November 3, 2014

Web Presence & Internet Concerns for Nonprofit Organizations: Fundraising (article)

(Editor's note: This is the second in a three-part series on internet concerns for not-for-profit organizations. To read part one, please visit: Web Presence & Internet Concerns for Not-for-Profit Organizations: Hyperlinks)

The Internet presents unlimited potential for charitable organizations to spread awareness of their programs and mission. Your website and social media accounts are accessible to the public and offer an opportunity to use your online resources to solicit donations.

Fundraising on websites and other online platforms comes with jurisdictional concerns, however. Where a donor resides, not the organization's physical location, often determines which state regulations an organization must follow. In our second article in the Web Presence and Internet Concerns for Not-for-Profit Organizations series, we will discuss how your organization can mitigate the nexus concerns associated with online solicitation.

State and Local Regulations

Though no universal state standard for fundraising exists, common rules organizations must follow include registering with the state, obtaining a license or permit, and filing a financial statement and annual report with the local governing body.

The registration requirement illustrates just how much regulations can vary among regions. Forty states ask charities that solicit funds to register, but when and how often charities should register depends on the state. Some require their public charities to register annually. Others allow one-time registration.

Your organization should also note filing deadlines. Due dates for state and local reporting often differ from federal reporting deadlines.

On top of the basic requirements, states may require additional requirements to protect their residents from deceptive or fraudulent solicitation. Many states collect their public charities' Form 990 data for donor education purposes. The public can search registered charities' annual filing data in California, Massachusetts, Missouri, Ohio and several other state government websites.

Scrutiny of not-for-profits is also on the rise. The combination of increased access to your organization's tax data and regulatory pressure make your tax compliance more important than ever.

The Charleston Principles

The National Association of State Charity Officials (NASCO) recognized nexus issues could arise from online fundraising. In 2001, the association released the final version of "The Charleston Principles," to provide guidance for not-for-profits and states on how to handle Internet solicitation.

Included in the document are the types of activities that may trigger state reporting requirements.

If a state's non-Internet activities, such as direct mail campaigns, fundraising events or other ways of reaching out to potential donors would qualify for state registration, then the charity should register with the state.

The Charleston Principles recommend states treat online activity the same as physical activity. If your website provides forms for online donations and either addresses residents in a specific state or receives a substantial amount of online donations each year (e.g., $25,000 or more), then the online activity would likely count as solicitation within that region. Organizations should consider the specificity of their outreach to potential donors. "Donate now" prompts on a website likely would not trigger nexus concerns because the prompt does not target particular groups of people. Likewise, it is probable that unsolicited online contributions would not trigger any nexus concerns.

Only use the Charleston Principles as a starting point in your jurisdiction conversation. States did not universally adopt the principles into law, so following the guidance NASCO established does not mean your charitable organization is compliant with all state and local regulations.

Best Practices

You can determine on a case-by-case basis the states you might be required to register with, but we recommend a more general approach. If your organization conducts any online soliciting, you should follow the solicitation requirements for all states. Doing so saves the time and expense of evaluating your donors to see if any come from jurisdictions where your organization has not previously registered. You can find a list of state-by-state filing information on NASCO's website.

As of yet, there does not appear to be any movement toward universal solicitation guidelines among states. This is not to say shortcuts to multistate registration do not exist. NASCO and the National Association of Attorneys General teamed up to create a unified registration statement. Currently, 36 states and the District of Columbia accept the statement in lieu of the individual state registration forms.

CBIZ regularly assists organizations in navigating nexus and other compliance issues. Please contact your local CBIZ office for more information.

Copyright © 2014, CBIZ, Inc. All rights reserved. Contents of this publication may not be reproduced without the express written consent of CBIZ. To ensure compliance with requirements imposed by the IRS, we inform you that-unless specifically indicated otherwise-any tax advice in this communication is not written with the intent that it be used, and in fact it cannot be used, to avoid penalties under the Internal Revenue Code, or to promote, market, or recommend to another person any tax related matter. This publication is distributed with the understanding that CBIZ is not rendering legal, accounting or other professional advice. The reader is advised to contact a tax professional prior to taking any action based upon this information. CBIZ assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

CBIZ MHM is the brand name for CBIZ MHM, LLC, a national professional services company providing tax, financial advisory and consulting services to individuals, tax-exempt organizations and a wide range of publicly-traded and privately-held companies. CBIZ MHM, LLC is a fully owned subsidiary of CBIZ, Inc. (NYSE: CBZ).

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