Charitable Solicitation White Paper

Labyrinth, Inc. Charitable Solicitation White Paper

The following is an examination of charity state registration requirements by the experts who have specialized in charity state registration for over 30 years and who have filed over 250,000 charity state registrations. You can also download a PDF copy of Labyrinth’s Charitable Solicitation White Paper

Charitable Solicitation Requirements

40 states and the District of Columbia require charitable solicitation registration. Any charity that solicits donations by phone, direct mail, in person, email, or online may be subject to charity registration requirements. Charities that contract professional solicitors, fundraising consultants, or commercial co-ventures to solicit on their behalf are also required to register.

Almost every state requires charities to register before they begin soliciting, regardless of whether any donations are received. In most states, the government agency managing registration is the Office of the Attorney General or the Secretary of State. In addition to the initial registration, most states also require the filing of an annual report or renewal application in order to maintain compliance with state regulations.

Some states offer exemptions for certain nonprofits based on their type of charitable activity (e.g. religious organizations, hospitals, and educational institutions), but the requirements vary from state to state and often require an application. There are also some unusual exceptions, such as in Missouri where 501(c)(3) nonprofits are exempt from annual registration, or Louisiana, where only organizations that use professional solicitors are required to register.

Charity Registration Forms and Materials

Charitable solicitation registrations generally consist of the state’s specific application form, supporting documents, and a filing fee.

State forms may require charities to disclose solicitation methods, the names of the individuals responsible for fundraising and managing funds, banks in which funds are deposited, details on the founding of the nonprofit, names of organization executives, and information on any conflicts of interest that may exist.

Supporting documents that must accompany annual charitable solicitation filings usually include the nonprofit’s IRS Form 990, audited financial statements and/or state-specific financial reports. Documents that usually need to be filed with Initial registrations (and sometimes annual registrations) include:

-IRS Determination Letter
-Articles of Incorporation and Amendments
-Bylaws
-Lists of officers and directors
-IRS Form 990
-Audited financial statements, if applicable
-Professional fundraiser and commercial co-venture contracts

Fees vary by state and are typically calculated based on an organization’s total gross revenue or contributions received in the previous year. Some states require a fixed fee that may remain the same from year to year.

Renewal Requirements

Most states require annual renewal applications, but a few states require renewals on a biennial basis. Renewal due dates can be set based on the organization’s fiscal year end, on the anniversary of registration, or are a fixed date for all organizations. Initial registration forms, fees and supporting documents may be different from the renewal application requirements and will vary by state. Most states will require the organization to complete their renewal application form and submit copies of the annual IRS Form 990, and audited financial statements (if applicable). Some states will also require the organization to submit copies of contracts with fundraisers or commercial co-venturers, and to submit copies of founding bylaws and articles, if these were recently amended.

Keep in mind that all state requirements, due dates and fees are subject to change at any time and that each year a dozen states change their laws, forms, and registration requirements.

Common Charity State Registration Due Dates

Most states base their renewal due dates on one of three methods:

1) On a fixed date for all organizations, such as November 30 for Maine.
2) On the anniversary date of initial registration, such as in West Virginia or Rhode Island.
3) On a fixed period after the nonprofit’s fiscal year end, such as is done by New York and Maryland.

Extensions

Many states have renewal due dates that fall four to six months after the end of an organization’s fiscal year end and these registrations typically require an organization to file their IRS 990 as part of the registration. Because of this, many nonprofits have a tough time meeting the state deadlines. If the Form 990 and/or audited financial statements are not ready by the states due date, then an organization will want to apply for state renewal extensions. Some states have automatic extensions that do not need to be applied for, but several states require an organization to complete a form, or send an email or letter to request an extension.

Extension lengths will vary by state and can be as little as 30 days and as long as 6 months. Some states even offer second extension opportunities that must also be applied for. Failure to submit an extension request when the renewal is not ready can result in late fees, fines and penalties that could put the organization at risk of being denied the right to ever solicit in a state again.

Extensions are filed at different times and in different manners in each state. Some state require a letter or email, some require a state extension form to be completed, and some require extension requests to be filed online.

Filing Methods

Most states require initial and renewal applications to be filed on paper, using the state’s forms. Some states allow for these filings to be completed online and a couple states require all flings be submitted on CD.

Additional Requirements

Several states require an organization to obtain a registered agent for service of process as part of the charitable solicitation licensure. This agent must be located in the state and must be maintained continuously. Most organizations will appoint a corporate registered agent company that has offices in all 50 states and the District of Columbia. States that require registered agents for charitable registration are DC, MI and ND.

In addition, states like DC and ND also require an organization to obtain foreign corporate authority in the state. For most other states, foreign corporate authority is usually only required if an organization has employees or a physical presence (such as offices) in the state. Obtaining foreign corporate authority is an entirely separate qualification process that also must be maintained through the submittal of corporation annual reports. To obtain foreign qualification in a state, an organization must typically file a registration form along with attachments such as a Certificate of Good Standing from the state in which the charity is incorporated.

Audit Requirements

A number of state require an audited financial statement be included along with the registration if an organization is above a certain threshold in terms of contributions and revenue. Each state has its own requirements, but for most states the audit requirement goes into effect once the organization exceeds $500,000 in annual revenue. Several states require these audits to be prepared in accordance with GAAP (generally Accepted accounting principles).

For certain states such as Georgia and Pennsylvania, even if an organization in below the threshold that would require an audit, the state may still require reviewed financial statements or compiled financial statements. States may grant waivers to these audit requirements, but it is up to the organization to convince the state that there is a legitimate reason why an audit could not be prepared.

Online Fundraising Registration Requirements

Generally any request for a contribution triggers state registration requirements. This is true whether the organization makes the request by email, text, in-person, by phone, direct mail, etc. However some states do not require registration if the only method the organization uses to raise money is by having a website with a donate button and they are not actively soliciting clients.

In 2001, the National Association of Attorneys General (NAAG) and the National Association of State Charity Officials (NASCO) developed a framework regarding solicitation on the internet and the registration requirements that pertain to it. This framework essentially said that even if a charity only raises money through the use of a donate button, that it would still need to register if it targets individuals in a state and encourages them to give or if the organization receives repeated or substantial contributions from a state. Many states follow this framework, though several states, such as Rhode Island, have adopted an even tougher line.

Unified Registration Statement

In the 1990s, the founder of Labyrinth, Inc. proposed standardizing the registration process and the registration forms across all states. This was followed up on by the states and in 1995, the states released the Unified Registration Statement (URS). This form has continued to be refined over the years. For more than a dozen years the URS made the registration process easier for charities to get and stay registered.

However, in recent years there has been a shift away from the URS and to each state requiring the use of their own forms or requiring lengthy attachments that need to be filled out and filed in addition to the URS. Currently 23 states do not accept the URS for annual renewal registration and of the handful that still do accept the form, most require complex attachments that are more difficult to complete than the state form. Unfortunately, as years passed, the complexity of filing state registrations has increased and the URS form is now more difficult than filing each state form with the state.

State Disclosures

Many states require charities to include disclosure statements on all written solicitation materials. This includes direct mail pieces and on the organization’s website. The purpose of a disclosure statement is to protect donors from illegitimate charities. The statement requirements vary by state, but should generally contain information about where a donor may find information about the charity.

Consequences

While not every nonprofit needs to be registered in every state, it is most important that nonprofits be registered in any state where they will be soliciting donations. Nonprofits can be fined by states at any time for soliciting without a license or for soliciting with an expired license. The penalties vary by state but often include fines of thousands of dollars per state, cease and desist orders, being banned from ever soliciting in a state again, or even the loss of tax-exempt status.

In several states, the fees may be issued for each missed filing or other infraction. Thus though a missed filing in states South Carolina, Hawaii, or Mississippi may be $2,000 to $4,000 per year, if multiple filings are missed, these fees may be considerable higher.

All nonprofits should be aware of state charity regulations before they begin soliciting. Since nonprofit organizations rely so heavily on the donations and grants they receive, state noncompliance penalties and the reputational risk from noncompliance can have the potential to be detrimental to the work of many worthy organizations.

Donors are becoming more away of these state registration requirements and have come to expect the charities that they support to be in compliance with the law. Several states publish lists of charities that have solicited without being properly registered or who have otherwise run afoul of the law in that state. In addition, for flagrant offences the states can bring criminal or civil cases against the officers or directors of the nonprofit.

Reasons to Outsource the State Registration Process

Filing charity state registrations is incredibly challenging. The questions on the forms themselves often need attorneys and accountants to review to make sure they are being answered correctly and the states often require numerous attachments. If any of these questions are answered incorrectly or attachments are not submitted, this can lead to the registration being rejected and the application fee being forfeited.

The state regulators can often be quite demanding and often ask for all sorts of information in addition to the registration packet and so you should expect that the individual or individuals tasked with completing your state registrations will need to dedicate hundreds of hours per year to this task. If the individual handling your registrations were to leave that can often lead to state registrations falling through the cracks and numerous large fines assessed in addition to the potential for more severe penalties.

An organization doing one set of filings cannot keep up with all the state law changes, the changes in forms, and registration requirements, the way that a firm specializing in this area can. In addition, there are many tricks and techniques that an experienced firm, such as Labyrinth, Inc., is familiar with that the individual completing the forms isn’t. Thus an organization may file too many corporate registrations or set up unneeded registered agents thinking these are required.

Even more serious is the information provided to the states, which becomes public record and available on the state websites. The states ask for information such as the Social Security Numbers, Date of Birth, and home address of officers and directors and also ask for sensitive information about donors. Labyrinth, Inc. has worked with the states to come up with ways to avoid disclosing all of this sensitive information to the public while still allowing the charities it represents to get registered. If an organization registered itself, it would not have access to this knowledge and would either provide this registration to the states or just forego registering and soliciting in several states.

About Labyrinth, Inc.

Labyrinth, Inc. was founded in 1989 and has been specializing ever since in charity state registrations. Labyrinth assists thousands of charities ranging in size from those just starting out to established charities with billions of dollars in annual revenue. Labyrinth has legal counsel and accountants on staff as well as scores of other experienced charity state registration specialists. Because Labyrinth specializes in charity state registrations and files many times more charity state registrations than any other firm, it has given Labyrinth, Inc. an unmatched depth of knowledge in this area. Since we specialize in this area, we also tend to be the most affordable solution. For more information about Labyrinth, Inc. please email us at info@labyrinthinc.co or call us at 844-863-0915.