By James Gilmer
Charitable Solicitation Registration
A major driving force behind successful nonprofits is fundraising. Many nonprofit leaders believe that simply being recognized as a 501(c)(3) nonprofit means their charities are authorized to fundraise in any state. That is not the case. Fundraising (or “charitable solicitation”) is highly regulated at the state level. Failure to comply with the rules and requirements of state authorities can lead to steep financial penalties, personal liability exposure of the officers and directors, and a loss of credibility with donors.
Charitable solicitation registration is a complex topic. Registration and compliance with over forty state government agencies is a monumental task for nonprofits of any size. This article will serve as an introduction to the subject.
What is Charitable Solicitation Registration?
Charitable solicitation registration, also known as “fundraising registration,” registers your charity with the state (usually the Attorney General’s Office), and allows your charity to solicit funds in that state. Currently, forty states and the District of Columbia generally require nonprofits to register, and to renew the registration annually or biennially. By registering, you keep the state informed of your operations, financial information, leadership, and fundraising activities. The purpose is to protect the citizens of that state from unregulated or illegitimate organizations.
Why Does My Nonprofit Need to Register?
First, it’s state law. Forty states and the District of Columbia have a registration requirement. With a few exceptions, your charity must register before it solicits funds, regardless of whether funds are actually received. That’s right, before you even ask for a donation.
Second, the IRS wants to know. On your IRS 990 return, you disclose all the states in which you fundraise and in which you have registered.
Third, many donors expect it. Prospective donors can and do search the state’s registry of charities before they give. They want to know that your organization is legitimate and compliant. If you are applying for grants, you will often submit evidence of your nonprofit’s registration status.
Generally, if your charity solicits funds in a state, or receives repeated donations from a state, you must register there. There are of course exceptions, so you’ll have to do some research beyond this article, or seek help understanding your state’s requirements. Some states have exemption requirements, or if you raise under a certain amount annually, you don’t have to register. However, many organizations still choose to register voluntarily as a precaution (if they suddenly raise more than the threshold), or to demonstrate their credibility to donors.
In What State(s) Must My Nonprofit Register?
Generally, your nonprofit should register anywhere it receives repeated donations, or actively solicits funds, including online, which is covered later in the post. For many small nonprofits, your activities may be confined to the state of incorporation. For larger nonprofits that solicit funds in many states, you will have to comply with the requirements of several states at once.
When Does My Organization Need to Register?
Currently, every state except California requires charities to register before they solicit funds. California, by the way, gives you a 30-day window after you receive the first contribution.
In reality, many nonprofit leaders are unaware of having to register for charitable solicitation. If you have already been receiving contributions from a state, review that state’s requirements and consider registering there as early as possible.
How Do I Register My Nonprofit?
How, where, and when to register your nonprofit vary greatly by state. If your budget allows, you may seek assistance in navigating complicated state requirements.
Generally, you will file an initial registration packet with the state’s Charities Division, typically part of the Attorney General’s Office. The packet will include the registration fee, Unified Registration Statement (URS) or the state’s individual application, Articles of Incorporation, bylaws, IRS determination letter, your latest 990 or financial data, lists of officers and directors, and your fundraising methods. However, each state requires a different list of documentation, so review application requirements carefully. You will then file annually or biennially in most states in order to keep your registration active.
What Does Registration Cost?
Registration fees vary greatly by state and the revenue of your organization. In each state, fees range anywhere from $0 to over $1000 for larger organizations, and can fluctuate annually. For smaller organizations, registering in every state can be expensive, so you may want to prioritize. Do a thorough analysis of where most of your contributions come from, and start by registering in those states first. If you outsource your nonprofit’s charitable solicitation registration, a reliable partner will inform you of registration fees to help you budget. Depending on the state, you may also need to foreign qualify and appoint a registered agent, or prepare other registrations.
In this day and age, it’s extremely easy to fundraise online with a “Donate Now” button on your website or by using a crowdfunding platform. However, many states treat online fundraising like other fundraising methods (such as mailings, telephone appeals, etc.). Additionally, by maintaining a “Donate Now” button on your website, you are technically soliciting funds in every state. This means your nonprofit must comply with applicable registration requirements nationwide.
Once you have registered and become compliant, the last thing you want to do is fall out of good standing with state charitable solicitation authorities. Even if your charity operates and solicits donations in just a few states, tracking due dates and filing registration renewals on time is important, as one lapse can lead to penalties and fines. For larger organizations, tracking nationwide renewals can be a huge drain on staff time and organizational resources. If your nonprofit is using substantial resources managing registrations, consider enlisting the help of a third party specialist.
The reward for all your hard work is two-fold. First, by registering your nonprofit, you help stay in compliance with state and IRS requirements. You’ll also avoid state fines and penalties that may arise if your nonprofit is found to be noncompliant. Even greater, your nonprofit will have the freedom to solicit funds in any state where you are registered, and will give your donors the complete confidence to support your mission.
James Gilmer is a compliance specialist for Harbor Compliance, which establishes 501(c) nonprofits and helps them stay compliant. Harbor Compliance assists charities in every state and several countries abroad. James serves on the Board for two nonprofits in Lancaster, Pennsylvania.