Arizona is one of only a handful of states that does not require charitable organizations to register before soliciting contributions. Governor Brewer signed HB 2457 in 2013, and since September of that year, most Arizona charities have not had to file a Charitable Organization Registration with the Arizona Secretary of State. That repeal is good news at home, but it creates a trap for Arizona nonprofits that raise money outside the state. Forty-one states and the District of Columbia still require registration before a charity solicits within their borders, and Arizona’s exemption does not travel with you.
Below are the traps we see most often when an Arizona-based charity starts fundraising nationally.
Assuming home-state treatment applies everywhere.
Because Arizona charities never register locally, many assume registration is optional generally, or that it only matters in states where they have a physical presence. Neither is true. Registration obligations are triggered by where the donor is, not where the charity is located or incorporated. An Arizona charity soliciting a donor in California, New York, or Washington is subject to that state’s registration law regardless of Arizona’s own rules.
Believing the threshold is based on in-state receipts.
Most states set their registration threshold, commonly $25,000, based on the charity’s total national gross receipts as reported on Form 990, Part I, line 12, not on what was raised from residents of that particular state. An Arizona charity that raises the bulk of its revenue at home and only a small amount from an out-of-state donor list is often still over the threshold and required to register. New York is the one notable exception, exempting charities that raise less than $25,000 within the state and do not use a paid fundraiser.
Treating a donate button as a one-state problem.
A website donate button, a social media fundraising push, or an email appeal reaches donors in every state simultaneously. Some states apply the Charleston Principles and look to whether the charity’s offline activity would otherwise trigger registration in that state. A growing number of states have moved away from that standard and instead look at whether solicitations there are repeated, ongoing, or substantial, which online fundraising often satisfies regardless of intent.
Forgetting that grant applications are solicitations.
An Arizona nonprofit applying for a grant from an out-of-state foundation is soliciting a contribution in the eyes of most state regulators. Unless a specific exemption applies and has been approved, that grant application can trigger a registration requirement in the foundation’s home state, even if the charity never contacted an individual donor there.
Overlooking the contracted fundraiser rule.
Arizona’s repeal covers charitable organizations, not professional fundraisers. If an Arizona nonprofit hires an outside fundraising firm or paid solicitor, that firm is still required to register with the Arizona Secretary of State before conducting a campaign on the charity’s behalf, and the charity should confirm that registration before the campaign begins.
Assuming the repeal covers every charity.
The repeal was not universal. Veterans’ organizations soliciting in Arizona are still required to register with the Arizona Secretary of State. An Arizona-based veterans’ charity that assumes it is covered by the general repeal, along with every other Arizona nonprofit, will find it still has a home-state filing obligation before it even gets to the other forty-one states.
Missing renewal deadlines tied to the Form 990.
Once registered elsewhere, Arizona charities often lose track of renewal dates because there is no equivalent home-state deadline to anchor the calendar. Renewal deadlines in other states are frequently tied to the charity’s fiscal year end and Form 990 filing or extension deadline. A missed IRS extension can cascade into missed state renewals across multiple jurisdictions at once.
Assuming noncompliance goes unnoticed.
State regulators increasingly cross-reference Form 990 Schedule B and grant disclosures against their registration databases. A charity that shows up as a grant recipient or as soliciting online in a state where it is not registered can expect a notice from that state’s Attorney General. Penalties range from fines to an Assurance of Voluntary Compliance that must then be disclosed in every other state where the charity is registered.
Arizona’s repeal simplified compliance at home. It did not change what the other forty-one states and DC expect from a charity soliciting their residents. Before launching a national campaign, an Arizona nonprofit should map where its donors actually are and register accordingly, rather than assuming Arizona’s rules set the standard.
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 federal tax and fundraising regulations nationwide. Ellis also advises donors concerning major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form. This post is for general informational purposes and does not constitute legal advice.