So you have your IRS determination letter in hand – congratulations! Your charity is officially recognized as a 501(c)(3) organization. You’re all set to begin raising money in the U.S., right?
Even though the IRS regulates tax-exempt status nationally, there are still individual state regulations and laws to consider before launching your fundraising campaign.
Most states in the U.S. require all charities to register with the appropriate state office in order to solicit funds there – meaning charities must submit the correct forms (there are often MANY to choose from!), financial documents and fees before soliciting in that state. Each state has different requirements – and for most states, registration is something your charity must complete yearly to avoid being penalized and threatening your rapport with donors.
Global Impact’s Charity Services team has handled both our own and many of our Charity Alliance partners’ state registration filings for years. To kick us off, we asked Andrea Jensen, our state registration manager who has worked in the field for 17 years, for her insight on the process:
“For the past couple of years, the state charitable registration world has been making some exciting changes. Some states have created new online platforms. Some states have adjusted their signature requirements to make things easier on charities during the limitations of the pandemic. And yet, some states continue to maintain their status quo including original signatures, submissions by mail and even using a fax machine. You read that right, fax machines still exist. One thing is for sure, this work is never dull and there is always something new to learn. Two things make doing this work so rewarding. First, getting to work with an amazing, dedicated and diligent team in Charity Services at Global Impact. And second, getting to participate in a very small way in advancing the work of our charity clients who are making the world a better place.”
The down-low on state registration.
Anyone who does state registration for a living can tell you that it keeps you on your toes and gives you some wild stories. The requirements you run into can be tedious, unique or downright archaic. Here are just a couple things you probably didn’t know about the process:
- Black ink REQUIRED. It can already be difficult to get physical signatures, but some states go even a step further by specifying the ink color – and make no mistake, they WILL reject your application if you dare to write in blue ink. We’ve been there…
- Dust off the ol’ fax machine. Depending on your generation, you may have never once used a fax machine. Get ready to brush up on your 20th century tech skills, because you’ll need them.
- Un-rewritable CDs are still a thing. Be sure your files are correct before you pop it out of the CD-ROM your computer may or may not have, because you can’t use a rewritable CD, either. At least it isn’t a floppy disc?
- Snail mail for the win – and RIP trees. Some offices only accept paper applications – which means you need to keep a printer, paper and plenty of shipping labels close by. Not what you’d call environmentally friendly.
- Keyboard shortcuts are your friend. Acquaint yourself with Ctrl-C, Ctrl-V and Ctrl-Z on your keyboard, because you’ll be typing in the same information over and over and over again on each application.
- Hope for good hold music. Most state offices only have one tune that plays on repeat and sometimes … you can be waiting for a while, so get comfortable and maybe refill your coffee before you get started.
Do we need to register? Defining “solicitation.”
If you’re planning on fundraising in the U.S., you’ll need to register with the states you plan to solicit (i.e., ask for donations) in.
The term “soliciting” is broad – it covers almost every form of fundraising from workplace giving campaigns, radio or TV advertisements, phone calls, events and applications for grants. This includes social media campaigns, emails or even having a donate button on your website. It also includes retargeting donors (i.e., reaching out after they contribute).
To put it bluntly, if a donation appeal can be answered by anyone in the U.S., then it counts as solicitation. And in this digital age, you can’t control this possibility unless you want to avoid social media, retargeting donors or displaying a donate button – and let’s be honest, those things are fundraising 101 and key to ongoing success.
This is why our recommendation is to register in every state to ensure that you cover all your bases – the last thing you want is to restrict your fundraising or risk your charity’s standing with state offices AND donors.
Why register? Promoting transparency and protecting funds.
Charitable registration is required by 37 states, plus Washington, D.C. In addition to these filings, some states require corporate registrations or an exemption depending on the circumstances. Many of them require annual upkeep. That’s a lot of filings, and a lot of work – enough to make you question if you really want to register with many or all states in the U.S.
Let’s get down to it – why should you register? What does state registration do to benefit philanthropy as a whole, and how can not registering come back to haunt you down the road? Here are the answers.
- Registered everywhere = solicit anywhere. Your charity might be soliciting without realizing it or without even directly pursuing donations. Being registered in every state helps organizations reach as many donors as possible while also offering protection from any legal consequences.
- Reduce opportunists. Americans gave an estimated $449.64 billion to charities in 2019. This massive quantity of donations is crucial to charities. Unfortunately it also attracts opportunists looking to take advantage of donors. State oversight helps protect donors to ensure funds go to legitimate, responsible charities – while at the same time helping the state catch fraudulent organizations.
- Build trust with current (and future) donors. Many states maintain an online public database of charities to provide donors with a trustworthy resource when deciding on their charitable gifts. These databases often includes a charity’s status – whether they are registered, not registered or out of compliance (e.g., the Pennsylvania Department of State – Charities Search). Being out of compliance can make it difficult for your charity to acquire new and retain current donors – likewise, a donor is more likely to trust your organization if your status shows as compliant, helping you secure future donations.
- Avoid financial and other repercussions. According to a recent Firespring webinar, failing to comply with state regulations can result in severe penalties. Just like the regulations, the penalties and consequences vary by state. For example, in California, “Board members can be held personally liable for any fines and penalties. Other consequences include forced financial audits, loss of state tax exemption, and in the most extreme cases, loss of federal nonprofit status.” I think we can all agree that these are best avoided by any charity, for many reasons.
Registered or not: Where to go from here.
Have you read this and realized you aren’t as compliant as you thought? Many organizations are not trying to circumvent the law – mistakes happen. It is how you react to this oversight that matters. Our advice: Move on this now. From our own experience, we’ve found many state offices are likely to be lenient if you come forward wanting to make things right. It’s definitely preferable to step up and try to become compliant before the state contacts you.
However, it still remains that the act of registering or getting back into compliance with state offices is very detailed and time-consuming work, prone to mistakes and missteps. Organizations must do the research; collect all the materials, signatures and fees; send them off; then stay on top of the application to make sure it goes through – and be ready to correct rejected applications. Ideally, you want to get it right the first time. Some state offices take weeks to review your application and, once accepted, you must keep meticulous records and track the next year’s due date.
It’d be better for your staff to be able to maintain their focus on your organization’s mission!
Global Impact has been providing state registration services for 20 years, and we have several people whose entire job is to ensure compliance with state registration for our charity partners. We know what we’re doing and can minimize the chance of errors. For registrations that require some extra revisions or effort, we have the time to work with the state offices to make sure your organization is approved. Here are just a few of the ways Global Impact can help maintain your charitable and corporate registrations:
- Complete registration and renewal forms and forward them to you. All you need to do is review and sign.
- Ensure that renewals are submitted on time. When on extension with the IRS, we file the applicable state extension requests on your behalf.
- Follow up on the status of your applications and confirm your compliance after the filing.
- Respond and follow up with state offices if any issues arise or additional information is required.
- Track all due dates to make sure we are prepared for the next year.
- Host a centralized system for all of your charitable and corporate state registrations with real-time status updates.
- Maintain copies of your filings, state notices and certificates.
- Coordinate registered agents for your charity upon request.
- And of course, we are always available to answer any questions you may have!
Once your registration is ready to go, here are some fundraising resources to help up your game this year:
- 5 tips to drive fundraising as the US reopens
- Keep calm and campaign on: How employee engagement teams adapted giving programs for impact during a time of crisis
- Workplace donors: How your nonprofit can reach this generous audience even when they aren’t working from the office
- Playing our way to a better world: A fundraising strategy guide