Multi-State Registration = Multiple States of Confusion

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Even state officials who regulate charitable assets and charitable organizations realize that the current system of inconsistent state-by-state registration for fundraising is too cumbersome, imposing costly burdens and confusing complexities. Many of them stepped forward four years ago with a vision of a “single portal” website charitable nonprofits could use to register in multiple, or even all, states. As their plans move closer to reality (launch is slated for late 2018), we are certainly among its strongest supporters. However, in order for it to be a success, we’ve all got to pitch in and work together – nonprofits, together with state charity officials.

Background on the challenges of multi-state charitable registration

State laws in the majority of states require that before a nonprofit solicits a charitable contribution in a state, the nonprofit must “register.” Importantly, the registration must be done not only in the state where the nonprofit is located, but also in other states if its activities trigger registration in those states. Registration requires completing and filing forms that request all sorts of information about the nonprofit, its board members, its finances, and the ways it raises money. For some states, submitting information that a nonprofit typically reports on the IRS Form 990 is sufficient – many other states require a host of additional information and multiple attachments.  And, of course, there are filing fees, and deadlines, renewal filings, and exemptions - that vary state-to-state - and a handful of states that don’t require anything. We’ve written about these confusing state-by-state variations, and the burden of keeping updated with all the states’ different requirements, not to mention the costs (time + filing fees) of preparing and submitting the registration forms.

Complicating matters is that many of the state laws were written in a different era when the goal was to stop scam artists using the phone and US mail for fraudulent schemes. Now “solicitation” activity (which is usually defined as asking anyone for a contribution) may also apply to requests via emails, text messages, or Tweets, as well as donate buttons on websites and crowdfunding campaigns, virtual reality games, and who knows what’s next. The new giving experience knows no state boundaries. In some cases, the nonprofit doesn’t know where the donor lives, so it may not even be clear to the nonprofit that it has “solicited” someone in a specific state. Unlike days of old when a solicitor knew they were sending a letter to a person at a specific address or placing a call to a specific telephone in a certain area code, today’s technology makes it very challenging for a charitable nonprofit to know which states to register in when that nonprofit is using the internet for fundraising.

It’s high time there was a solution to multi-state registration that doesn’t result in multiple states of confusion!

Suggestions for making the single portal a success

The National Council of Nonprofits was pleased to read a news release confirming progress towards creation of a “single national charity registration system.” We applaud the state charity officials who have been working very hard together for over four years to not only bring this project to life, but to do so by seeking to understand all the challenges nonprofits face under the current non-unified system. Charitable nonprofits and state charity officials share the same goals of making the registration process less time consuming, and less expensive for charitable nonprofits, while also building in ways for the information nonprofits file to be more accessible to the public, and overall to create even more transparency about the fundraising activities of all charitable nonprofits. The new single system of multi-state registration also holds the promise of clarifying the states in which a nonprofit will need to register. But for all this to happen, nonprofits will need to step up to join those designing the system so that the single system will work well both for the charity regulators – and for charitable nonprofits.

Before the single system can be a success, the underlying state laws that trigger registration need to be re-evaluated, clarified, and harmonized across state lines. The vision of the single system for charitable registration can be a solution to the expenses and inefficiencies of the current system of multi-state charitable registration. But realizing that vision will require the informed advocacy of charitable nonprofits – working with state charity officials to change the underlying state laws, followed by a very intentional collaboration between charitable nonprofits and state charity officials to keep improving the system over time. This will require us all to accept that the experience is not going to a breeze right “out of the box.” Finally, charitable registration is a cost of “doing business” for charitable nonprofits. There is no such thing as “zero cost” fundraising, so changing that misleading mind-set has to happen, too.

Below are our suggestions. (Disclaimer: The author serves on the advisory committee for the NASCO multi-state single portal charitable registration project.)

  • State statutes and corresponding regulations need to be re-visited and revised in most states to create bright lines to clarify when a nonprofit must register in that particular state. Changes to state laws will require nonprofits to advocate for more sensible registration requirements. Since state charity officials on their own are probably not aware of all the constantly evolving and innovative ways that nonprofits are fundraising, and since those who do know (such as nonprofits’ staff and fundraising partners) can help policy-makers understand why changes to existing laws are needed, we hope that charity regulators in each state will follow the model illustrated by the National Association of State Charity Officials when it formed an advisory committee for the single portal project: State charity officials should similarly form state-based advisory committees to bring the voice of the nonprofits’ experiences to the policy-making table to update registration requirements.

    Goal for this suggestion: Sensible state laws that are as consistent as possible across state lines so that fundraising across state lines does not result in a “state of confusion.”
  • Secure the data: Charitable nonprofits may have to get used to multi-factor authentication or whatever it will take to make sure that the data nonprofits share through the system is super-secure. One of the presumed advantages of the private/nonprofit/government collaboration for the single system multi-state registration portal is that the parties will be able to coordinate to build a system that is secure. Let’s hope so.

    Goal for this suggestion: Nonprofits will trust that the data they submit through the single system multi-state registration portal will be secure and users of the data will trust it is legitimate.
  • Educate charitable nonprofits and fundraising professionals about their obligation to register with individual states for fundraising purposes. Legal compliance is not optional!

    Goal for this suggestion: Let’s find sensible ways to make sure charitable nonprofits know about their registration obligations. Why can’t every newly created charitable nonprofit receive information about charitable registration directly from the state when it files its incorporation documents? Why can’t every charitable nonprofit that files its renewal corporate filings receive a similar message reminding the organization of its responsibility to comply with fundraising regulations?
  • Raise awareness about the legal obligation for charitable nonprofits and fundraising professionals to register with individual states for OTHER purposes. The single system multi-state registration portal could be designed so that certain data that a nonprofit submits triggers a message that will call attention to other filing obligations each state imposes, such as the requirement to file to qualify to “do business” in a state or identify a registered agent. It would be a wasted opportunity to build the single system multi-state registration portal without including the equivalent of flashing yellow lights pointing out other state filing obligations.

    Goal for this suggestion: Increased legal compliance, and more efficiencies for the state charity officials to spend their resources chasing down the bad actors, rather than the unwitting mis-filers. 
  • Everyone needs to do their part to educate donors and grantmakers that fundraising is not “free” and that it is unrealistic, and in fact encourages dishonesty, to expect nonprofits to report “zero” fundraising costs. Just the time needed to feed information into the single system multi-state registration portal will be a fundraising cost. In addition, the single system multi-state registration portal will charge modest fees for each state that the nonprofit is registering for. All these costs add up. Donors and grantmakers need to stop expecting nonprofits to report “zero” fundraising costs, and so-called “charity watchdogs” and other evaluators also need to stop holding up a false “ratio” test as a measure of effectiveness or worthiness for receiving donations.

    Goal for this suggestion: Nonprofits will know and accurately report what it REALLY costs to fundraise effectively and efficiently, in a legally compliant manner, and donors, grantmakers, and evaluators will respect the reality that it costs money to fundraise.

We also have these suggestions just for charitable nonprofits:

  • Join your state association of nonprofits to stay up-to-date with policy threats and opportunities that impact your nonprofit’s ability to operate, such as state fundraising regulations. In states where there is no state association of nonprofits, consider forming a task force with colleague organizations to meet with the state charity officers and serve as a resource to propose fundraising registration rules and regulations that make sense for nonprofits fundraising in your state, AND that make sense for nonprofits in other states too. And do stay connected with the National Council of Nonprofits, as we will continue to track developments in individual states as well as nationally.
  • Learn more about charitable solicitation registration in general and about your nonprofit’s legal obligations and exposure in particular. You don’t have to be a lawyer to appreciate the advice in this Nonprofit Quarterly article that suggests four fundamental steps nonprofits need to take to fully prepare themselves for compliance. As a first step, the article suggests understanding ALL the ways your nonprofit is fundraising – because some strategies your nonprofit currently uses may trigger registration obligations that you are unaware of. The article also suggests looking hard at your results from online donations – who’s giving, where do they live, how much is your nonprofit receiving from these online donations, and what types of online activities are the donations coming from (such as a website donation portal; crowdfunding; commercial co-ventures; or contracts with professional fundraisers.) This level of scrutiny is important for any nonprofit just to have a full picture of the ROI for various fundraising activities. Additionally, knowing the sources of contributions, amounts, and types of activities resulting in contributed income for your nonprofit is especially critical for understanding your nonprofit’s multi-state registration exposure. To keep costs down for everyone, get involved in helping to improve the fundraising regulations in your state!
  • Finally, stay tuned for more information about the single system multi-state registration portal. You’ll hear about it through the National Council of Nonprofits, and you’ll hear about it from your state association of nonprofits, as well as GuideStar. The thirteen pilot states that will participate in the initial development of the single system platform are: Alaska, California, Colorado, Connecticut, Georgia, Hawaii, Illinois, Massachusetts, Michigan, Mississippi, Missouri, New Hampshire, and Tennessee.

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