Online Fundraising Compliance: 9 FAQs
When first starting out as a nonprofit organization, one of your top priorities should be regulatory compliance. Before you can focus on collecting donations for your cause, you must register your nonprofit. Fundraising is a regulated activity requiring registration in the large majority of states across the United States. The registration process varies by state, so it is important to understand which regulations apply to your organization.
Once you have completed the registration process, you are now ready to start fundraising! Your website and social media provide almost limitless opportunities to reach out to new people and enlist wider support for your nonprofit’s mission. Platforms like Morweb help you maximize the benefits of your website as an online fundraising tool. But before you go off and start soliciting online donations, there are fundraising regulations to be aware of.
As a web design agency that specializes in nonprofit websites, we often get questions from organizations who are just starting out and are unsure which regulatory requirements apply to them. We partnered with Harbor Compliance to help answer your burning fundraising compliance questions. Brock Klinger leads Harbor Compliance’s fundraising compliance sales team and is experienced with nonprofit formation.
Question 1: Where is registration required?
Brock: Charitable solicitation follows the donor, not the requestor, meaning solicitation occurs where your potential donor receives your request, not where you initiated it. A charity in Washington State that sends an email to a donor in New York has solicited in New York. This presents real challenges in the age of the internet when requests are being broadcast far and wide. Even with something like an email newsletter, chances are you don’t know where many of the recipients actually live. Determining where your nonprofit is soliciting (your fundraising “footprint”) is a critical first step in meeting state requirements.
In some states, you may have a reprieve from registering until you receive a specified number or amount of donations from state residents, while in others, you may need to register before a single donation request crosses the border. Your first task is to determine where you are actively soliciting as defined by the law. Then, you’ll need to examine regulations in each of those states to see what requirements apply to your activities.
Many charities with active online fundraising campaigns choose to meet registration and disclosure requirements in every state that imposes them so they can fundraise without borders. Another option is to include language in your solicitations limiting donations to specific states where you are registered. Then as your charity grows, you can expand your fundraising reach and register in additional states to match.
Question 2: How much does it cost to register a nonprofit?
Brock: Registration fees run in the $25 to $50 range. Many states adjust the fees based on gross annual contributions or revenue to ensure that registration is affordable for nonprofits of all sizes. In many states, registration is free; it’s just a matter of filing the appropriate paperwork.
To give you an idea of the cost of registering nationwide, for a nonprofit with gross annual contributions or revenue of $100,000, state fees would total approximately $1,400. For a nonprofit with more than $1 million in contributions or revenue, fees would be closer to $5,000. When you consider the fundraising potential presented by a license to fundraise nationwide, the cost is very reasonable.
For most nonprofits, the time required to research state requirements and prepare the filings is more of a concern than the fees.
Question 3: Are there exemptions for small charities?
Brock: Most states provide exemptions for smaller nonprofits. Unfortunately, this still requires filing for the exemption, so it doesn’t necessarily reduce the paperwork involved. In addition, you will need to file periodic renewals in many states to maintain your exemption.
Question 4: What happens if I miss a registration requirement?
Brock: Charitable solicitation registration is required under state law, and states can issue citations and penalties for failure to meet their requirements. This can damage your reputation and erode trust in your nonprofit, making it harder to attract donations in the future. In addition, regulatory compliance is one of the core responsibilities of your board of directors, who may be held personally liable for failing to meet applicable state requirements.
Question 5: Are there any other benefits to registering?
Brock: Putting in the time and effort to meet state requirements demonstrates good faith and sound governance, which are key to maintaining the trust of today’s savvy donors. In fact, research has shown that including state-required disclosure statements in solicitations results in higher donation levels.
Question 6: What activities count as fundraising?
Brock: From the perspective of the law, charitable solicitation is the act of asking for donations. How the appeal is made doesn’t really matter. Whether it’s a night of charity Bingo, a letter of request from your executive director, or an appeal on your Facebook page, any request for donations is a form of charitable solicitation.
It also doesn’t matter if the request fails to bring in a donation. It’s the request itself that counts, not receipt of funds in response.
Question 7: What are the regulatory requirements for fundraising?
Brock: In 41 states, nonprofits must register with state charity offices to solicit donations from their residents. In 25 states, you must include special disclosure language in all of your solicitations. Our online Fundraising Registration Guide includes a charitable solicitation registration map so you can compare the requirements in all 50 states at a glance. You’ll also find detailed information to help you register in each state, including links to state agencies, filing instructions, fees, and renewal information.
Question 8: Why do states impose these requirements? Don’t they understand how stretched our staff and budgets are already?
Brock: Nonprofits have access to privileges such as tax exemption and permission to solicit tax-free donations. In exchange, states require basic financial data and contact information to ensure that fundraising appeals made to their citizens are coming from legitimate charities. Registration and disclosure requirements provide transparency and access that are key to maintaining the public’s trust.
While you know your charity is doing great work, and that you’re working to make every donation count, you don’t have to look far to find news of scams such as this fake charity raffle for veterans in New York. Registration is one tool states employ to prevent abuse in the nonprofit sector.
Question 9: Is there an easier way to register? What if we don’t have capacity for this?
Brock: While registration is relatively inexpensive, the time involved in researching requirements, preparing filings, and maintaining renewals in all the states where you’re soliciting can be a massive headache and a drain on precious staff hours. Instead of taking time and energy away from your mission, you can turn all of the state paperwork over to the compliance specialists at Harbor Compliance. Just get in touch, and we’ll be glad to help.
Registering your organization is the first step to nonprofit formation. Only after your nonprofit is registered can you consider fundraising strategy. Keep in mind that your fundraising strategy must comply with the regulations of the states in which you fundraise.
Fundraising compliance also applies to online donations through your website. For years, Morweb has helped nonprofits scale their fundraising efforts through the use of our powerful website modules. Through our work with over 1,500 nonprofits across North America, we have learned what organizations need to create a strong online presence. If you are a nonprofit that is just starting out, book a free consultation with our team to discuss online fundraising strategy.
For specific questions about registration requirements, don't hesitate to reach out to the Harbor Compliance team.
Harbor Compliance is not an accounting or law firm and does not provide tax, financial, or legal advice.
About the Author
Brock Klinger leads Harbor Compliance's fundraising compliance sales team. He handles charitable solicitation, professional fundraising, commercial co-venture, and charitable gift annuity client relationships. Brock's work also includes nonprofit formation and corporate lifecycle solutions such as nationwide registered agent service.
Brock previously worked as an executive search professional focused on legal, compliance and regulatory assignments for an international retained search firm. He graduated from the Pennsylvania State University with a degree in finance. You can email questions to Brock directly at firstname.lastname@example.org.