Frequently Asked Questions
Fundraising and Charitable Registration
Yes but with caution. Unless your organization meets one of the exemptions from registration in your state, it is likely that your first step should be to register for charitable solicitation purposes. In most cases, registration is required prior to engaging in any fundraising activities. Second, while fundraising it is extremely important not to mislead potential donors who may think that they can claim a tax deduction for their gift. State fundraising regulations prohibit fraudulent or misleading communications. It would be untruthful for your organization to promise a donor a deduction — and misleading not to explain that the organization’s tax-exempt status is pending. Many donors will not be comfortable giving a contribution until your nonprofit’s tax status is settled. You may wish to explore using a fiscal agent in the interim.
- For more information on fiscal agents (also called “fiscal sponsorship”) see the next FAQ below and visit Compass Point’s Resource Directory and search for the article on fiscal sponsorship.
Do we have to register for fundraising purposes in more than one state? Example: Our organization primarily solicits donations in the state where we are incorporated, but several of our long-term donors have now retired and moved out of state. We are planning a conference next year in yet another state where we will solicit corporate sponsorships.
This question raises two issues: whether your organization should register for fund-raising purposes, and whether your organization should also register to do business in another state. There are 39 states and several municipalities that require registration for fundraising residents in those states even if the solicitation is for small contributions or via the internet rather than direct mail. It is always safest to know the specific laws where your organization is engaged in any solicitation and determine whether registration is required. Failure to register can result in significant penalties and in extreme instances, prevent your nonprofit from solicitation activities in that state. It’s always safest to check with the Secretary of State, Attorney General or whichever government unit has oversight for charitable organization’s solicitation activities.
- The web site of the MultiState Filer Project provides links to information about charitable registration filing requirements in individual states.
- To find the office that regulates charities and charitable solicitation in a particular state, go to the web site of the National Association of State Charity Officials.
Any organization or unincorporated association may receive a contribution if a donor is willing to contribute to an organization that is not yet recognized as tax exempt. Typically donors, especially private foundations, are unwilling to give a contribution to an organization unless it is recognized as tax-exempt by the federal government. When an organization is not yet recognized as tax-exempt, it should be very clear in communications with potential donors that contributions are not deductible, otherwise the charity could violate state laws governing fraudulent charitable solicitations (see above). One strategy commonly used by start-up organizations seeking to receive tax-deductible contributions is to identify a "fiscal sponsor." The fiscal sponsor or "fiscal agent" is another charity willing to serve in a fiduciary capacity to receive gifts on behalf of your organization. The fiscal sponsor receives contributions on behalf of the organization that is not yet tax-exempt, and administers the gift acknowledgement function. This arrangement should be formalized in a written agreement. For more information on fiscal sponsorships, see this resource.
Sales tax exemption is a state-specific benefit. Your organization has to apply to be recognized by the state as exempt from sales tax. Exemption in one state is not transferable to another state. (And nonprofit should NOT “loan” out their sales tax exemption certificate to others! That’s a big No-No — think tax fraud…) Nonprofits are required to apply for and receive a sales tax exemption where ever they are purchasing items in order to be tax exempt. Some states will only grant tax-exemption for sales tax purposes if the charity is incorporated in that state. Also consider whether the charity is actually “doing business” in another state. If so, the charity may be required to register to conduct business as a “foreign business” in the other state but would then be in a position to apply for an exemption from sales tax.
- Something to think about when your nonprofit is hosting a conference in another state: Ask the venue whether sales tax will be charged to you. It may be necessary to register as a foreign business in order to obtain an exemption from sales tax in that state.
We know we need to send donors a 'thank you' for their gift. What should the language of the letter say?
We have a "donate here" button on our nonprofit's website. Do we need to register for charitable solicitation purposes in all 50 states?
Technically, having a "donate here" button on your website constitutes a "charitable solicitation" that is accessible by anyone with an internet connection. Consequently, some states that regulate solicitation activity will take the position that your nonprofit has to register since your website is solicitation activity that impacts the residents of their state. (Florida, Pennsylvania, New Jersey and New York are examples). Other states are not as aggressive but it's still a risk not to register. The National Association of State Attorney Generals have developed a common set of guidelines, called the "Charleston Principles" that address this issue.
The Charleston Principles provide that a nonprofit that uses the internet to solicit contributions MUST register in the state where it has its principle place of business. The Charleston Principles also provide that a nonprofit with an interactive web site that asks for donations must register in other states if it specifically targets residents of those states (such as through letters or phone calls) or receives contributions from residents of those states on a regular basis, or receives significant (e.g., high dollar value) contributions from residents in those states. See page 3 of the Charleston Principles.
Currently 39 states require registration prior to solicitation. The registration regulations vary state to state. Your first step is to determine where your nonprofit is most actively soliciting and where your supporters reside, and then make sure to register, if registration is required in those states. Secondly look at where your more significant contributions are coming from and make sure to register there as well. There is a common form you can use, called the Unified Registration Statement (URS) to make multistate filing easier. To see a summary of which states require registration and will accept the URS, visit the web site of the "Multistate Filing Project" here. This site is also useful in helping you see at a glance what the various state registration requirements are and which states do not require registration.