Before You Activate the 'Donate Now' Button, You Need to Check Your Registration
Question: We are loyal readers of Grant Guru, and we followed your advice in trying to diversify our funding streams. However, we hear that we need to update our state charity registrations because we have a "Donate Now" button on our website. Can you help?
Grant Guru: Good question. Fundraising programs, especially new efforts through social media, raise the likelihood that you will raise money not only within your home state, but in multiple states. However, you can run afoul of state charity registration laws and new IRS rules. This week we turn to Tony Martignetti, managing director of Martignetti Planned Giving Advisors, for advice.
If you're sending donation requests by email then you need approval from officials in states where they land, Martignetti says. Ditto if you send appeals through the Postal Service. If you have online giving, then there are a bunch of states that must say "OK" before your "donate now" button goes live, Martignetti says.
These are all examples of solicitations under the Charity Registration laws. Under these laws --which, differ in each state -- your nonprofit must have approval before it can conduct its solicitations. In some states, like Florida, Arizona and Pennsylvania, there are criminal penalties with fines for non-compliance. There are civil penalties in California, New York, Illinois and many others. Under principles of fiduciary liability, your board members can be liable for your organization's criminal or civil wrongdoings, Martignetti says.
On top of all this, the IRS has stepped in. The new Form 990, which nonprofits raising over $25,000 must file annually, asks two questions about your compliance with registration laws in states where you solicit, Martignetti says.
The definition of "solicitation" varies across the states. In states like Florida, Georgia, Arizona, New Jersey and New York, the mere existence of a website that accepts donations triggers the registration requirement. In California, Colorado, Connecticut, Massachusetts, Oregon and Utah, the requirement is triggered if you're using email, U.S. mail or advertisements to induce residents to your "donate now" button, Martignetti says.
In every state, postal mail, meetings and events that include an appeal for gifts are registration-requiring solicitations. It doesn't matter how a state looks at your website if you're dropping mail or meeting people there, Martignetti says.
If your organization is small and most of your gifts come from just a few states (or maybe only one), here's an enormous time-saving tip: Put a disclaimer on your giving page stating that you only accept gifts from certain states -- and name them. That way you don't have to register in any other state; you're no longer soliciting in those states, Martignetti says.
"Because I'm risk averse, I recommend going one step further if you use drop-down menus. In the state menu, only list states you're accepting gifts from," Martignetti says.
The best way to get started is by following the adage "charity begins at home." Register with your home state. Next, register in states where you conduct the most solicitations. If you're strictly doing Web-based fundraising with no inducements to your site, start with the most populous state (California) and see if it considers the existence of a website, without inducements, a solicitation. California does not. Continue in the same fashion with the second most populous state; then the third, Martignetti says.
If you solicit in other ways, with or without a donation-accepting website, then query your own database. Select those you solicit and pull their state of residence, listing the states in descending order by frequency of constituent. The first state will be the one where you send the most solicitations, Martignetti says. Most states -- not all -- have exemptions based on charitable mission, gross revenue or in-state revenue. You might be exempt in a good number of states. Be aware that in some states exemptions have to be approved. You can't just decide you're exempt and move on, Martignetti says.
Plan to do this over a 12- to 18-month period. There's no way you'll be in full compliance immediately. But you'll be on your way with your most important states, in the right sequence, if you follow the plan, Martignetti says.
"Eventually, you need to be in compliance to protect your nonprofit from fines and other penalties, and your board members and officers from liability," Martignetti says.
Tony Martignetti is managing director of Martignetti Planned Giving Advisors and has been supporting the fundraising needs of nonprofits since 1997. He is the author of Charity Registration: State-by-State Guidelines for Compliance. He's also at LinkedIn, Twitter, and Facebook.