Q: Can you address what nonprofits must and should do about registering in their own and other states when they solicit donations? I am employed by a management support organization. Many of the nonprofits with which we work are not aware of the requirements and I would like to provide them with current information. I appreciate anything you can share with me on this matter.
A: You raise an issue that is getting a lot of attention today, especially from the states themselves and the IRS. The short answer is that organizations must be registered in the states in which they solicit funds. And, that might as well be every state if they have a “donate now” button on their website. While each state has different laws on the books – for instance, some allow for exemptions for such things as religious organizations, organizations receiving money from only a handful of individuals within the state or organizations receiving an insignificant amount of money from within the state – they are all looking for full compliance.
The registration requirements are not new. Organizations have long been obligated to register in those states in which they conduct a solicitation by any means – e.g., direct mail, email, raffle sales, telemarketing, personal visit and so on. This has been true whether or not the organizations have a physical presence in the state. Even the ubiquitous “donate now” buttons on websites can trigger registration requirements in states that argue that one of their residents could conceivably come upon one of these sites, see the button as a solicitation and be motivated to give.
Throughout the years, a number of organizations have received calls from states that proactively identified them as scofflaws, threatening fines and demanding immediate registration. In the grand scheme of things, it was not a large number. But, just because one of your organizations may have knowingly or unknowingly ignored these laws with impunity in the past, they do so now at their own peril.
Three situations have emerged to make this so. The first is the public’s growing unease over the scandals that have rocked both for-profit and nonprofit corporations, and the states’ corresponding desire to protect their citizens by, at the very least, keeping track of who is asking those citizens for money. Second, the poor economy has motivated states to look for every source of revenue they can find. Registration fees and fines for the failure to register contribute to states’ coffers. And third, the IRS did a major rewrite of the Form 990, which now requires nonprofits to report the states in which they must file a copy of their Form 990 and the states in which they are registered or have received an exemption from registering. These two questions allow the IRS to determine the states from which an organization has raised funds. Failing to answer is not an option. Answering falsely opens the leadership to charges of perjury. In either case, the leadership may be personally liable for civil and in some cases criminal penalties, which can bring fines up to $25,000 and potential jail time.
Ensuring one’s compliance to the filing requirements is not easy because each state has its own stipulations for registration. Some grant registration automatically if an organization files a copy of its IRS determination letter, along with a cover sheet that includes basic identifying information and any required filing fee. Thirty-six states, plus the District of Columbia, accept the Unified Registration Statement, version 3.20, which is available – with supplemental forms for 13 states – at www.multistatefiling.org. But, organizations still have to file this form separately in each state, along with the applicable filing fee. Still other states require completion of a unique registration form, plus any filing fee. The filing fees can range from $25 to $400. On top of this, registration is an annual requirement, with different filing deadlines in each state.
There are companies that will process all of an organization’s registration materials each year. They tend to run around $7500 in professional fees (exclusive of filing fees), with some a little less and some a little more. If an organization goes this route, it should be sure to ask what the fee covers and what level of accountability the company assumes if they miss a filing deadline or makes some other mistake.
Obviously, an organization can file its own registrations. It is my understanding that this takes an average of two weeks of dedicated attention, though not all at one time and each organization’s unique situation will impact the actual number of hours. Contact the states’ Attorney General or Secretary of State (the Department of Agriculture and Consumer Affairs in Florida and the Department of Consumer and Regulatory Affairs and the Office of Tax and Revenue in the District of Columbia) for specific requirements and to learn of any exemptions and penalties that might apply in the organization’s case.
While complex, registration is a task that cannot be put off. Get going today. Good luck.