While state charity compliance is understandably complex, it is an area that nonprofits cannot afford to ignore.
Brock Klinger and James Gilmer of Harbor Compliance recently joined us for a webinar in which they explored the charitable solicitation requirements and explained what they mean for your organization.
In case you missed it, you can watch the replay here:
Steven:All right. My watch just struck 1:00. So, gents, is it okay if I go ahead and kick us off officially?
Steven:All right. Well, good afternoon everyone if you are on the East Coast, and good morning if you are on the West Coast or somewhere in between. Thanks for being here for today’s Bloomerang webinar, “What Compliance Means for your Fundraising Efforts.” 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.
Just a couple of housekeeping items for you before we begin. I just want to let you all know that we are recording this presentation and we’ll be sending out that recording today as well as the slides in case you didn’t already get those. So, if you have to leave early or perhaps you want to review the content later on or share it with a friend, you’ll be able to do that. Just look for an email from me later on this afternoon with all those goodies.
As you’re listening today, please do feel free to use that chat box right there on your webinar screen. I know a lot of you have done so already. That’s awesome. We’re going to save some time for Q&A at the end. Do not be shy about sending in your questions or your comments. I’ll be moderating those over the next hour or so.
You can follow along on Twitter with #Bloomerang and our username is @BloomerangTech. And if you are listening today through your computer, just know that these webinars are usually only as good as your own Internet connection. So, if you have any trouble with audio or perhaps with the slides not advancing as quickly as they should, we recommend you call in by phone. If you don’t mind dialing in by phone and you can do that, there is a phone number in the email from ReadyTalk that you can use. Usually that’s a little bit better than the computer audio.
If this is your first Thursday webinar with us, I want to say an extra hello to you folks. We do these webinars just about every Thursday. But in addition to that, if you’re not familiar with Bloomerang, we offer donor management software. If you’re in the market for that or just want to learn more about us, you can do so. Check out our website. You can even watch a quick video demo and get a look at the software without having to talk to a sales person if you don’t want to. So, we’d love for you to learn more about that at your leisure.
But for now I’m really excited to introduce today’s guest. We’ve got two presenters here. They are both from Harbor Compliance, which is one of our favorite partners for all things compliance. So, Brock and James. Welcome. Thanks for being here, guys.
Brock:Thank you for having us, Steven.
Steven:Yeah. I just want to brag on you two for a minute here. In addition to them both being compliance experts, they both also have a heart for the nonprofit sector. Brock is an account manager over at Harbor Compliance. He’s an Eagle Scout. He’s very involved with the Boy Scouts of America. James also works at Harbor Compliance, where he serves as a compliance specialist. He’s actually a nonprofit cofounder himself. We were chatting before the webinar began. He’s the cofounder of Berks Sinfonietta. I hope I’m pronouncing that correct, James. Sorry if not.
Steven:But it’s a chamber orchestra. Not too bad. He’s a musician himself. These guys know nonprofits. They know compliance. They’re going to combine those two today for you. Guys, why don’t you take it away and tell us all you know.
Brock:Thanks a lot, Steven. All right. Well, thank you all for joining us today. My names Brock Klinger. We’re going to be talking about charitable solicitation requirements and what it takes to be compliant. I’m an account manager here with Harbor Compliance. At Harbor Compliance we partner with organizations in every state and over 25 countries abroad to help them solve their most challenging compliance problems.
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. On your screen there you’re going to see a few of the charities we help keep compliant across the country.
My role as an account manager is first and foremost to be an educator on compliance and the various requirements facing nonprofits. I also act as a facilitator for organizations looking to take action to become compliant and engage with us. I am joined today by my colleague, James Gilmer.
James:Hi, everybody. Like Brock said, my name is James Gilmer. I’m a compliance specialist here at Harbor Compliance. What that means, my role is to help our clients, like the ones you see on your screen there, simplify their compliance filings by managing this work on their behalf. So, I keep track and prepare the necessary filings with the client the charity registering for the first time, if they’re renewing existing registrations, expanding existing registrations in to other states and even navigating some more difficult situations like government investigations, bad standing or state penalties.
Brock:Today we’re going to hit on the most important items that you should know if you’re looking to make your organization compliant. So, what we’re going to cover is state registration requirements, online fundraising, why compliance should be a priority for your organization, what it takes to actually register, including the cost involved, and how to manage registrations and simplify that process.
The presentation should be about 25 minutes. We’re going to follow it up with about 10 to 15 minutes of Q&A at the end and we’ll plan to wrap up a few minutes early trying to get you guys back to your day.
James:All right. So, let’s dig right into what charitable solicitation compliance is. In simple terms, charitable solicitation is fundraising. And compliance is meeting the various IRS and state requirements that allow charities to fundraise. Today we will be focusing specifically on the state requirements, particularly the requirement that charities register in order to solicit donations from that state.
Now, if you take a look on the left, you’ll see a quote from the IRS. 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 states’ 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.
Now, as you can see from the quote from the IRS, charities are generally required to register before begin soliciting. The state requirements for charitable solicitation are based on the act of solicitation. So, you’ll hear us talk about this several times, but the key word is soliciting itself and not necessarily receiving donations from a given state.
Now, if you look to the right, this map shows all the states that require charitable solicitation registration in one way or the other. The 41 states in blue have a registration requirement for charity. The other ten states, the ones in grey, they do not require registration per se, but a handful of them do have other compliance requirements, such as disclosure statement. Twenty-four states require disclosure statements to be included on your solicitation material, such as your emails, your individual mailings, mass mail, whatever you might do. We’ll get into those disclosure statements a little bit later on in the presentation.
Brock:Do these requirements apply to us? Many nonprofits, they wonder whether a charitable solicitation requirement actually apply to the organization and in what state. Chances are an organization that fundraises will face these requirements one way or another. Again, as James mentioned, the requirements are based on the act of soliciting, regardless of whether or not donations are received.
So, what exactly is solicitation? Solicitation is simply asking for donations. That takes many different forms. The most common ones, they include holding fundraising events, mailing out letters and placing phone calls to prospective donors. Any of the methods listed on your screen will be considered solicitation. Some methods that states generally treat as solicitation may be surprising to you. They would include applying for grants, collecting membership dues in some cases and collecting donations through the organization’s website.
Additionally, using professional solicitors, fundraising counsel or CCVs, commercial coventures, they would not only trigger those requirements, but they’re actually scrutinized even more heavily by the state. Any for-profit entities that assist charities with fundraising, those generally need to register with the state as well.
Many organizations solicit using several of these methods, any one of which would trigger state registration requirements. Many organizations solicit in more than just one state, quite common. Knowing where your organization is required to register would entail taking a close look at your solicitation activities in each of the 41 states with requirements. If you’re soliciting in any of these states, you may be faced with requirement to register there.
James:Yeah. And among all of those solicitation activities that you see there, some of the biggest questions we get are related to online fundraising. People will ask us, “If we fundraise through our website, does that mean we have to register in every state or if we fundraising online but only receive donations in a few states, do we still have to register in every state?
Don’t feel alone if you yourself have these questions today. Organizations throughout the country are really facing the same uncertainties. We’ll work on clearing that up a little bit here today. The reality is most charities nowadays fundraise online. A lot of organizations accept donations on their websites through a “donate now” button. They might make solicitations by email. They might ask for donations in their email newsletters and also social media, sometimes charities will use that as a form of solicitation as well.
Now, by way of a brief history as a result of the dotcom boom back in the ’90s, the Internet really became mainstream and organizations began creating a presence for themselves online. So, in addition to providing general information about the charity, organizations’ websites also served as an additional means of collection donations. As part of that, these websites meant that charities now had the ability to solicit residents at every state at the click of a button by adding a donate section.
This of course, as we find today, raised the question of what that meant for the registration requirement. Now back in 2001 in order to try and clear up these requirements, the National Association of State Charity Officials, NASCO, met in Charleston, South Carolina to try to develop guidelines for what an organization would need to register. Their results — and you might have heard of them — are known as the Charleston Principles.
Basically the Charleston Principles suggest 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 resident of that state or you receive ongoing repeated or substantial donations from that state. Clear as mud, right?
To further complicate matters, this effort to unify state requirements really wasn’t successful. The Charleston Principles are only guidelines to the state and not law and really the biggest issue is that only 19 states follow the Charleston Principles. And if you remember from a few slides ago, that’s fewer than half of the 41 states that require registration. The remaining 22 states have their own requirements and criteria for what constitutes soliciting and whether a nonprofit must register.
So, fundraising online is generally considered soliciting nationwide for that simple reason, that “donate now” section to a charity website, emails to newsletter subscribers, social media, they’re all solicitations that can reach citizens of every state. When charities receive donations as a result of these solicitations and then follow up with those donors to ask for more donations either by email or letters or phone calls or any other method, those charities are then furthering their charitable solicitation activities.
Now, knowing all of this, there are a couple of practical approaches that charities can use to be compliant when they fundraise online. The most comprehensive way to be compliant would be to register in all 41 states or file for an exemption in the states in which the organization is eligible.
For many organizations, registering in all 41 states is the best option so that they can fundraise nationwide by any method, including online, while not risking the various penalties and risks associated with not being registered. By the way, as a side note, we will cover those risks in more detail in just a moment.
Now, we recognize that not all organizations have the ability to register in all states. The biggest constraint is usually budgetary, particularly for small charities. For these organizations, a second approach might be better. With 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, this would mean, for instance, that the organization places language on its website that it does not accept donations from those states, the ones that it’s not registered in. Ultimately it is an internal decision. Organizations have to weigh the cost of registering in a state with an 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. As we’ll talk about, the penalties for noncompliance can be severe, but we do encourage organizations to take the path of compliance.
Now, given what you know about the requirements and when they apply, let’s take a look at where that would need to happen. First, as Brock mentioned earlier, you’ll want to check and see which of the 41 states that you are soliciting. Generally speaking, you would need to register or file an exemption in each of those states. We’ve mentioned exemptions a few times. They are based on the types of organization, its solicitation method and its revenue.
Ironically, somewhat, despite its name, exemptions still very often need to be applied for, they very often need to be renewed on a periodic basis. So, even though your organization may be exempt, you should do your research and research that particular state’s registration requirements in each state where you do plan to solicit.
Remember, even though you might be exempt from a full registration, it’s still the act of soliciting that triggers the need to file that exemption or registration, whatever the case may be, not necessarily the receiving of donations from that state. A grew way to take action on this is really educating your organization, your board, your leadership and what solicitation means and the various activities that trigger the requirements.
Brock:So, why should compliance be a priority? By now you’re probably realizing that your organization is going to have to register in at least a few states and in some cases all 41. Now, we realize this can all sound very overwhelming at this point. It’s definitely a significant project, presenting these facts to other people within our organization, it generally elicits a few common responses.
We hear a few comebacks of things like this, “We’ve been fundraising for years without registering and we’ve never had any problems, so why should we care now?” or, “If these requirements have existed for so long and been around for years, why are we just now hearing about them?” or even, “Do we need to bother complying with these requirements? What’s going to happen?”
While the requirements have existed for many years, states are becoming more stringent with the enforcement of charitable solicitation regulation. This is just the way of things. State agencies once served simply as registration offices, but now they have CPAs, prosecuting attorneys, full-time staff to audit, investigate and in some cases prosecute illegal activity in the nonprofit sector. They’re looking out for this sort of thing. It includes those relative to charitable solicitation laws. They do sell to protect not only donors in their home state but also legitimate charities as well.
For example, on January 1st of this year, changes to California’s laws took effect, which implicated the personal liability of members of boards of directors. So, what that means is that California now holds board members personally responsible for any penalties levied against non-compliant organizations. They’re no longer allowed to pay those penalties out of the general fund. Instead, it has to come out of their own bank accounts. This is just one example.
Other common repercussions often include state fines, forced financial audits, loss of state tax exemption and even revocation of the right to solicit, which is really probably the worst one. But also what you’ll need to keep in mind is there’s a potential PR nightmare. A violation like this could really produce a lot of headaches in terms of bad press to the organization.
James:Yeah. Speaking of bad PR there are a couple of examples that come to my mind. First a few years ago the attorney general of Ohio — that happens to be the guy that oversees all the charitable registrations in his state, he was holding fundraisers for a charity that had not been registered in Ohio. He caught a lot of flak from his constituents when the press got ahold of it.
Another example is a little bit more recent. If you recall a few months ago with a certain presidential candidate whose foundation wasn’t registered in New York and hadn’t been filing 990 returns and audited financial statements with the attorney general there in New York. It created quite a fuss in the media. So, you can maybe imagine some of the ramifications if that were to happen to your charity. Anyway, Brock, back to you.
Brock:No doubt the negative consequences are 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.
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. It was to a group of nonprofits. It basically explains his take on being proactive and how he looks at this. He said if you were coming in voluntarily, even if you’ve been violating the law for 10 or 15 years, you always got a pass. Bottom line is you want to try to register voluntarily.
As you can see, the state wants to encourage organizations to register and maintain compliance. They don’t want to chastise groups for trying to do the right thing. In the most basic sense, maintaining legal compliance is a best practice for nonprofits and it’s a major area of the standards for excellence code of ethics and accountability. Fundraising and licensing compliance are important aspects of lawful and responsible organizations.
Charities of course have an obligation to be compliant in every state in which they fundraise. Organizations that raise funds in every state, they must generally register in all 41 states with requirements. That may represent a substantial investment of time and effort, but the upside is tremendous. It’s basically a license to fundraise without borders and without inhibition.
You can raise funds wherever you’d like. Not only that, but it could even result in increases in revenue. Studies show that charities that include disclosure statements on their solicitation materials . . . these are part of solicitation registration in many states, they get a better rate of return on those solicitation materials.
That’s because donors gain reassurance from the fact that the organization they’re giving to is in fact being compliant to the law. No responsible donor wants to give to an organization that doesn’t follow the law. That’s just the way it is. At the end of the day, charitable registration requirements are law. Your organization should treat these requirements just the way you do 990 filing requirements, financial review or audit requirements.
Registering for charitable solicitation and renewing those registrations should be included on your organization’s list of ongoing tasks and as such, the cost associated with it should be in line items for the group. If your organization hasn’t faced any corrective action to this point, you can take this as an opportunity to become registered and prevent them from ever occurring. Becoming registered provides your organization a license to solicit and apply for grants. Registration statuses are reflected in the state databases of charities, which donors and grant makers can easily access at any time. It’s publicly available.
More sophisticated corporate and individual donors are using these databases to look up the charities that they donate to. They want to make sure that they’re actually in good standing and that they’ve been registered properly. It only makes sense that you would want to make sure you are registered and active in the states for those reasons.
The first step towards compliance is sharing these facts with your executive leadership, ideally your board of directors as well. Your organization’s leadership has a lot at stake, both personally and in terms of their duties as leaders of organizations. Many board members are not fully aware of the requirements, the risk of noncompliance or the benefits of investing in compliance. But now that you understand these details, take initiative to start the conversation within your group, emphasize the importance on everyone becoming educated on the topic and advocate for prioritizing compliance.
James:Yeah. Thanks, Brock. We’ve talked a lot about when your organization is required to register and where that would need to take place. Let’s talk briefly about what it takes to register. So, the details in every state are going to be very different, of course, but on the whole, you can think of getting registered in four phases: research, apply, monitor and renew. So, let’s start with research.
It’s important to know your current status prior to filing anything with any state, whether or not you are registered, if you’re in compliance or if you’re in bad standing. A lot of times clients come to us thinking they need to register for the first time but it turns out a director 5 or 10 years ago had filed something and now the organization is not in good standing. It’s definitely good to identify what the situation is before you try to remedy it.
Now, depending on your situation, you will have a specific application, a state fee usually based on your gross revenue or your charitable contribution, and supplemental documents like your latest 990, articles of incorporation, bylaws and IRS determination letter. In some states, there are certain prerequisites before you can register to fundraise. For instance, you may have to foreign qualify the nonprofit corporation and appoint a registered agent. Again, knowing these requirements up front will help you save time by avoiding rejected applications.
Brock:Definitely. And a quick side note here, back in June, we released a whitepaper on charitable solicitation compliance and that document actually contains a pretty handy reference table on the back page that you can use to help you determine where those additional requirements come in to play. You can find it on our website in the fundraising compliance guide section. It’s located in the information center. You can find it from the homepage.
James:Right. And you can also reach out to Brock afterwards and he’ll send that to you. Once you’ve researched what’s necessary in each state, it’s time to apply. Again, in each state you will have to complete the necessarily applications accurately and compile the required documents. That’s easier said than done. That often takes a line by line review in the form of instructions. Not every state gives you a handy checklist.
Once you’re sure that you have everything, you have to ensure proper delivery. It seems pretty obvious to have the right address where you can mail the application, but sometimes you might be able to file online and save a lot of time. You might have to file online or you can even submit applications by email. So, reviewing those methods will help you save some time in the long run.
Now, as a quick aside, you may have heard of the unified registration statement, aka the URS. This document was created a number of years back in an effort to streamline the application process in all states. It really didn’t work. Not all states accept the URS and of the ones that do, I believe it’s only like 30 states accept URS. Of those 30, about of them required additional supplements to be included with your application.
The URS itself is longer and more complex than any given state’s form and you can trust me on this from all of my conversations with examiners in every state. They don’t prefer the URS. It’s far too complex. It asks for information that the state doesn’t want and it results in a longer approval time. So, in a lot of cases, you are better served just using the state-specific application.
Now, for the question that you are all probably asking, verbally or in your head, what does it cost to register? As you might suspect, like every other answer, it depends. It depends specifically on your organization, what your annual revenue is and also the number of states that you plan to register in.
Now, we can answer this today for you in more general terms. If you were to go ahead and file an initial registration in all 41 states — and again, this might not apply to all the organizations on the line here today — your total state fees would likely range anywhere from $1,400 to $5,000 for most organizations, most groups will fall somewhere in that range. Keep in mind that is a total, that is an estimate of the total fees if you were to register in all 41 states. That is not per state.
I sometimes get confusion. It’s not many, many thousands of dollars per state. That would be prohibitively high. In fact, it’s quite the opposite. A single state’s registration fee is usually pretty reasonable, $25, $50, $100. A lot of organizations fall in that low registration fee for a given state. Sometimes there’s no fee at all. So, that should be reassuring to you. Most state simply are not that expensive to comply with.
Brock:Right. So, just to give you a rough idea of what this might look like for everyone that’s on the call, organizations with under about $100k in gross revenue, they’re generally on the lower end of that $1,400 to $5,000 range. So, if you’re under $100,000, you’re probably towards the $1,400 end. As you approach $500,000 in revenue, you’re probably going to be somewhere in the middle of that range. And then organizations over $1 million in gross revenue per year, they’re probably looking at the higher end of things, probably close to $5,000 to register annually.
James:Right. So, again, it’s important to research what that fee is before you submit anything into the state. Now, once your applications have been submitted, you have to monitor the registration status and see the applications through until approval. It can be a waiting game. Some states take just a few days or a few weeks to process your applications, but in others like New Jersey, Virginia, Illinois, you might be waiting for six months or more.
Now, during that time, you’ll be busy ensuring that all the applications are received and are being processed. You’ll be receiving documentation in the mail as far as registration letters and certificates and requests for more information, sometimes rejection letters, and really a bigger challenge is dealing with those rejections and those questions that arise with states, and even state errors. Examiners at the states, they’re people too, believe it or not and they may make mistakes on applications and just dealing with all of that can really be a headache.
Finally, you will want to create a system for tracking all of the registration information, so your license numbers, the date that your charity was registered for the first time and calculating the date that the renewal will come up on a moving forward basis.
So, if you’ve done all of this before, you know how much of a time commitment this can be. For those of you that have not personally done these registrations, you really can expect hours researching and have daily, weekly tasks in managing these filings. If you don’t have the technology, tracking application acceptance and renewals can be very difficult too.
Finally, the last thing I want to say about that is it’s usually an executive or some high-level staff that has to take care of all of it, whether it’s an executive director, a CFO, treasurer, somebody in those positions of prominence. I’m sure you can think of better uses of their time if you’re staff or think of better uses of your own time if you happen to be serving in one of those capacities.
Now, the time to get registered in a given state generally falls anywhere between two weeks and six months. Some of it’s a little bit less, some of it’s a little bit longer, but it really is a state to state variation. What you can do to reduce that processing time is coming up with an efficient management of the process, making sure that applications are sent in to the right place, making sure they are complete, the right application, they have the right fee, and really making sure the state has everything they need in order to process it first time around, rather than come back for more information.
Now, finally, once your organization has become registered, you’ll have to file a renewal to renew that registration on a periodic basis. Most states have an annual renewal period. There are a few states that are biannual but most are annually and it’s usually based on your fiscal year. So, if anybody out there has a June 30th fiscal year end, you might know that the 15th on Tuesday, that was a big, big date. It’s when your 990 would have been due and a lot of state registrations, those renewals would have also been due at the same time.
Now, tracking the renewal dates, making sure these applications are filed on time are really important to avoid any sort of late fees or penalties for noncompliance. So, with this in mind, let’s talk about managing compliance on an annual basis. Before we do that, quick action item for you and your team, go out and begin to identify the states in which or organization is required to register and develop a plan to become compliant.
What does it take to actually manage compliance? Just like with your initial registrations getting setup for the first time, you will again prepare a state-specific renewal application, there’s going to be an appropriate fee based on your revenue or your charitable contributions and then you will also have to again compile a different set of supporting documentation. This time it’s usually a 990 return or internally prepared or audited or reviewed financial statement.
The difference here though between an initial filing and a renewal filing, the renewal filings have a hard and fast deadline, which means the states usually assess penalties if you miss a deadline. So, again, it’s very important to stay on top of things. As your organization becomes registered to solicit, it’s important to have excellent records of license numbers, registration dates and knowing when the due dates come up. You’ll have to have some good system of tracking this information in one place so you can view all your states at one time.
Many of our clients, they come to us, they have some combination of an Excel spreadsheet or a calendar system, maybe it’s setup with their Outlook or the emails, things like that for reminders. We generally find that those aren’t always helpful in tracking changes to state requirements. If a state requires a renewal filed at a different time of year because of a change of legislation, something like that, or if there’s an extension of time to file that your charity needs, you need to have some sort of technology in place to keep track of all that.
I do want to mention extensions briefly. If your 990 isn’t ready before the IRS deadline, which is four months and 15 days after your fiscal year ends, you do have time, rather you have the opportunity to request an extension with the IRS. So, that’s your 8868 for those of you that are familiar with that.
In each state, the states that have a renewal date based on that same timeline, you will have an opportunity very often to file an extension just like you would with the IRS. Now in each state, it’s a little bit different, so you have to again research and determine how to do that, but it will give you much needed relief while you’re waiting for your 990 or your audited financials to be complete so that you remain in good standing without having to pay any sort of late fee.
Finally, like we alluded to earlier, 24 states require you to include specific disclosure statements on your solicitation materials. These disclosure statements inform donors where they can find more information on your charity’s leadership, financial information, program activities. No matter what, these statements really should be listed on your appeal letters, your websites, your emails, any other places where your solicitations are made.
Just like everything else, state disclosure statements also change. So, it’s important you stay abreast of those changes and update your solicitation materials accordingly, not only when you become registered for the first time, but keeping up with those legislative changes that might affect your statements there.
Brock:It might sound like a lot of work, but also you want to keep in mind that these items, when included, do often increase the effectiveness of your solicitations It just adds credibility to what you’re saying.
James:Yeah. That’s exactly right. While it does seem like a lot, managing compliance will eventually become second nature to you, just filing your 990 return each year. You can still expect to spend a lot of time preparing and tracking renewals. You also need to stay informed of any legislative changes. At any time, reporting requirements and due dates do change. For instance, Mississippi just changed its renewal period back in July.
They do also add registration renewal requirements as well. We always joke that sometimes states are nice enough to tell you when that happens, but unless you really follow the industry, I wouldn’t count on it.
Brock:Okay. So, our solution — so, we’ve talked through the various complexities that are involved in managing charitable solicitation registration and the renewals. Hopefully at this point we’ve also conveyed the importance of charitable solicitation registration, why this is important for your organization and why you should be prioritizing compliance on the whole.
If you know that your organization is not yet registered in all the states that it should be and you’re not yet under any sort of government inquiry or audit, this is your opportunity to register proactively. In doing so, you’re going to be avoiding the potential consequences of noncompliance. Remember, we generally don’t see government agencies open investigations or impose sanctions on organizations that have registered in good faith.
Really, the best outcomes can be achieved through proactive registration. That’s the key. All in all, charitable solicitation registration across the 41 states can demand hundreds of hours from a qualified individual. That’s both initially for the first time applications and ongoing for renewals. We’re talking about a substantial drain on staff time. That’s exactly why we’re here.
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 the packages which can reach 150-200 pages in some cases, doing the necessary follow up with the state and monitoring the approvals, loading all of this information into our proprietary tracking software and sending you the approvals.
We really do reduce every bit of the administrative work on your part. Going forward, that software is going to track all the information for you and you don’t have to lift a finger on the renewal applications. We just take care of all that for you. Really you just need to provide signatures on the applications and send us your updated 990 financial data, etc. Just to be clear, so that software that we provided is for reporting purposes only. It’s not indented to automate preparation of the application.
Our specialists, including James here, will actually prepare these applications for you. We’ve found from experience there’s really not any software that can effectively account for all of the different contingencies at play here. It would just be impossible. None would be sophisticated enough to take into account the infinite number of complexities involved in choosing the right state forms, completing the actual application, determining the appropriate state fee, filing the exemptions as needed and then completing the follow up with the states, etc.
For those reasons, we manage all of the applications ourselves by hand in-house. What that software really does offer and what you get through our service is the reporting insights. The software informs you of the current statuses of the registrations, the state fees, renewal dates. You’ll always know what’s coming up next, all of which can help you plan and budget. Your colleagues within your organization, they’re all easily kept abreast of your current status.
So, at any point in time you know where you stand. I can assure you that boards especially are going to appreciate that. Our client portal allows you to add as many users to the account as you’d like at no additional fee. So, your leadership, your staff members, even your outside counsel or accounting team, they can all access the software so they know where you’re at.
You’ll see a screenshot below of what a small piece of that looks like. We’d be happy to schedule a demo of the system with anyone so you can walk through, get a better feel for how it works and I’ll personally take you through that process. All in all, our approach to charitable solicitation compliance is to provide full service management at flat rate per state.
We bill our services on an annual basis. We don’t use any hourly billing. You’ll get to take full advantage of our team of experts that manage the process for you and it limits the time spent on your end facilitating those signatures and sending the 990s. I’d encourage anybody interested in learning more about partnering with us to contact me directly after the presentation.
So, now we’re going to cover some of the questions from the audience. Okay. First off, what does it cost to get registered?
James:Yeah. So, we covered this a little bit earlier during the call but it is very important, generally the biggest question we get. So, we’ll touch on it again. The state fees, they vary in every state obviously, but they’re often based on your organization’s revenue. So, sometimes there’s a sliding scale.
But a single state’s fee is not usually a lot, $25 or $50, sometimes $0. But that’s not to say that all states are like that. For instance, if you solicit in DC, they have a $412 50-state registration fee for everybody no matter what. So, it kind of depends on where you plan to solicit and what your organization’s unique situation is.
But as we said before, to get registered in all 41 states, the fees, generally total somewhere between $1,400 and $5,000 for most organizations. That will be the grand total, not a per state. Obviously if you’re not registering in all 41, your total is going to be less. But keep in mind the cost of registration is not just state fees. It’s the time it takes to do the research, to prepare the applications, to manage all the work.
So, in all, charitable registration compliance is not inexpensive. But it is necessary to being able to fundraise both freely and legally, wherever your solicitation and your fundraising activities take you.
Brock:Okay. Question number two — our organization only receive funds from a handful of states. Do we have to register?
James:Yeah. Remember, it’s normally the act of asking for donations that triggers registration, solicitation, asking. Now, accepting a gift out of the blue doesn’t necessarily trigger registration. But if you follow up with a donation asking for more, sending a letter back to that donor maybe a couple months later, that’s a solicitation. That means you have to comply with whatever those states require.
Plus, for your donor’s sake, they might come to expect that you are registered, as Brock said. It’s sort of trending that donors are being more informed and with so many organizations out there, legitimate or not, they want to be able to look you up and know who you are before they write a check or put in their card information onto your website.
Brock:Okay. Number three here — given the amount of regulations out there, how many charities would you say are currently noncompliant?
James:Raise your hand if that’s you. It’s a lot. It’s definitely a lot. But we’re out here to help change that.
The state requirements are what they are and meeting them, like you said, Brock, is really part of responsibly running a nonprofit. So, in that regard, you shouldn’t follow the pack trying to figure out what percent aren’t. You really should be a leader and take a step forward within your organization. But we do know how compliance is and we are simply just passionate about making it an easy process, as you might have been able to tell from our call today.
Brock:Here’s a question. We’re a very small organization. Are we really expected to register in all 41 states? It seems like it would be beyond our means.
James:Yeah. If you want to be proactive and ensure 100% compliance, then yeah, you can file a registration or exemption in every state where you solicit and that has a registration requirement. Now, we know that’s not always practical and perhaps you do too. Smaller charities that are concerned about the cost of registration, they can just go ahead and register in a certain number of states and exclude the rest from their solicitation activities. That might be another thing to think about.
Brock:Okay. Next question here. I haven’t heard of these requirements in the past. Why are we just hearing about them now?
James:No. These are not new requirements at all. In fact, they’ve been in place for a long time. But like we’ve mentioned a few times, there is really starting to be heightened awareness about these requirements, whether if it’s if you watch the news or have done any sort of donor follow ups in communication. But states, they generally want to know that only legitimate organizations are soliciting and that the donor’s money is going to the advertised cost. Now, simply registering with a state doesn’t guarantee that, but it certainly helps.
Many of these charities, they do find out about the requirements only after they lose a big donation or there’s a complaint filed against them or a state takes some sort of adverse action against them. Like Brock said, if that hasn’t happened to you, this is a good opportunity and take a proactive approach to compliance and you can help avoid those adverse consequences that might come up.
Brock:So, what action is required when we receive an unsolicited donation from a donor in another state or states, money that we didn’t ask for?
James:So, you didn’t solicit. Okay. That’s actually a really good question. We’ve talked a lot about registering prior to soliciting, but that is very possible. Sometimes somebody in another state finds maybe your address on your website and mails you a check and you receive what is really an unsolicited donation from another state.
So, before you accept that, it is important to review that state’s requirements before you accept that donation. It does depend on the state. California is kind of a big example in my mind. That state requires charities to register within 30 days of receiving a donation from that state. So, if you do decide to cash that check or accept that donation, then you have to realize that’s triggering a requirement. Before you accept a donation, take a look at that state, what they require, and make that consideration on your own.
Brock:Okay. Is there a uniform registration document that covers multiple states?
James:Yeah. As we mentioned earlier, the unified registration statement, that URS, that’s probably the closest thing that exists right now to a uniform registration document. But keep in mind, not all states accept that document. Many states, like we said, they have their own specific attachments and information that they request to be submitted with it and the form itself is long, it’s complex and the states really don’t like it.
So, if you do plan to file the URS, you do a have a different set of research requirements and you really have to be aware of all of these challenges before you decide to go through with it.
Brock:Is registration required if I plan to do independent grant writing for nonprofits in multiple states?
James:Independent grant writing. . . Yeah. I would have kind of a two-part answer to that. First of all, as we discussed earlier, applying for grand funding is a form of solicitation. So, you generally need to comply with the requirements of that state where the foundation is located before you submit an application. Now, whether or not you must register does not depend on the amount of the grant and it also is not contingent on you getting the grant. So, there’s a little bit of risk-reward there, but generally if you are applying for grant funding, states do treat it as solicitation.
Now, the other part of that question, you said independent grant writing — if you are not part of an organization, if you are a professional fundraiser or a fundraising consultant of some kind, it’s a completely different story. Not only might the organization that you’re raising funds for have to register, but you yourself and your firm might have to register as a professional fundraiser or a fundraising counsel in a given state. So, you have to take a look at that.
Brock:Which states are most active in enforcing this requirement and how do they determine what nonprofits are soliciting in their state?
James:Yeah. Let’s start again with the second question there. Pretty much every state has the authority in some way to impose a penalty on you, whether that’s a late fee or threatening letters. California threatens to, and they often do, revoke franchise tax exemptions. So, there’s some pretty serious penalties. South Carolina, they can assess up to $2,000 a year for a missed registration. That is one state in one year. So, that’s quite substantial for a penalty. There are definitely some bad states out there. But again, it’s just so much easier to file on time and stay compliant than to tempt fate and face these sorts of penalties.
The other part of the question was how do state agencies determine what nonprofits are soliciting? States generally become aware in just a few different ways. The biggest one is a donor filing a complaint or even making an innocuous call into the state asking for a charity’s registration status or who the organization is. But there are also states out there like Oregon that sort of assume that charities are soliciting.
So, as soon as you incorporate or register with the secretary of state, you actually start to get letters from the attorney general suggesting how and where to register the charity. So, there’s kind of a guessing game, but if a state thinks you have a presence there, then they’ll start to mail you hints that you should take action on this.
Brock:And finally how do I approach my board with this issue?
James:Yeah. I would say this is perhaps the best question that we’ve gotten because it’s so important. It really is so important. Your board, it has a lot at stake in your organization’s compliance, whether that is collectively, your reputation, and then even individually. Directors really have to consider the fact that they’re associated with an organization that is either in compliance or simply isn’t. The reality though is many board members aren’t fully aware of the requirements and like Brock was discussing earlier, the benefits of compliance.
Brock:So, throughout the webinar, which you’ll be able to review again and the slides that Steven sends you, we’ve put up some action steps for you to go ahead and start the conversation and we do have tons and tons of free resources available. So, please reach out to us, reach out to Brock to have those so you can share them with your board.
But ultimately the conversation starts with you. You have to stress the importance of compliance, you have to talk with your leadership team, your executives, your board and really champion the need for change in the organization. It really does end up benefitting everybody.
Steven:Thanks a lot, gents.
James:Yeah. No problem. Is that everything?
Brock:Yeah. I think we hit them all. So, we’re going to try and wrap it up here. If you’d like to discuss a quote for engaging with us or have any additional questions, I’d be happy to help. With that, I’ll hand it back over to you, Steven.
Steven:Cool. Thanks, guys, that was awesome. I know we’re running up against the hour and I want to be respectful of people’s time. I also know we did not get to all the questions. There were a lot of good ones. I don’t think that we could have answered them all in one day. We’ve got Brock’s email address on the screen. Brock, are you willing to take additional questions by email? Is that cool with you?
Brock:Absolutely. I encourage it.
Steven:Okay. Right on. If we didn’t get to your question, I’m sorry. But do reach out to Brock and James. Obviously they are super smart guys who know what they’re talking about. This is great. I was taking copious notes because I have no idea about any of this stuff. So, this is really valuable to me at least. I hope everyone else enjoyed it. So, Brock and James, thanks. Thanks for having out with us for an hour or so and taking time out of your day.
James:Yeah. Thanks for having us.
Brock:Thanks a lot, Steven.
Steven:Thanks to all of you as well. I know it’s a busy time of year. You’re probably working on year end appeals and Giving Tuesday and all that good stuff. So, thanks to all of you for hanging out for an hour with us as well. We’ve got lots of great resources on our website as well and invite you to check those out.
We’ve got some great webinars coming up. We’ve got a few yet to happen in December. We’re working on our 2017 schedule. We’re going to keep the benefits and tax and HR-type thing, keep that theme rolling. Two weeks from today — we’re taking next week off because it’s Thanksgiving — but two weeks from today, Danielle Mason is going to join us and talk about employee benefits. Obviously lots of changes may be potentially coming down the line with ACA and overtime rules and all that good stuff. So, check that out.
That’s going to be a really informative presentation. I’ve actually heard this presentation live and in person. Danielle was here in Indianapolis and I asked her to give it to all you fine folks via webinar. Don’t miss that. We’ve got some other great webinars planned for the rest of the year, just check our resources page and you’ll see all those. We’d love to see you again on another Thursday webinar.
So, thanks to all of you. Look for an email from me with the recording and the slides. I’ll get that out to you today and hopefully we’ll see you again in a couple weeks. So, have a safe weekend. Have a great holiday week and we’ll talk to you again soon.