Fundraising – When to Seek Permission
Fundraising to carry-out a nonprofit’s charitable purpose is necessary for the survival of the organization. However, holding a 501(c)(3) tax exemption does not give unlimited permission to fundraise. Many nonprofits are unaware of charitable solicitation laws within their own state much less other states where they may be asking for and/or receiving contributions.
Nonprofits that solicit donations or funds (directly or indirectly) must register in its home state if its home state requires registration. Nonprofits may also be required to register outside of their home state depending on where the donors its solicitations are reaching reside the amount and frequency of donations. Examples of fundraising that could trigger the duty to register include the following:
Traditional fundraising techniques include direct mail, telephone solicitation, door-to-door fundraising, individual asks, special events, grant applications, and corporate solicitations. If a nonprofit conducts any of these direct methods of fundraising, it must register in its state of domicile and any state its solicitation is targeted to reach if those states regulate fundraising. Some states may not require an organization that solicits grants solely from foundations and governmental units to register if that is the only method in which it solicits donations in the state.
Fundraising through radio, television, newspaper and magazine ads raises special compliance considerations. If the solicitation is distributed or aired locally or regionally, the organization must register in each state where the residents of such state can encounter the broadcast or periodical. If the advertisement or program is distributed or aired nationally, the organization must register in all states that require registration.
Internet fundraising includes solicitations delivered via email, a website, or social media. While email is digital and included in the list of Internet based fundraising methods, for registration purposes email is treated like direct mail. Therefore, the organization would be required to register in the state(s) where the individual(s) receiving the email is located.
For online solicitation mediums such as having a donate now button on the organization’s website or the website of a fundraising intermediary, or being the beneficiary of a social media or crowd funding promotion, registration may be required.
Some states follow the Charleston Principles which offers a guideline based on repeated, substantial or ongoing donations received through these methods. However, the organization may be required to register with those states that have not adopted the Charleston Principles and where it has met the Charleston Principals repeated, substantial or ongoing donations test. If the organization receives an unsolicited donation via a donate button on its website it may not trigger a duty to register in states that follow the Charleston Principals. However, once the organization takes that individual’s contact information and sends a request for a follow-up gift, that is considered a solicitation and triggers state registration requirements.
Auctions, raffle/bingo, vehicle, cause-related marketing
Many states restrict raffles, bingo and other forms of gaming. Violations of gaming laws can result in criminal liability. Some states offer exceptions for nonprofits but the rules must be strictly adhered to. Many such states require nonprofits engaging in gaming activities to obtain state and local licenses.
Contracts with Professional Fundraisers
If the nonprofit organization engages professional fundraisers (Professional Solicitor, Professional Fund-Raising Counsel, Commercial Co-venturer) to assist with fundraising or strategy for any of the methods listed above, the nonprofit and the professional fundraiser may both be subject to filing requirements depending on the state and type of assistance provided. For more information, see our blog post on Working with Professional Fundraisers.
Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C. licensed to practice in Washington and Arizona. Ellis advises nonprofit and socially responsible businesses on corporate, 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.