Does Your Charitable Organization Need to Register in Multiple States?
Charitable organizations now have the ability to effortlessly reach potential donors across the country through the internet. The expansion of the donor pool is great news for fundraising. However, soliciting contributions from donors who live in states outside a non-profits home state raises the legal issue of whether the non-profit must register in those outside states.
Thirty-nine states and the District of Columbia have non-profit registration statutes. States require registration to prevent fraud and to hold non-profits accountable. Although the registration statutes vary across the states, each state generally requires a non-profit, except if excluded or exempted, to register before it solicits contributions. Registration generally requires the annual filing of a standard form along with specific financial disclosures and the Form 990, as well as a payment.
In the past many non-profits chose not to register outside their home states and most states ignored the transgressions. This carefree approach is no longer viable because the IRS Form 990 now requires many non-profits to list the states in which they are registered to solicit charitable donations and to report new contributions. Non-profits that fail to register may be fined ($1,000 in Pennsylvania), subjected to criminal penalties, and/or prevented from soliciting in that state for a period of time.
Before the internet, determining whether a non-profit needed to register was simpler. Non-profits that maintained a physical presence (such as an office), or directly solicited via direct mail campaigns, telemarketing campaigns, or advertising and local media campaigns were required to register in the outside state. In the internet age this determination has become more difficult. The primary reason for the confusion is that most state solicitation laws were drafted before internet solicitation became widespread. Thus, little guidance has been provided on what type of internet solicitation gives rise to an obligation to register in a specific state.
The National Association of State Charity Officials (“NASCO”) adopted the Charleston Principles in 2001 to assist both regulators and non-profits dealing with the internet solicitation issue. The Principles indicate the general regulatory consensus on when a charity should register in outside states. The Principles state that a non-profit should register when: (1) they maintain an “interactive” website; and (2) their activities create a “substantial connection” between the non-profit and the outside state.
The first condition requires the non-profit’s website to be “interactive” in nature. An interactive website is one that allows a donor to make a contribution directly through the website. As an example, a donate-here button would qualify. This condition is also satisfied by a “non-interactive” website that provides a telephone number or address to which contributions can be sent.
The second condition is that there must be a “substantial connection” between the non-profit and the state. The “substantial connection” condition is satisfied if the non-profit specifically targets persons physically located in the state with website materials or direct solicitations, or where the non-profit receives ongoing or substantial contributions from donors in the state.
Some states require registration if there is a single solicitation, others have a minimum. The Principles employ the word “substantial” for determining whether there is enough of a connection for a state to assert jurisdiction and require registration. A question arises as to whether a non-profit should register even if a jurisdictional amount for enforcement is not set forth in the statute. Our advice here is to check the state registration law each time a contribution is received from a state in which the non-profit is not registered.
Non-profits who maintain websites that would not otherwise qualify may become subject to registration obligations through subsequent actions. For example, if a non-profit follows up with a donor or adds the donor to their e-mail or mailing list, this direct contact is evidence of solicitation that would require registration. If your non-profit can remain disciplined and forego following up with donors or seeking additional donations you may be able to escape registration.
There are exceptions to registration and filing requirements in state charitable solicitation acts. If a non-profit has to file in the state where it is domiciled, it is probable that it will not meet the exceptions in other states. However, to be sure, a non-profit should consult its lawyer on this point. Registration on a regional basis could be a sound preventive measure to avoid penalties and unfavorable publicity.
A great resource for non-profits who need to register in a large number of states is the Unified Registration Statement (“URS”). The URS may be submitted in participating states as an alternative to the state specific form. The most recent version of the URS is accepted in every state requiring registration except for Colorado, Oklahoma, and Florida. The only caveat is that thirteen states require supplemental forms. An electronic version of the URS and the supplemental forms are available at www.multistatefiling.org.