By Sharon Cody, J.D., Partnership Manager at Harbor Compliance – a leading provider of compliance solutions for nonprofits. Her more than 30 years in the nonprofit sector have made her passionate about educating nonprofits on the role of compliance as both a best practice and an industry differentiator.
2020 has made it clear that online fundraising is here to stay. Online fundraising makes it simpler for your donors to give, and easier for them to make recurring donations to support your mission. It also allows you to reach broader audiences. As you take advantage of new opportunities to use online fundraising to grow and engage your donor community, make sure that you know what you need to know to be compliant.
Simply being recognized by the IRS as a nonprofit organization does not permit you to fundraise. States are the regulators of charitable solicitation. Fundraising registration is generally required in any state in which you want to solicit funds, and states deem that solicitation occurs where your fundraising request is received. This means that before you fundraise, you may be required to first register in each state where the donors you will solicit are located. This may seem simple, but there’s a catch. States define solicitation as the act of asking for donations, regardless of the method of solicitation. It is simple enough to know where you are soliciting in person, sending a letter, or submitting a grant application. But if you use online methods such as email or a website “donate now” button to fundraise, in what states are you soliciting?
In 2001, the National Association of State Charity Officials (NASCO) released a set of recommendations called the Charleston Principles to supplement fundraising laws that had not kept pace with technology. The principles suggested that registration should be required if:
- if you use an interactive webpage such as a “Donate Now” button that allows donors anywhere to give to you,
- if you send targeted emails to a specific person you know is in a given state, or generally encourage people in that state to donate to you, or
- if you receive ongoing, repeated, or substantial donations from donors in a state.
Here are more details on the compliance requirements for the most common types of online fundraising.
You now know that fundraising solicitation simply means asking for donations, regardless of the means, and you know that solicitation happens wherever the message is received. There’s another key to understanding fundraising compliance. It’s that solicitation occurs regardless of whether the solicitor receives a donation in response. This means fundraising requests made on your online donation page may well be solicitations in every state. It also means that your website’s “Donate Now” button or banner may be nationwide solicitations.
That said, these online fundraising methods may obligate you to first register in many of the 41 states that regulate fundraising. Whether you must register in a specific state depends largely on your mission and how much you receive in donations. Here’s a clickable map with state-specific details. In a recent study by Fidelity Charitable, 8 out of 10 donors reported that nonprofit transparency and trustworthiness are primary factors influencing their giving decisions. Understanding and meeting state solicitation requirements will not only help ensure your compliance and allow you to avoid penalties; it will protect your reputation and win the trust of new supporters.
Most nonprofits work hard to connect with donors through multiple channels, including social media. If you make fundraising requests on social media, understand that many states view such social media requests as solicitations within their borders. In order to be compliant when making fundraising requests online, you may be required to register nationwide. It’s important to understand that regardless of the methods you use to solicit donations, your compliance obligations will continue beyond initial registration.
Once you have registered to fundraise in a state, you must regularly renew that registration and file an annual report of details of your fundraising activities. Doing so will keep you listed as registered and in good standing in the state’s searchable online charity database.
If you create a page on your website for Giving Day donations or if you solicit Giving Day donations via email and social media, you may also need to seek nationwide fundraising registration. Prospective donors can access those online solicitations anywhere and at any time, and state registration requirements are triggered by the act of soliciting, not by the receipt of funds.
Giving Days present an opportunity for you to reach new donors to fuel your mission. State charity regulators’ websites make it easy for potential donors to check your fundraising registration status. Make sure you’re compliant so you can win and maintain the trust and donations of those new supporters.
Online auctions, raffles, and other charitable gaming can be a fun way to gain donations and support for your mission. These virtual events may require not just prior state charitable solicitation registration, but also gaming licenses.
In addition, state-specific fundraising disclosures may be required for events, just as they are for other methods of solicitation. 25 states require nonprofits to include some form of disclosure statement when communicating with donors, whatever the method of communication. Disclosures usually inform donors where donors can obtain information about the nonprofit. Typically, disclosures must be included in solicitations and donor correspondence. However, each state’s disclosure requirements differ. This fundraising compliance guide can help you make sure you and your online auction or other virtual event meets state requirements.
Online fundraising compliance can strengthen your credibility and help you stand out from the crowd. Today, potential donors have abundant giving opportunities and trust matters. So what are your options for compliant online fundraising? Register to fundraise or seek a registration exemption in all 41 states that have such a requirement, or accept donations only from those states where you have registered by putting a disclaimer on your social media donation requests and “Donate” webpage. Most nonprofits want to be free to use online fundraising to broaden their circle of donors and boost contributions to support their mission. If you’re among them, there are two options to achieve nationwide fundraising compliance.
First, you can meet the challenge of obtaining and managing your nationwide fundraising registration in all 41 states yourself with the use of educational resources like Harbor Compliance’s free guide. This is often quite challenging. The other option is to outsource registration to a compliance solutions provider such as Harbor Compliance, or a law firm. Many nonprofits find that this option provides them with peace of mind, and allows them to focus on their mission. Fundraising compliance is both the law and a best practice. Make it a priority for 2021.
Harbor Compliance does not provide tax, financial, or legal advice. Use of our services does not create an attorney-client relationship. Harbor Compliance is not acting as your attorney and does not review information you provide to us for legal accuracy or sufficiency.