[VIDEO] Charitable Solicitation Compliance 101

In this webinar, Brock Klinger will provide a user-friendly, comprehensive overview of fundraising registration requirements in all 50 states.

Full Transcript:

Steven: All right, Brock, my watch just struck 1:00 on the dot. Is it okay if we go ahead, get this party started?
Brock: I’m all set.
Steven: All right, cool. Well, welcome, everyone. I should say good afternoon if you’re on the East Coast, and good morning if you are on the West Coast. Thanks for being here for today’s Bloomerang webinar, “Charitable Solicitation Compliance.” We’re going to find out what it takes to be compliant. We’re going to take care of you today. Thanks for being here. My name is Steven Shattuck, and I am the Chief Engagement Officer over here at Bloomerang, and I’ll be moderating today’s discussion, as always.

And just a couple of housekeeping items, some technical items here. If you are listening today, we’re so excited for you to be here. If you have to leave early, however, it’s okay, we’re going to get you the recording and the slides later on. So don’t be too bummed out about that. And we’ll do that for all of these folks who’ll stick around as well. So, if you want to review the content or share it around the office, we’ll get all that good stuff in your hands. I’ll email everything to you this afternoon, I promise.
Most importantly, we love these webinars to be interactive, so send us your chats, send us your questions and comments right there on that chat box. We’re going to try to save some time at the end for Q&A. So don’t be shy. If you’ve got a question, we got an expert here in all things compliance related. So, send us your questions and comments. You can also do that on Twitter. I’ll keep an eye on the Twitter feed as well.
And if you have any trouble with the audio through your computer speakers, we find that the phone audio is usually a lot better. So if you’ve got a phone nearby, you don’t mind dialing in, if that would be comfortable for you, give that a try before you totally give up on us. The quality is a lot better there. You can find the phone number to use in the email from ReadyTalk that went out about an hour ago today. So give that a try if you have any trouble.

If this is your first Bloomerang webinar with us, I just want to say an extra-special welcome to you. We do these webinars every single week. We love doing them. We literally only miss a couple of weeks out of the year [inaudible 00:02:09] things like that. One of the things we’re most known for, however, is our donor management software. So if you are interested in learning more about the Bloomerang offering, what we have to offer in terms of our donor database, check out our website. Don’t do that now, but maybe in an hour so, you can check that out if you want to learn more. You can even watch a quick video demo and see the software in action. You don’t even have to talk to a salesperson if you don’t want to. Who wants to do that after all? So check that out later on if you want to learn more about Bloomerang.
So for now, I am super excited to welcome back my buddy, Brock from Harbor Compliance. How’s it going, Brock?
Brock: It’s going well, Steven. Thank you for having me.
Steven: Yeah. I love having you guys on. This, I think, is maybe your third or fourth year. This is one of the only webinars that we repeat every year because it is so important. I love doing it in October because online giving season is firing up. We’ve got a lot of annual appeals going out. And Harbor Compliance is my go-to for questions about all things compliance. They’re so nice throughout the year, willing to answer questions for me, personally, for Bloomerang customers, and I just love offering this presentation because they want to keep you safe and they want to keep everything aboveboard. So, I’m going to hand it over to Brock to tell us what is new in compliance, what’s not new, and all the things you need to do to be compliant out there. So, Brock, take it away, my friend.

Brock: All right. Thank you very much, Steven. I appreciate that introduction. As always, it’s a pleasure to be here with the audience from Bloomerang. It means a lot to present to this group. I personally love presenting this content. I just got back from a bunch of conferences last week. Pennsylvania State Association of Nonprofits to New York Association of Nonprofits speaking on this specific topic. And I love speaking about it because there are so many people out there that aren’t aware of these registration requirements, and they’re blown away at this content.
So, you guys are lucky to be here. You’re going to take away a lot. I’m hoping, for those of you who are already experts, maybe you’ll pick up some detail, information that you didn’t know before. For those of you that are total neophytes, even better. We’ll get you caught up on all this.
So, as Steven mentioned, my name is Brock Klinger. I’m an accounting executive with Harbor Compliance. At Harbor Compliance, we partner with organizations in every state and over 25 countries abroad to manage charitable solicitation compliance and all sorts of other complex compliance issues. Our clients range from some of the largest organizations in the country to fast growth startups, and our deep industry expertise allows us to fully manage government licensing compliance for the nonprofit sector.
Some of those example clients are up there in your screen right now. There should be some familiar household names there that you’ve seen or heard of before. This is a sampling of some of the larger organizations, but as I mentioned, we do work with very small groups as well. There’s actually a whole service area that we offer focused on forming nonprofits for the very first time. So if you’re not even tax-exempt yet, there’s probably something we can do to help you with.
In my role as an account executive and as the lead of the established nonprofit sales team here, my job is, first and foremost, to act as an educator on compliance and the various requirements that are facing nonprofits. I also act as a facilitator for organizations that are looking to take action to become compliant. So I can bridge that gap for you. If you’re not there yet, I can help you get there. We’ll get you across the finish line.

Today, I’m going to cover the top five things that you need to know about charitable solicitation compliance. Most of this presentation is going to be geared towards charities. So that should be most of you on here. But if you’re an accountant or a consultant or attorney and you work with organizations, you can think about these requirements and how they might apply to your own clients, view through their lens.
So what are we going to cover? Number one, I’m going to go over what the state registration requirements actually are. Number two, I want to talk about online fundraising and the implications that it has on the registration requirements. We get more questions on that than anything. Number three, why compliance should be a priority for every organization. Number four, what it takes to register, including the cost. So you can get a realistic picture of what it might look like if you begin managing these registrations on your own in-house. And number five, how to manage the registrations and simplify the process going forward. So, we’re going to switch from what it takes to get registered the first time around to how to manage that going forward. So let’s dig right in to number one.

First and foremost, you’ll need to know what exactly I’m referring to when I talk about state registration requirements. So, I want to break that down. In simple terms, charitable solicitation is just fundraising. Compliance, of course, is meeting the various IRS and state requirements that allow charities to fundraise. So today, I’m going to be focusing on the state registration requirements. Specifically, the requirement that charities register in order to solicit donations.
Now, I want you to be very clear on this fact that the states are the ones that oversee this type of registration. There isn’t a federal license to raise funds. But we do have a quote here from the IRS on the right. Read that to you quickly. What it says is, “Many states have laws regulating the solicitation of funds for charitable purposes. These statutes generally require organizations to register with a state agency before soliciting the state’s residents for contributions, providing exemptions from registration for certain categories of organizations. In addition, organizations may be required to file periodic financial reports. State laws may impose additional requirements on fundraising activity involving paid solicitors and fundraising counsel.”
So as you can see, it’s essentially the IRS saying yes, there are requirements out there. No, it’s not us who will regulate them or stay on top of them, it’s up to the states and they vary. But the key takeaways here is that the solicitation registration requirements are really based on the act of soliciting. The key word is that the requirement in those requirements is soliciting itself, not necessarily the receipt of donations. So you can see how it’s very different. I have lots of people who come up to me and they want to dive right into where they’re accepting and receiving donations. It’s a good place to start and a good way to think about this in terms of where you may have the greatest exposure, but keep in mind, in the eyes of the IRS and all the states, it’s the act of asking that triggers the registration requirement and not the receipt of funds.

So, here’s the slide and really the picture on the mousepad that Steven was alluding to earlier. If any of you have that mousepad, you know what I’m talking about here. It shows the states that have licensing requirements for charitable solicitors. The states in dark blue require only registration, states in yellow require both registration and the inclusion of a disclosure statement on the solicitation materials, and light blue means you’ll only need to have the disclosure statement. So, I’ll get into what disclosure statements are in more detail later on in the presentation. But find yourself on the map. See if your state is colored in. See if any of the states where you accept donations from are colored in. And then the next layer of that is where am I soliciting. Am I soliciting in these states that have color in them? If so, you may be faced with a requirement to register.

Many nonprofits wonder whether charitable solicitation requirements apply to their organization, and in what states. Chances are an organization that fundraises will face these requirements one way or another. Again, the requirements are based on the act of soliciting, regardless of whether or not donations are received.
So, what constitutes solicitation, you may ask? Solicitation is simply asking for donations. It’s a very broad definition in the eyes of the states. It takes many different forms. The most common ones are listed up there on the screen for you. They’re holding fundraising events, engaging with direct mail and mailing out letters to potential donors, and placing phone calls to prospective donors. These are activities that most nonprofits that are raising funds from the public engage in all the time. These are really common routine methods.
However, there are some other methods out there that might be surprising to you. Some that states generally treat as solicitation that are outside the norm for some groups include applying for grants. Because what is a grant application other than an ask to a foundation for funds? Number two, collecting membership dues. Now granted, there are some exemptions available to membership-based organizations, but essentially, what states are expecting is you have a license to solicit funds as long as you’re using solicitation by any other method. So if there are any membership groups out there that their sole source of revenue are their membership dues, then you might qualify for that. But most membership-based organizations would actually need to have a license because they solicit via other methods.
Others listed up here are collecting donations through the website, and that’s a big one. Additionally, using professional solicitors, so professional fundraisers, guns-for-hire that raise money on your behalf, fundraising counsel who help advise you on your own fundraising activities while you go out and make the ask, and commercial co-ventures under which agreements for-profit companies agree to provide a share of revenue from the sale of a given product or service to your charity. They’ll not only trigger the registration requirements, but they may be scrutinized by states in even greater detail. Also, any for-profit entity that assists with charities, assists the charities with fundraising, so that includes all of these people, they’ll generally need to register with the states as well.
Many organizations solicit using several of these methods. Anyone of which would trigger state registration requirements. So, if you’re only doing one of these methods, you’re only engaging in one of these ways but you’re doing it everywhere, you’re triggering the registration requirements all the same. Also, many organizations solicit in more than just one state, so knowing where your organization is required to register means taking a close look at your solicitation activities in every one of the 41 colored-in states that we showed you before. If you’re soliciting in any of these places, you might be faced with the requirement to register.

So moving on to number two, and this is really a hot-button issue for us, it’s something that we discuss in more detail than just about any other question. Some of the biggest questions that are out there include items like, you know, if we’re fundraising through our website, does that mean we have to register in every state? Or if we fundraise online but we only receive donations in a few states, do we still have to register in every state? You don’t have to feel alone if you have these questions, because I assure you, there are organizations throughout the country that are asking the same ones. I speak to them on the phone on a daily basis.
Many, many charities, really most all charities nowadays, fundraise online. A lot of organizations accept donations on their websites using a Donate Now button, extremely common. In addition, there’s rarely a charity out there anymore that don’t make solicitations either by email, including asking for donations in their email newsletters and then social media is yet another form of solicitation. All of these websites allow charities to solicit residents of every state at the click of a button. And so this, of course, raises the question about how to comply with the state charitable solicitation registration requirements.
So there’s been some movement on this front for a long time. Going back to 2001, the National Association of State Charities Officials met in Charleston, South Carolina to try to come up with some guidelines for when these registrations would need to come into play. But before I dive into that, I do want to clarify there’s a bright-line difference between marketing online presence, brand building, and fundraising. So, it’s really the ask that triggers the registration requirements.
Keep that in mind. If you’re sending out newsletters or you’re engaging in social media, those activities in and of themselves don’t necessarily equal solicitation. But if you give someone the opportunity to give you something of value via those means of communication, you would then be soliciting individuals that are located in those places that are receiving them.
So, getting back to NASCO and the Charleston Principles, you may have heard of these in the past. Basically, what they said is that if you have a Donate Now button on your website, you should be required to register in a given state if you either send targeted emails to the residents of the state or receive ongoing, repeated or substantial donations from that state.
So, if that makes really clear sense to you and you can immediately off-the-cuff answer that question whether or not it applies to you, you’re probably an attorney, I would guess, or an accountant. And good for you. But the big takeaway here is that by admission of their own authors, these principles are really just an academic exercise.
I want to remind everyone, they weren’t codified into law and they’re generally not seen as useful for determining registration requirements. So, it might be useful to think about it through that lens if you’re assessing risks, where you’re most likely to get in trouble. But if it comes right down to following the letter of the regulations, the Charleston Principles aren’t a good guide to follow.
Fundraising online is generally considered soliciting nationwide. Because donate sections on charity websites, emails to newsletter subscribers, and social media asks are all solicitations that can reach citizens of every state. When charities receive donations as a result of those solicitations and then they follow up with those donors to ask for additional donations, to say thank you, please give to us again either by email or any other method of communication, those charities are then furthering their charitable solicitation activities.

Now, there are a couple of practical approaches charities can use to be compliant when they fundraise online. The most comprehensive way, of course, to maintain compliance would be to register in all 41 states or file an exemption if you qualify for it in the remaining states. For many organizations, registering everywhere is the best option so they can fundraise nationwide on online, offline, by any method without risking the penalties that could be involved if they aren’t registered in some states. I’ll cover those risks in more detail in a moment.
Now, we recognize fully that not all organizations have the ability to register in all states. Budgetary constraints are a common challenge, particularly for very small startup charities. For these organizations, the second approach might be better. So under this doctrine and under this approach, an organization registers in as many states as it can and then specifically excludes the remaining states that require registration from where it accepts donations. So what this means in practice is the organization will add language on its website stating that it does not accept donations from states where it’s not licensed.
So you would say something to the effect of “Dear Prospective Donor, thank you very much for being willing to support our cause. We would love to accept your donation if you’re located in any of these states where we have licenses. If you’re located in any of these other states, we’d prefer that you instead call us directly and engage with us in a conversation about why it’s so important we first have a license.” And in that way, you can create a dialogue with your potential donors [about 00:18:33] turning them away and making it look as though you don’t want their donation. Start the conversation with those donors instead.
Ultimately, organizations have to weigh the cost of registering in a state with the opportunity cost of not being able to accept donations there. We encourage organizations to register and focus on compliance rather than trying to fly under the radar. The penalties for non-compliance, as I mentioned, they can be severe, so we strongly encourage organizations to take the path to compliance.

So given what you know about the requirements and when they apply, let’s take a quick look at where that needs to happen. First, you want to check to see which of the 41 states you’re soliciting in. You generally need to register or file an exemption in every one of those states. Exemptions are based on the type of organization, its solicitation methods, and often, its revenue and contributions. Ironically, most exemptions actually need to be applied for and also renewed. So, you’re not getting off scot-free if your exempt, you’re really setting yourself up for filing a renewal of that exemption so that you don’t have to pay the state fee going forward.
The best way to become compliant is to research thoroughly your specific registration and exemption requirements in each state where you solicit. You could have the opportunity to reduce the registration requirements in many states if you’re one three broad categorical organization types, including educational institutions, hospitals, as well as churches. Those types of entities will often enjoy broad exemption criteria, but you need to do your homework to make sure you actually qualify first.
Even though your organization may be exempt in a state that has a revenue threshold for exemption, again, it’s generally the act of soliciting that triggers registration requirements, not the receipt of donations. A great way to take action towards becoming compliant is educating your organization on what solicitation means and the various activities that trigger the requirements.
So on to number three. Why compliance should be a priority for every organization? By now you’re probably realizing that your organization will need to register in at least a few states, potentially all 41. And now, we realize that this can all sound very overwhelming, okay? It’s definitely a significant project. There’s no denying that. Presenting these facts to other people within your organization, it’s generally going to elicit a few common responses. I’m pretty good at these. I hear them quite often. They’ll say things like, you know, “We’ve been fundraising for years without registering. We’ve never had any problems. Why do we care now?” Or “If these requirements have existed for so long, why is it that we’re just hearing about them?” Or “Do we even need to bother registering? What is the worst that could happen really?”
While the requirements have been on the books for many years, literally, since the ’50s and ’60s in most states, states are just now becoming more stringent with the enforcement of solicitation regulations. These state agencies that once served simply as registration offices where you could check the box to say that you had your license on file. Instead, now, they have CPAs and prosecuting attorneys on full-time staff to audit, investigate, and prosecute the illegal activity in the nonprofit sector.
As I mentioned, I was just at NYCon [SP] last week for their state convention, and they had the head of their charity’s office there, James Sheehan. He has 29, I believe, full-time attorneys on staff to review the activities of charitable solicitors within their state. So there are people out there looking into these activities and penalties are resulting from it. They do this not only to protect the donors of their state but also the legitimate charities as well.
You can imagine what an impact this could have on the broader sector when there’s a violation on the part of a charity. It doesn’t look good for anyone involved in the equation, and it causes donors to lose faith with other organizations as well. In fact, an Urban Institute Survey of Regulators found that fundraising abuses were the most common area of enforcement by state charity offices, followed by trust enforcement, and governance.

For example, to give you a very specific instance of the types of penalties that may be faced for failure to register. California will hold board members personally responsible for any penalties levied against an organization that fails to register. That means they’re not allowed to pay those penalties out of the general fund for the group, instead, it comes right out of the board directors’ pockets. Not a great way to engender yourselves with your board of directors. And that’s just one example.
Other common repercussions include state fines, forced financial audits, loss of state tax exemption, even the revocation of the right to solicit within a state, which effectively turns that stream of revenue off in perpetuity, not to mention, the PR nightmare that a violation like this can produce, which is probably the most dangerous thing.
The example that comes to my [mind 00:23:48] a few years ago when the Attorney General of Ohio was holding fundraisers for a charity that hadn’t been registered in his own state. So he’s the guy who oversees all the charities that register in Ohio. When the press got a hold of it, as you might imagine, he caught a lot of flak from his constituents. Not a good look for the Attorney General, not a good look for any charity that’s involved in something like that. So no doubt, the negative consequences are definitely out there. But your organization can avoid them by taking steps towards registration.
The benefit of a proactive approach is that it generally avoids penalties rather than invite investigations or further scrutiny. So I know that we were on a, sort of, a negative note there, all those things that could possibly go wrong. But they’re not inevitable, they’re avoidable. If you’re going to be proactive and become registered, you shouldn’t have to worry about this.
I’ve got a quote here from the former Pennsylvania director of the Bureau of Charitable Organizations. It’s taken from a speech that he gave to a group of nonprofits, and it explains his take on being proactive. What he said was, “If you are coming involuntarily, even if you’d been violating the law for 10 or 15 years, you always got a pass.” Bottom line is you want to try to register voluntarily. So as you can see, the state wants to encourage organizations to register and maintain compliance. They’re not trying to chastise groups for trying to do the right thing. In fact, states are much more likely to try and resolve a missed registration through informal resolutions, correspondence with organizations, or settlements than through fines or penalties or litigation, the bad stuff.

Charities, of course, have an obligation to be compliant in every state in which they fundraise. Organizations that raise funds in every state must generally register in all 41 states with requirements. That may represent a substantial investment of time and effort, but the upside really is tremendous. It’s basically a license to fundraise without borders and without inhibition or fear of reprisal.
Not only that, but it could even result in increases in revenue. There are studies out there that show charities that include disclosure statements, there’s that word again, which are a part of the solicitation registration requirements in many states, those that include them on their solicitation materials will get a better rate of return. And that’s because donors gain this peace of mind and reassurance from the fact that the organization that they’re giving their hard-earned money to is in fact compliant. No responsible donor wants to give to an organization that doesn’t follow the law.
At the end of the day, charitable registration requirements are the law. Your organization should treat the requirements just the way you do your 990 tax return filing requirements, your financial review or audit requirements. Registering for charitable solicitation, renewing those registrations should be included on your organization’s lists of ongoing tasks. And the costs associated with it should really be budgeted line items. They’re going to recur annually.
If your organization hasn’t faced any corrective actions to this point, this is your opportunity to become registered, prevent those things from ever occurring, protect the name of your organization. Becoming registered provides your organization a license to solicit and apply for grants. Registration statuses and this is important to understand, registration statuses are reflected in the state databases of charities, which donors and grantmakers can easily access at any time. In fact, 92% of regulators indicate that they conduct internet research on nonprofits regularly.
More sophisticated corporate, individual, and foundational donors, they’re using these databases to look up the charities they donate to. This is the age of Charity Navigator, the age of GuideStar. All individuals and organizations that donate to charity have come to expect that you are going to be fully transparent with your activities and your licensing compliance. Following the rules and following the laws that apply to your specific industry, they’re really just table stakes when it comes right down to becoming a charitable solicitor. For all of these reasons, it only makes sense that you want to make sure you registered and active with the states.
In the most basic sense, maintaining legal compliance is a best practice for nonprofits. It’s a major area of the standards for excellence, code of ethics, and accountability. Fundraising and licensing compliance are important aspects of running a lawful and responsible organization. The first step toward compliance is sharing these facts with your executive leadership and, ideally, your board of directors as well. Your organization’s leadership has a lot at stake, especially in California, both in, personally, in terms of their duties as leaders of the organization, and many board members are not fully aware of the requirements, the risks of non-compliance, or the benefits of investing in compliance. But now that you all understand these details, you want to take initiative to start that conversation within your group, emphasize the importance on everyone becoming educated on the topic and advocate for prioritizing compliance.
All right, so that moves us to number four, what it takes to register, including the costs. We’ve talked a lot about when your organization is required to register and where. Now, we’re going to briefly speak about what it takes to register, the how. The details, as you might imagine, are very different from state to state. But on the whole, you can think about this process in four broad phases: research, apply, monitor, and renew.
So we’ll start with research. It’s extremely important to know your current status prior to filing anything, whether you are not registered, in compliance, or in bad standing. Think back to the exemptions that we’re speaking about. If you don’t research that first, you may end up filing an application that’s outright rejected on the grounds that you don’t actually need to file a license. And that would be wasted time, effort, and potentially, even the state fee that, in some cases, are non-refundable. So make sure you do your homework first.
Depending on your situation, there will be a specific application for the state in which you’re filing, a state fee that’s going to be attached to that application primarily based on the level of contributions you’re bringing in, nationwide contributions that is, and supplemental documents as well, like your latest 990 tax return, perhaps your IRS determination letter, maybe even your audit, if you’re large enough to have one.
In some states, there are certain prerequisites before you can register to fundraise. I want to take a little bit of time to speak about that. When you foreign qualify . . . I’m sorry when you go to fundraise in certain states like California, the District of Columbia, Illinois, North Dakota, foreign qualification needs to take place first. Foreign qualification is really the process of taking your legal entity in whichever state it may be incorporated and expanding it to do business in another state, general business purpose registration with the Secretary of State office. That may need to happen before you’re ever eligible to register to raise funds in certain states. So, that’s part and parcel of the research you’ll be doing.
You also may need to appoint a registered agent with that Secretary of State or perhaps list of registered agent on the form that’s being submitted. Knowing these types of requirements up front will help you save time by avoiding rejected applications, which would be inevitable if you file before you’d completed the prerequisites.
So once you’ve researched what’s necessary in each state, which filings need to be completed, it’s time to actually complete them and apply. In each state, you’ll have to complete the necessary applications accurately and compile the required documents. This is going to take a line-by-line review of a form and its instructions. Once you’re sure you have everything and it’s all been compiled properly, you have to ensure proper delivery. Sending these applications to the right agency and office, it seems pretty obvious, but you might be required to file it online or by email or there may be some other unique methods that that state requests that you should be aware of before submitting it. Again, you’ll have better outcomes, better results if filing via the method the state prefers.
I do want to mention briefly the unified registration statement. Some of you may have heard of this before it’s often abbreviated as the URS. Essentially, what it is is a consolidated application. It’s a single, long application that encompasses all the potential questions that all the different states ask, at least all the states that have agreed to jump on this bandwagon and follow this process. This form can be completed in place of the state-specific forms. However, a few qualifications I want to give to this document. It was created in an effort to streamline the process in all states. You just had to create it, complete it one time, and then print it out multiple times, and send to the states. It’s great in theory, however, not all states accept this document and many require additional supplements to be included.
The URS itself is actually longer and more complex, because it is a compilation of all the state questions than the actual state forms themselves. Any one state form will be much simpler than the URS. Trust me when I say this, state examiners do not prefer this over their own documents, because it takes them more time to review it. So even the states that do accept it will take longer to approve that application than they would their own forms. And keep in mind, not every state accepts it. So when we’re handling this for our clients, handling these charity registrations for a nationwide project, we’re actually filing the specific state forms that are available in the jurisdictions in which they’re registering in place of this URS, but it’s something that you should be aware of for completion sake.
So, what does this all cost? As you might suspect, the answer depends really on the organization, on the annual revenue, on the contributions, on the number of states that you’re registering in, of course. But I can answer this for you in more general terms. It’s simplest to talk about this in aggregates because there’s no such thing as an average state fee. If you did average them out, they’d probably come out to somewhere around $75, $80, but really, there are so many states that don’t charge anything and others that charge hundreds of dollars. It’s just easier to talk about this as if you were registering nationwide.
If you were to register everywhere, your total state fees would likely range from $1,400 to about $5,000. Keep in mind, that’s an estimate of the total fees if you were to register in all 41 states simultaneously. Sometimes, we get confusion on that. It’s not a per state cost. If it was, nobody would do this. But in fact, a single state’s registration fee is usually reasonable, $25, $50, $100. Sometimes, it’s nothing at all. So since many of you might not have to register in every state, especially the smaller organizations out there, this should be really reassuring for you. Most states simply aren’t that expensive to comply with.
But to put a finer point on it and give you a clearer explanation for those on the call today, individuals and organizations with under $100,000 in gross revenue are generally going to be on the lower end of that $1,400 to $5,000 range. As you approach the half-million dollar mark, you’ll probably fall somewhere in the middle. And applicants with over $1 million in gross revenue per year, they’re probably looking at the higher end of those state fees to register nationwide.
Once your applications are submitted, you have to monitor your registration status and see them through to approval. And this can really be a waiting game. Some states take just a couple of weeks to process your application, but in others, you may be waiting months. And during that time, you’re going to be busy. It’s not like the work stops there. You’ll have to ensure that they were received and that they’re being processed correctly, make sure that the office you filed it with actually has the document in hand, and that they didn’t lose it, and even bigger challenge is dealing with resubmitting rejected applications, handling state errors. Also, creating a system for tracking all of the registration information and the renewal dates moving forward is going to be very important.
So many of you know just how much of a time commitment this can be. For those of you who haven’t personally done these registrations, you can honestly expect to spend hours researching and have weekly, if not daily, tasks managing the filings. Tracking application acceptance and renewals without technology is really difficult to do as well. And of course, it’s usually an executive or a high-level staff that has access to the numbers that need to take care of this. And more often than not, you can always think of a better use for that individual’s time.
The time to complete initial registration depending on the state can be between a few days up to 8, 10 months in some cases. A lot of this is variation from state to state in just how slow the particular bureaucracy is moving at the time. However, through efficient management of the process . . . Remember, manage the process, don’t let the process manage you. You know, send the right applications, complete the application. Doing all of those things and putting a system in place can ensure that those processing times at the state are kept as low as possible.
States require you to renew registrations. Most states have annual renewal periods. However, there are a few states that renew biannually. So, for those of you who are licensed to solicit funds in the District of Columbia or in Georgia, you know, you file every other year in those cases. But tracking renewal dates and making sure they’re filed on time is extremely important. So with this in mind, I want to talk about managing compliance on an annual basis going forward. To move forward, begin to identify the states in which your organization is required to register and develop a plan to become compliant.
All right, finally, for number five, I want to talk about how to manage these registrations and, hopefully, simplify the process for all of you. There’s a lot of meat on this slide, so bear with me. Just like with the initial registrations, you’ll again, prepare a specific state renewal application, determine the appropriate state fee.
Quick caveat on that state fee. Initial registration filing fees are always based on your nationwide contributions, as I mentioned, nationwide, not state specific. However, when you file a renewal application, that formula can flip. It can change entirely. They may start asking how much money you brought in within their specific state now that you’re licensed to do so. Or you know, what was your revenue in the past year. These types of things will weigh into what the actual fee is. So pay close attention and make sure you’re filing the renewal application and not just another initial registration. Because if you submit the wrong form, thinking that you’ll submit the same form every year, you’ll end up waiting on the state to fix that error.
You’ll also need to compile required supporting documentation for the second filing. The difference between initial and renewal is that the renewal filings have a hard and fast deadline. The states usually assess penalties if you miss a deadline. So again, very important to stay on top of these.
As your organization becomes registered to solicit, it’s important to keep excellent records of license numbers, registration dates, and due dates for the renewals. You need to have a good system for tracking this information in one place. Clients that come to us having managed this for some time before they began to outsource it, they usually use some combination of an Excel spreadsheet or a calendar system for reminders. And they do okay, that’s usually sufficient to stay on top of the average filing, but we find they aren’t always helpful in tracking changes in state requirements and monitoring extensions of time to file.
So on that note, I want to expand briefly on extensions and what they are. If your 990 tax return and your financial data, your audited financial, they’re not ready before a given state deadline for the renewal of your charity registration, you’ll have to request more time to file. Thankfully, states often offer these things. However, you will need to submit this additional application in all the states where they don’t automatically extend you. It’ll give you the time you need to maintain the good standing until your financials are available, but it’s an entirely new layer of filing.
So, it’s very similar to the 8868 extensions that you may be filing with the IRS to push out that tax return deadline. Oftentimes, those state processes request a copy of that 8868. So, that’s an important ingredient to these registrations as well. But each state is going to vary, and the process is, of course, going to be different.
Finally, and now, we’re going to get to those disclosure statements that we’ve mentioned twice already, 25 states will require you to include specific disclosure statements on your solicitation materials. Disclosure statements, what they are and what they’re intended to do is to inform the donors where they can find more information on your charity’s leadership, its finances, and its activities. These statements should be listed on appeal letters and websites and other places where solicitations are made.
Just like everything else, disclosure statement requirements also change. So it’s important that you stay informed with the changes and update your solicitations accordingly. Now, we sometimes get confusion on these disclosure statements. Now, what they say is here’s where my registration proof can be found. Here’s where you find out about my charity. It would be incorrect to list a disclosure statement on a solicitation without having a license in the state in which you’re listing it for. So pay attention to that, don’t put the cart before the horse, make sure you have your license in place first, and then you circle back to handle the disclosure statements. And remember, studies show that donors respond more favorably to solicitations with disclosure statements on them. It adds credibility to what you’re sending.
Managing compliance will eventually become second nature to you, just like filing a 990 each year, but you can still expect to spend a lot of time preparing and tracking renewals. You also need to stay abreast of any legislative changes. At any time, reporting requirements and due dates change. Such as requirement in Colorado. Just last week, last Monday, they released a notice that nobody needs to list a registered agent on their charity application in Colorado anymore. If you weren’t aware of that change and you weren’t closely communicating with the state, you wouldn’t have known about that. Thankfully, we are, and can handle that process on your behalf. States add and remove these requirements too. And sometimes, they’re nice enough to let you know, but unless you really follow the industry, I wouldn’t count on that.
So we’ve talked through the various complexities involved in managing both charitable solicitation registration and the renewals, and hopefully, at this point, we’ve also conveyed the importance of charitable solicitation registration and why your organization should be prioritizing this, why it’s important for you. If you know your organization isn’t yet registered in all the states that they should be and you’re not under any sort of government inquiry or audit, this is your opportunity to register proactively. In doing so, you’ll be avoiding the potential consequences of non-compliance.
Remember, we generally don’t see government agencies investigate or impose sanctions on organizations that register in good faith. The best outcomes are always achieved through proactive registration. So all in all, charitable registration across 41 states can demand hundreds of hours from a qualified individual, both initially and ongoing. I’m talking about a substantial drain on staff time, and that’s exactly why we’re here.
I’d like to take just a few minutes to provide a brief overview of our services. We fully manage each and every step of the process, from research to preparing the applications, cutting the checks for the state fees, compiling and mailing out those packages on your behalf, and doing all of the necessary follow-up with the states, as well as monitoring approvals, loading the information into our software, and sending you the approvals. We really do reduce every bit of administrative work on your part.
Going forward, our software tracks all of that information for you. Again, you don’t have to lift a finger on the renewal applications. We do all of it for you. Really, you just need to provide signatures on the applications and send us your updated 990 or financial data. Just to be very clear, the software is for reporting purposes, it’s not intended to automate preparation of the applications. Our specialists actually prepare these applications for you. We found from experience, there’s not a software on the market that can effectively account for all the contingencies at play here.
While our filing applications are supported by software, none are sophisticated enough to take in to account the infinite number of complexities involved in choosing the right state forms, completing the applications, so on and so forth. And for these reasons, we manage all the applications ourselves by hand, in-house.
What our software does offer though, what you get through our service is the reporting insights. Our software informs you of the current statuses of the registrations, the state fees, the renewal dates, all of which can help you plan the budget. And your colleagues within your organization are easily kept with the registration statuses. I can assure you that the boards, especially in the case of California, they’re going to like that. They’re going to appreciate that.
Our client portal allows you to add as many users to the account as you’d like with no additional fee, so your leadership, staff members, outside counsel, accounting teams, all of these people can access the software. And the image on the screen gives you an idea of the types of reports that software can generate.
For all the accountants and attorneys and professional services individuals on the call today, we also offer firmwide partnership opportunities. Our nationwide registered agent office network allows us to help you no matter where your clients are located. And our unlimited user model enables you to manage each and every one of your clients, for-profit and nonprofit, in one place. Charitable solicitation licensing is just the tip of the iceberg as we offer industry and occupational licensing across all sectors. And we routinely partner with marquee brands and institutions to create co-branded educational materials that benefit your clients and the industry as a whole.
All in all, our approach to charitable registration is to provide full service, management at a flat rate per state. We bill for services that are on a fiscal year basis and don’t use any hourly billing. You’ll get to take full advantage of our team of experts to manage the process for you and, again, limit the time spend on your end to facilitating signatures and sending us 990 tax returns.
Okay. So that about wraps up the presentation. I’m going to launch into answering some questions that I’ve received from the audience, but I’ve got my email up there. I invite you to reach out to me to work with your organization to answer any questions that you have. I’d be happy to cover any specifics. And I’m also going to allow Steven to jump in here and wrap up towards the end. But first, let’s get some of these questions taken care of. We got a bunch that rolled in throughout the presentation.
Steven: All right, Brock. That was awesome.
Brock: Yeah, I’m going to . . .
Steven: Love hearing about what’s going on, so thanks for sharing all that knowledge. I know that you guys just give it all away. So, that’s why I like Harbor Compliance. Of course, I would recommend that you work with them, because they can obviously help you do all these things. But still, appreciate kind of the knowledge dumped here.
We’ve got a lot of questions. We’ve got, maybe, I’d say, maybe seven or eight minutes for questions. I don’t think we’ll get to all the questions, but please email Brock. For sure, because he is obviously a wealth of knowledge just in case I don’t get to all of your questions. Interesting ones here. I’m just going to roll through some ones that I think are pretty cool here. They’re all cool, obviously, but Jenny’s wondering if officer insurance covers the liability for board members. I think this came up when you were discussing that they could perhaps . . . obviously, you want to file but should they also get board insurance? Is that something they can offer some additional protection?
Brock: Sounds like somebody’s not registered here. But really, it’s okay. It’ll be between us. No big deal. I’ve gotten that question before. It’s possible. It depends on your policy though. Really, what California expects is those penalties be paid by those directors. It’s one of the ways that they use the stick instead of the carrot to entice people to actually become registered in their state.
Steven: That makes sense. So Brock, would you just recommend everyone register nationwide or is there ever a good use case for, maybe, cherry-picking certain states? I mean, I guess, there may be some organizations where that would make sense. I mean, what have you run into? What kind of different scenarios do you guys run into?
Brock: That’s a great question. So, I would always advocate for the most comprehensive approach possible, but this is my livelihood. So of course, I’m a little bit biased. I don’t really try to convince anybody that it makes good business sense to maintain a license where the cost of maintaining that license exceeds the amount of revenue that they’re generating in that state by a substantial amount. That’s just not a sustainable practice for any organization. So there’s a little bit of cost-benefit that goes on there.
But frankly, when we see clients becoming registered nationwide, they’re right around, on average, $500,000 to $750,000 in annual revenue, and it’s at that point that they have sufficient exposure that the coverage that the license provides outweighs the potential risk to their reputation if they got caught in the act of soliciting without it. So that’s usually the tipping point for most clients, but that’s not to say small ones don’t do it either. Well-funded startups, I’ve formed an organization and received a determination letter one week and began their nationwide fundraising registration project the next. So, it happens all the time for startups as well.
Steven: Okay, makes sense. So, I like what you said about, you know, setting calendar reminders for renewal dates and all that thing. Who should own this, in your opinion, at the organization? Should it be the ED’s responsibilities? Is it a board’s responsibility? Is it an administrative task? Who do you usually see is the person that, kind of, the point person for making sure this all happen?
Brock: So, there are a few different angles you could approach that question from. One, dealing with most commonly and managing these licenses is usually somebody high up in the accounting department. Typically, the controller or the CFO. Those are usually the points of contact. But when it comes down to it, the ones with the obligation to make sure and the responsibility to make sure the licenses are in place, that’s an executive-level thing. That’s an executive director or a board decision, more often than not, that makes the call on it. Unless the organization is large enough to have discretional budget to cover the licenses themselves.
Steven: Okay, makes a lot of sense. Well, we’re just about . . . We’re getting close to that time. So many good questions here. Definitely email Brock if I don’t get to yours. New organization here. This is from Noel, and they’re waiting for, it looks like a $500,000, I assume a grant to open their organization. And they have only average $7,000 received in the last two years. What category do you think they should register under? So there’s, kind of, like, the actual funds received, but maybe they’re waiting on something big. What should you do for organizations who are maybe expecting kind of big influx in cash that they’d never seen before?
Brock: Mm-hmm, yeah, great question. So, what the states are looking at when you register the first time around the initial filing is always going to be the contribution line on your 990. So, it’s typically on a full-length 990 line number 8. Whatever is listed there is what you’d report on those filings, and that would determine your filing fee. So, you might be in a position right now to leverage some of those revenue based exemptions if you’re only bringing in $7,000 annually. But going forward, once you get that big one-time donation, that’s going to be a major blip on your 990 the next time you file, and that would jack up your renewal cost probably, but it would usually be just a drop in the bucket. So it’s only going to happen one time, and going forward, you’d be back to that regularly recurring level of revenue and contributions.
Steven: Okay. So, it’s the 990 that’s kind of gospel but, you know, keep in mind, if you know that number is going to be increasing to maybe budget for the next year’s registration.
Brock: Correct.
Steven:Is that what I’m hearing?
Brock:Yeah, exactly. So you’re probably going to end up with exemptions on a revenue basis. And so you might even file for less than $1,400 nationwide to answer the first part of the question. The renewal may jump up to be in about the middle of the range that we discussed instead.
Steven: Okay, makes sense. In the final minutes we have, where should people start with the best way to kind of . . . because it seems, kind of, overwhelming if you’ve never registered, right? What would be your recommended, kind of, first step?
Brock: Yeah, so the immediate action step is go to harborcompliance.com, navigate to the information center, and read the fundraising compliance guide. You can’t miss it. It’s the most prominent guide. It’s at is the top-left corner of the page when you get to the information center. It will give you, state-by-state, specific information on how to manage the registrations. If you don’t have the time to read through it, just give me a call, shoot me a note, and I’d be happy to fill in the blanks for you.
Steven: Cool. One last question. I think we should get to, just based on the demographic [inaudible 00:55:20]. State-based versus non-state-based organization. So I think there are differences in, you know, of disclosure requirements there. Is there any difference in the registration requirement to go along with that?
Brock: Yeah, yeah, absolutely. So that’s one of those broad categorical exemption buckets you could fall into. There are educational institutions, religious organizations, and universities . . . I’m sorry, hospitals. So, you could have broad exemptions on those grounds. Keep in mind, however, those exemptions usually are intended for churches only. So you need to be categorized by the IRS as a church and not be obligated to file a 990. So that’s a key qualification. You might have some eligibility elsewhere just because you have a religious bend, but those exemptions won’t be as broad range as it would apply to a church.
Steven: Okay, makes sense. Very cool. Disclosure statement, is that something that you should maybe also put on public marketing material? Like, your website, maybe even social media in some cases beyond just the gift acknowledgment and things like that, the more transactional communication.
Brock: Absolutely, yeah.
Steven: Okay.
Brock: Anytime you’re making an ask, you should have that disclosure statement listed there if that’s a requirement in the state in question.

Steven: So probably a good idea to maybe put it on, like, your online donation page just to be safe.
Brock: Yeah, what I’ve seen done before is including it in the privacy policy with a hyperlink to that privacy policy on the donation page. That’s how I normally see it displayed online. When you’re making a solicitation by mail, I’ve seen all sorts of creative things. It’s usually in, like, 0.5 font on the back of the letter or even printed . . .
Steven:Right, tiny.
Brock: . . . on the inside of the actual envelope. So, people get creative with that, but online, hyperlink is usually sufficient.
Steven: In a privacy policy. Very cool. So if you don’t have that, good reason to make a privacy policy I suppose, very cool.
Yeah, wow, there are a lot of really specific questions, and I don’t want to shortchange Brock’s answer in the, you know, 90 seconds we’ve got left. So I if I didn’t get to your question. She really [inaudible 00:57:44]. But email Brock. For sure, he would be happy to dive into your individual situations. He’s a nice guy, obviously, very knowledgeable. This is awesome, Brock. Thanks for being here again. I love having you guys every year, and I appreciate your willingness to do it. Very cool.
Brock: Absolutely, yeah, yeah, absolutely. Always a pleasure. Thanks so much, Steven. Thanks to everyone for participating today. It’s been great.
Steven: Yes, thank you to all of you. I know it’s getting to be a busy time of the year. You’re probably doing events and your year-end stuff. So, always appreciate you hanging out. Other great resources on our website as well for you to check out, and we’ve got some really cool webinars coming up. We’re going to get back on the Thursday schedule. This was my fault, the Wednesday thing. So thanks for moving this. If you are used to the Thursday schedulable, we’re back next Thursday.
Capital campaigns, if you are gearing up for a capital campaign if you’re in the midst of one, check this out. We got Sarah Durham from Big Duck out of New York City. Awesome, awesome agency. Sarah is super cool, very, very smart. This is going to be a good presentation. So if you are working on your capital campaign, if you’re writing your case for support, maybe you want to compare your existing case for support with some of our suggestions, check it out. It can be a good one. One week and one day from today. Totally free, totally educational. Sign up for it.
There are other great webinars even into 2019 that you can register for, and we’d love to see you again on Thursday. So, look for an email from me with the slides and the recording. I’ll get that out. Email Brock, go to their website, download that free guide, he’ll take care all of you folks for sure. So we’ll call it a day there. Have a good rest to your Thursday. If you’re in the southeast, we’re thinking about you. Please stay safe this weekend with the hurricane. And hopefully, we’ll talk to you again next week. Bye now.

Kristen Hay

Kristen Hay

Marketing Coordinator at Bloomerang
Kristen Hay is the Marketing Coordinator at Bloomerang. She serves as Chairperson on the Blog & Social Media Committee for PRSA’s Hoosier chapter.
Kristen Hay
By | 2018-10-15T11:47:15+00:00 October 16th, 2018|Webinars|

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