For nonprofits seeking to broaden their donor base, online fundraising is a must. While the technology grows ever more sophisticated, however, the legal requirements may be difficult to navigate. Here’s a guide to help plot your course.
If you are a tax-exempt nonprofit (a charity) and plan to do any type of fundraising in any of 40+ states and the District of Columbia, you are required to register and be approved for fundraising before you may begin. After that, you must file regular state registrations to continue fundraising. Some states don’t require registration for organizations such as religious institutions and law enforcement nonprofits, but most organizations are required to register.
In Massachusetts, charities must register for a Certificate of Solicitation with the Massachusetts Attorney General’s Office prior to soliciting donations, and they must subsequently file annual financial reports. Many states including Massachusetts require charities that use professional solicitors or fundraising counsel to file copies of their contracts for these services. Charities that wish to solicit in multiple states with registration requirements must comply with each state’s registration requirements.
What exactly is considered “fundraising” by state regulators? Fundraising that takes place in a geographic location within a state such as a benefit dinner or an auction are always considered by regulators as “fundraising.” A fundraising campaign undertaken via US mail, email, or phone that targets individuals or companies in specific states is similarly considered fundraising.
But what are the rules for less traditional online fundraising such as “Donate Here” buttons on websites? This fundraising doesn’t take place in a specific geographic location and it isn’t targeted to anyone in particular. Donations can flow from anywhere. For the most part, existing laws have not taken into consideration these new channels of fundraising. Is online fundraising considered solicitation in every state, some states, or not solicitation at all?
As far back as 2001, the National Association of State Charity Officials issued the “Charleston Principles” in an effort to clarify the rules. These principles were somewhat helpful, but were not law and were not adopted by many states. A “Multistate Registration and Filing Portal” was also initiated by regulators to address the daunting challenge of complying with multiple state registrations, but the portal has yet to be made widely available.
All Hands on Deck
The situation became even more complex when fundraisers saw an opportunity in “crowdfunding.” Billions are now raised each year through an ever-growing number of platforms such as AmazonSmile, Charitybuzz, and Network for Good. Some are just payment processing services. Some control the funds that are raised. Some take donations on behalf of many charities simultaneously. Others offer an array of services and tools for online fundraising.
The Way Forward
How do you get through the fog to stay legally compliant? Here are the basic principles:
- If you use an online platform that is not a donor-advised fund, you need to register. Compliance requirements vary from state to state, but generally, you should:
- Register in your state of domicile and file all required contracts with professional solicitors and/or fundraising counsel.
- Register in any other states:
- In which you follow up fundraising with direct communications via email or other means;
- In which your campaign is targeting people or businesses; and/or
- From which you receive donations on a repeated and “ongoing” basis or a “substantial” basis (as defined by the state).
- Register if you send email solicitations, just as you would a letter or fax.
- Registration is unnecessary if you use your website or social media simply to inform the public about your organization.
- Periodically check fundraising platforms and social media to make sure your organization’s name is not being used for unauthorized fundraising.
Whatever method you use to fundraise, these rules still apply:
- Make sure donors understand that you may use donations as you see fit (donors may not direct how donations are used).
- If you promise to use donations for a particular purpose, follow through.
- Provide prompt written acknowledgment to any donor who makes a contribution of $250 or more via any method.
- If you give something to donors in return for donations (e.g. attendance at dinners or tote bags), your written acknowledgement should state the fair market value of the services or goods received and indicate that only the portion of the donation that exceeds this value is tax deductible.
There may be still guesswork in compliance. You may need to balance certainty with practicality. The inevitable evolution of fundraising technologies, combined with an absence or patchwork of state statues, may yet leave you adrift. Compliance is critical, however, to maintain tax exemption and the trust of donors. If you have questions, seek advice.