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Are You Meeting Compliance Requirements for Online Fundraising?

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Even before the pandemic, many nonprofits had begun exploring online methods of fundraising. Since the pandemic, having a strong online fundraising strategy has gone from nice-to-have to must-have. But new forms of solicitation bring new compliance requirements.

That’s where Sharon Cody comes in. Sharon is a partnership manager at Harbor Compliance, a firm that helps nonprofit organizations stay compliant with federal, state, and local government licensing requirements. Here are her answers to common questions about compliance related to online solicitations to help you to navigate these unfamiliar waters, gleaned from work with many nonprofits in similar situations.

Who regulates online solicitations?

The IRS regulates nonprofit status, but the states regulate fundraising. Forty states and the District of Columbia have charitable solicitation registration laws. Most nonprofits that fundraise using online methods need to register and report in multiple states, and very often in all 41. 

Twenty-five states also require nonprofits to include disclosure statements in their solicitations and other donor correspondence. 

What types of activities are regulated?

Both traditional and online solicitation methods are subject to registration requirements. These methods include direct mail, phone calls, grant applications, in-person events, emails, text-to-give requests, giving days, social media, virtual events, and peer-to-peer campaigns. Auctions and games of chance are regulated by many of the states as well. 

Most jurisdictions also regulate collaborative fundraising, such as by professional fundraisers and co-marketing partners. The obligation to register lies with the fundraising professional or the co-marketing partner, and contracts with the nonprofit client must be filed with the state the fundraising campaign starts and again at the end. These obligations are in addition to the nonprofit's own fundraising registration requirements. 

Which states should I register in?

Take a close look at your solicitation activities. Solicitation occurs at the location where the fundraising request is received, so the location of the people you're going to ask for donations determines the states where your nonprofit needs to register. 

It’s easy to know where solicitations are being received when you send a letter or submit a grant application. It's much harder to know where you're soliciting when you're fundraising digitally. If you have online “donate now” buttons, sending emails or social media requests, or participating in giving days, you're likely soliciting nationwide and must register in all states that require it. 

Religious institutions and certain categories of healthcare organizations may be exempt from registration in some states, but those exemptions are not automatic. Most exemptions need to be applied for and renewed. 

There are two potential approaches to compliance for online fundraising. The first is to register or file an exemption from registration in all of the 41 states that require registration. The alternative for a nonprofit with financial constraints is to limit registration to its home state and as many other states as possible, and then to say on its website and in solicitation materials that it cannot accept donations from other states in which it is not registered.

How do I register?

For each state, you need to complete an application online, submit a fee based on your total annual revenue, and include supplemental documents such as your latest tax form 990.

Regulators have attempted to make it easier to register with multiple states by creating a unified registration statement. Unfortunately, the unified registration statement is much longer than almost every state's registration form, and many states require supplemental statements. In Sharon’s experience, filling out the individual registration forms for each state is easier, and most states process their own registration forms more quickly and with fewer rejections. 

Once you’ve submitted the applications, you need to monitor them to make sure they are approved. Depending on the state, it can take anywhere from a few weeks to months, and it is possible that an application may be rejected. If your application is rejected, you will have to make corrections and resubmit it. 

Nearly all states require you to renew your registration annually, though a few require biannual renewals. Renewal dates generally are not the anniversary of your original application, so you need to monitor them carefully.

To keep on top of your registrations and renewals, you need a good filing system for your applications, annual reports, and fundraising licenses; a spreadsheet with each state’s registration numbers; and statutes regulating fundraising. You also need time to research and track legislative and administrative changes. These functions can be done in-house or outsourced to a vendor.

How much does it cost to register?

State fees range between $1,400 and $5,000 for most organizations. Your cost will depend on your organization's total annual revenue and the number of states where you're registering.

Why should I prioritize compliance?

Most simply, compliance is the law, and if you’re not compliant, you risk penalties and losing your ability to fundraise. 

The National Association of State Charity Officials (NASCO) has said that state enforcement is increasing, partially because of public complaints about fraud from sham charities. If your nonprofit hasn't faced any corrective actions from states to this point, take this as an opportunity to become registered and prevent them from ever occurring. A proactive approach to state fundraising registration is the best and safest route to avoid fines and corrective action. 

Compliance is essential to protect your organization’s leaders, staff, board, brand, and reputation. But there's another equally important reason to get your registration in order: donor trust. In addition to feeling connected with your organization’s mission, they need to trust that their gift will actually go to supporting work that advances that mission. Sharon urges you to view compliance not as an obligation, but as an opportunity to broadcast your legitimacy, accountability, and transparency, and to make your donors feel confident in their decision to give to you.