Most organizations believe that the IRS is the only hurdle to tackle when becoming a nonprofit entity. Often, state requirements are overlooked. However, this can be a costly oversight as states are becoming more rigorous about enforcing Charitable Solicitation laws.
Did you know that 41 of the 50 states have some type of Charitable Solicitation requirements?
Are you aware that each of those 41 states has vastly different requirements as well?
Did you know that the majority of those 41 states require each organization to register BEFORE ever soliciting for contributions?
Have you heard of the Charleston Principles?
If you answered no to one, or more, of the 4 previous questions, this guide can help to shed some light on if your organization needs to register for Charitable Solicitations to be compliant.
As mentioned previously, Charitable Solicitation registration is a state by state specific registration. Many states recognize the Charleston Principles.
What are the Charleston Principles?
Basically, these principles indicate that if an organization is conducting indirect solicitations ONLY in another state, the organization does not need to register in the “foreign” state.
So, what is the difference between a direct, and an indirect solicitation?
Direct soliciting means reaching out to any person, business, or entity in another state and requesting a donation either directly or by implication. The solicitation can be through mail, by phone, in person, or by email. Direct solicitation is typically always grounds for registering in the “foreign” state.
Indirect soliciting means that a donor "finds" your organization through a web search or by a friend sharing a post through Social Media. Basically, no one from the organization has contacted that donor and the donor "found" the organization and decided to donate.
For instance, let’s say your organization is incorporated in California and is registered, as well as current, on the Charitable Solicitation requirements. Now, let’s say your organization has a Facebook campaign and someone from Florida sees the campaign and decides to donate to the organization. In this instance, the organization is still covered under the Charitable Solicitation requirements for California provided certain thresholds are not exceeded (Florida’s threshold is $25,000 in donations).
Again, each state varies widely regarding the requirements for soliciting.
You can send a receipt to the donor in Florida thanking them for their gift. However, care must be taken to prevent accidentally soliciting directly. A direct solicitation can happen very easily by just providing information on how the donor can donate again. For instance, if the organization sends a thank you to the donor in Florida, and says, “Thank you for your gift of $xx.xx. If you would like to sign up to give to XYZ organization monthly, please visit www.myorganization.com”.
Just by including that last sentence, the organization would need to register in Florida because the donor was “asked” to give again and directed how to go about doing so.
This is a very basic overview.
Please note, some states do not honor the Charleston Principles and some states have limits regarding the amount of funds raised or the number of donors that donate prior to being registered.
Some states have a very straightforward application and renewal process. Whereas, a few states have numerous requirements that are more stringent than the IRS.
Once the organization wants to branch out to other states, there may be additional registrations that are required such as filing for a Certificate of Authority.
These expenses can add up quickly, but I have found that typically, the cost of registering and maintaining the registration is far less expensive than the penalties and fees which can be assessed by a state for non-compliance.
Please feel free to let me know if you have any other questions or would like information regarding specific states requirements.
Have a blessed day!
Shelly