents there triggers New York’s registration requirement.

b.       How about if we have a donate button on our website. Do we need to register in all 50 states?

                                                                                             i.           - The leading guidance comes from the Charleston Principles, developed in 2001 by the National Association of State Charity Officials, or NASCO.

                                                                                          ii.          - Under the Charleston Principles, a nonprofit generally needs to register in a state if its website specifically targets residents of that state, or if it receives contributions from that state on a repeated, ongoing, or substantial basis.

                                                                                       iii.          - A purely passive website with a donate button that isn’t targeting any particular state generally wouldn’t trigger registration everywhere.

                                                                                       iv.          – That said, the Charleston Principles are guidance, not law. A small number of states including Colorado, Tennessee, and Mississippi, have enacted administrative regulations that mirror the principles’ framework with specific numerical thresholds. In those states, the parallel rules are binding law, but their legal force comes from the state rulemaking process, not from the Principles themselves.

                                                                                          v.          – the practical takeaway for organizations is that the Charleston Principles are a useful starting point, but they are not a safe harbor. You cannot point to them as an excuse for not abiding by state regulation. If you’re doing active online fundraising, email campaigns to donors in other states, or geo-targeted advertisement seeking donations in another state, that’s going to look a lot more like solicitation than a passive donate button on a website.

c.         - Do we still need to register if we’re a small organization just working with volunteers?

                                                                                             i.         - In some states, small organizations may qualify for an exemption based on their revenue.

                                                                                          ii.         -Two important points to consider: 1) thresholds for exemptions vary by state, and 2) many exemptions must be affirmatively claimed. Your organization may need to file a form to claim the exemption.

                                                                                       iii.         smaller organizations may also wonder about membership dues and conference fees.

5.        Membership Dues and Conference Registration Fees

a.        – That's right. One question that came up during a technical assistance request this summer was whether collecting membership dues and conference registration fees would trigger a charitable solicitation registration.

b.         - The short answer is generally no, because most states distinguish between charitable solicitations and earned revenue.

c.        – The Model Act Concerning the Solicitation of Funds for Charitable Purposes, drafted by the National Association of Attorneys General (NAAG) and NASCO in 1986 defines “contribution” as grant, promise, or pledge of value in response to a solicitation, but expressly excludes bona fide fees, dues or assessments paid by members, provided that membership is not conferred solely as consideration for making a contribution in response to a solicitation.

d.         - Conference registration fees are generally treated the same way.  When someone pays to attend a conference and receives programming, materials, and meals of roughly equivalent value, that’s program service revenue, not a contribution.

e.        There's also instances to distinguish when membership fees may be considered solicitation

                                                                                             i.          – One instance to consider is if membership is granted automatically to anyone who donates in response to solicitation.

1.        A membership conferred solely as consideration for a gift may be considered a contribution.

                                                                                          ii.          – Another instance is if you have a “supporter” tier priced well above the value of benefits. The excess can start to look like a contribution.

1.        Contributions dressed up as dues risk losing the bona fide dues exclusion.

                                                                                       iii.          – Also, if you add an option to donate on a conference registration form, or a ‘sponsor and attendee’ add-on, you’ve introduced solicitation into the same transaction.

1.        The conference fee itself is earned revenue, but the donation ask is you asking someone for a gift.

6.        Practical Compliance

a.        What does registration actually involve?

                                                                                            i.         – registration itself is typically straightforward. An application normally asks you to submit your formation documents, IRS determination letter, most recent Form 990, a list of officers and directors, description of fundraising activities, and a filing fee.

1.        Some states accept the Unified Registration Statement, which is a multi-state form. Colorado, Florida, and Oklahoma do not accept it. Even states that do accept it may require supplemental documents.

                                                                                          ii.          – Renewal is also an important compliance consideration. Most states require annual renewal, often tied to the organization’s fiscal year-end, with a new Form 990 and fee each cycle. Organizations that miss a renewal may receive noncompliance letters from their state agency for failure to renew.

b.       What happens if we don’t register?

                                                                                             i.          – The consequences are real and can escalate. Regulators can issue cease and desist orders, which means the organization must stop soliciting and take down donate links. In some cases, they may even have to notify donors. Some states issue fines each day until the violation is corrected.

                                                                                          ii.         – Beyond direct legal consequences, there’s also a reputational impact to consider. Violations can become public record. Some grantors and major donors review registration status as part of due diligence before giving to an organization.

c.        When should organizations get help?

                                                                                             i.         – it depends, but organizations may consider their size and the number of states they solicit donations in. For example, small, local organizations with smaller footprints in a few states can likely handle their registration and renewals themselves. Organizations that are soliciting in the double-digit states may want to consider outsourcing their compliance.

                                                                                          ii.          – Organizations may also consider consulting with their legal counsel. It’s helpful to talk to your lawyer when the question stops being “which form do I file” and starts being “what does this statute mean?” Interpreting state definition of contributions, responding to a cease-and-desist letter, structuring a professional fundraiser contract, or navigating a multi-entity fundraising arrangement all entail judgment calls that would be best informed by legal expertise.

Resources:

·       https://afj.org/article/does-your-nonprofit-have-a-donation-page-heres-what-you-need-to-know/

·       https://www.irs.gov/charities-non-profits/charitable-organizations/charitable-solicitation-initial-state-registration

·       2001 EO CPE Text State Charitable Solicitations Statutes, https://www.irs.gov/pub/irs-tege/eotopici01.pdf

·       https://www.councilofnonprofits.org/running-nonprofit/fundraising-and-resource-development/charitable-solicitation-registration

·       https://charitystateregistration.org/

·       https://www.nasconet.org/resources/state-government