4 Considerations for Not-for-Profits Soliciting Charitable Donations Outside State Borders– January 30, 2020

Posted by Ashley Zoeller, CPA

With funding from donors declining in combination with the rise of funding needs by not-for-profit organizations, many of these entities are feeling the pressure to expand their solicitation efforts. One key expansion effort includes soliciting donations and grants from those in other states. However, this may not be as easy as it seems.

The obstacles to consider will vary between states, but organizations will definitely need to address each and every one to stay in compliance with federal and state regulations. That means understand the various states’ requirements prior to soliciting in any state.

The following cues will help you be prepared.

1. Know Where You Are Soliciting and What Each State Requires

With certain states, even one solicitation (asking for a donation and/or applying for a grant) can cause your organization to be required to register for permission to solicit in their state. Thus, being cognizant of where your organization is soliciting and the requirements in those states will help prevent and/or catch any noncompliance issues. The state will become aware of solicitation activity eventually, so it’s better to self-report if you discover noncompliance.

2. Understand Rules Surrounding Regulated Fundraising Activities

If your fundraising activities within a state are regulated, then it is highly likely you will be required to register with the applicable state charity office. Review the office’s website to see if they have a section related to registering requirements for fundraising activities. You must be either exempt and/or excluded to bypass registering.

If the state in which you conduct or expect to conduct fundraising activities does in fact regulate them, make sure you know whether the state requires you to register prior to commencing soliciting activities; more than 40 states do. In addition, you likely will need to renew this registration annually and pay a fee. Registration requirements, deadlines and filing fees all vary by state, which makes it significantly difficult to track and manage. However, filing with every state “just in case” is most likely not the best solution, from both a financial and administrative aspect.

3. Find Out If Your Organization is Exempt from Reporting Requirements

Prior to conducting activity in a particular state, check the exemption requirements. It’s an easy way to determine if there are, or are not, additional compliance requirements which your organization will have to adhere to. Reporting requirement exemptions can easily be found on the applicable state charity office’s website. The most common exemption criteria include the following:

  • Organization raises less than $5,000 to $25,000, either from all states or from donors that reside in the state
  • Particular categories of charities, such as state, educational, hospitals, membership group and religious organizations
  • Organization is not currently, nor does it expect to be in the future, actively soliciting donors that reside in the state

4. Internet Solicitations

The significant increase in the use of the Internet for fundraising activities increases the likelihood your organization may be required to register with various states. If your organization provides donors an opportunity to donate through your website, or solicits solely via the Internet, your organization may be required to register with the state if one of the following criteria is met:

  • Organization resides within the state
  • Out-of-state organization solicitation efforts, either via the internet or non-internet methods, specifically targets donors who reside in the state
  • Out-of-state organization receives donations from donors who reside in the state either on a repeated and ongoing basis or on a substantial basis

Target solicitations consist of fundraising efforts in the form of direct mail, telephone, emails, TV ads, radio solicitations, etc., since these methods have the ability to be directed at a specific individual or geographical region. Even if those solicitation methods ask donors to ultimately donate via the organization’s website, the same criteria still applies. As for the definition of “ongoing” or “substantial,” that will vary state by state; this information can be obtained from the applicable state charity office’s website.

Remaining compliant while soliciting donations or grants from other states means understanding the nature of your solicitation activities, where those activities are occurring and any determining state registration requirements you may need to follow. Understanding these elements can eliminate or at least minimize a surprises noncompliance notice.

Start by considering the areas above and how they relate to your organization’s solicitation activities. Then, have a conversation with your tax team and attorney if you feel your organization may be required to register in other states.     

Contact Ashley Zoeller at azoeller@cohencpa.com, Cathy Lorenz at clorenz@cohencpa.com or a member of your service team to discuss this topic further.

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Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.