We first discussed Charitable Solicitation laws in our post, The Long Arm of Charitable Solicitation Law. Here, we outline what it takes to comply. The major driving force behind becoming a tax-exempt nonprofit is the ability to solicit tax-deductible donations; yet, too many nonprofits planning to conduct any form of organized fundraising are unaware of their state’s registration laws.
In Arizona, for example, a Contracted Fund Raiser who fails to register can be charged with a class 6 felony. Here we attempt to provide a broad understanding of Charitable Solicitation laws throughout the US and hopefully some direction to keep you compliant.
The Three Types of ˜Roles’ Regulated by Charitable Solicitation Laws
501(c)(3) organizations are considered charitable under state Charitable Solicitation laws and can fundraise; however, most states also have a clause defining non-501(c)(3) organizations as charitable and able to fundraise. Qualifying as charitable if you are not 501(c)(3) can be very complicated and every state addresses this differently. If you are not a 501(c)(3) and you think you qualify, you must consult your local laws before you act.
This means a person who ‘plans, conducts, manages, carries on, advises or acts as a consultant’ in connection to a charitable solicitation campaign. Professional Fundraisers do not actually solicit donations.
This means a person who actually goes out and solicits donations. They are responsible for asking for the donations, taking the donations and making sure the donations get deposited into the charities bank account. Many states require Professional Solicitors to file recurring financial reports with the state.
Although these are the typical terms and definitions used, they are not universal. For example, Arizona calls Professional Fundraisers Contracted Fund Raisers and allows them to ˜actually solicit donations.’ Whereas some states, like Minnesota, do not distinguish the two roles and conceive of only a Professional Fund-Raiser who can both consult and solicit.
For the states that do regulate (as of January 2013, 8 do not, including Delaware, Idaho, Montana, Nebraska, Nevada, South Dakota, Texas, and Wyoming), the broad requirements are pretty consistent. Below is a summary, with an emphasis on Arizona.
When do I Need to Register?
Whether you are a charitable organization, a professional fundraiser or a professional solicitor, you must register with the appropriate state agency prior to making any solicitations. Penalties in Arizona range from a class 1 misdemeanor to a class 6 felony and can be accompanied by up to a $1000 fine for each violation.
Who do I Register with?
States that regulate Charitable Solicitations have a state agency who manages registrations. Commonly it will be the state’s Attorney General, Secretary of State, or Department of Consumer Protection. Most states have forms online. In Arizona you can find the necessary forms here.
What are my Responsibilities as a Charitable Organization?
You must register with your respective state agency, before soliciting [your] first contribution, whether through a contracted fund raiser or otherwise. Late registrations are subject to a fine (in Arizona it is $25, other states vary). Be sure to check with your state’s governing agency to see what forms are required, but have your IRS tax exempt determination letter ready because that will almost surely be required.
You must also pay attention to the conduct of the professional fund raisers and solicitors you hire – they may be subject to stringent regulations. For example, in almost every state, the fundraiser must disclose certain information to each potential donor such as, on whose behalf they are soliciting donations.
Remember, if your state conceives of professional solicitors, they cannot solicit or be in custody of donations, so be sure they aren’t. Professional fundraisers must deposit secured donations in the charitable organizations bank account within a set number of days and a receipt must be given to the donor. For example, in Arizona, they must make the deposit within seven (7) days of receipt.
Finally, professional fundraisers, in almost every state and including Arizona, are required to file financial reports with the governing state agency and the charitable organization either within 90 days of the campaign’s conclusion or, if the campaign is longer than one year, within 90 days of the campaign’s anniversary. Check with your state or with a qualified attorney to know the requirements in your state.
What will Registration Cost?
Most states require registration fees and a bond to be filed with the state. Fees can apply to the charitable organization, the professional solicitor and the professional fundraiser. At the time of this writing, Arizona does not charge charitable organizations a registration fee; however, California requires a $25 fee. Washington charges charitable organizations $60 for an initial registration and $40 for a renewal.
Registration fees for professional solicitors can range anywhere from $10 to $1000, Arizona charges $25. Finally, professional fundraisers, because they are in custody of donations must secure a bond and record it with the state. If the state requires a bond, the amount can vary from $10,000 to $50,000. Arizona requires a $25,000 bond.
What are My Ongoing Responsibilities?
Most states require that charitable organizations re-register annually. Check with your state to see the deadline for re-registration, keeping in mind late fees may apply. In Arizona, charitable organizations must file an annual registration form between September 1 and September 30 every year following their initial registration year. It is your responsibility to re-register; the state will likely not remind you.
Most states require the contract entered into between the charitable organization and the professional solicitor or fundraiser be filed with the state. Any material change to that contract must be reported to the state’s governing agency within a pre-determined set of time “ Arizona requires reporting within 60 days of any material change.
Charitable Solicitation registration and compliance requirements can vary drastically from state to state and failure to comply can have both criminal and civil penalties. Some states do not regulate Charitable Solicitations, some states regulate them loosely, and some states have very nuanced regulations (California is the most poignant example). Be sure to check your state’s requirements and consult with a qualified attorney to ensure compliance.
If you are seeking advice or assistance regarding commercial co-venturer contracts, disclosures and registrations, contact us at [email protected] or 602-456-0071.
Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C. Ellis advises nonprofit and socially responsible businesses on corporate, tax, and fundraising regulations. Ellis is licensed to practice in Washington and Arizona and advises nonprofits on federal tax and fundraising regulations nationwide. Ellis also advises donors with regard to major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form.
 A.R.S. § 44-6552 (A)