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Sunday, April 23, 2017

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Nonprofit Fundraising and the Internet
Benjamin A. Stolz, Esq., Partner The Perliski Law Group

April, 2015

“Our nonprofit organization was formed in Texas and we primarily solicit donations in Texas, but we just put up a website and now we seem to be getting donations from out-of-state”. I hear this a lot in my practice and I almost always find that the organization is completely unaware of the risk of soliciting and accepting out-of-state donations without a registration plan in place.

Fundraising has always been a constant challenge for nonprofits, but many years ago it was much harder to get the word out and attract donors. Today, this is no longer the case. With a few clicks of a mouse grant-making institutions and donors can now find your nonprofit. In many cases, industrious marketing staffers are taking advantage of Internet marketing techniques like pay-per-click programs offered by major search engines like Google who actively support charities with programs like Google Ad Grants.

Google Ad Grants is the nonprofit edition of AdWords, Google's online advertising tool. Google Ad Grants empowers nonprofit organizations, through $10,000 per month in in-kind AdWords™ advertising, to promote their missions and initiatives on Google search result pages. Armed with this kind of marketing muscle, many nonprofits quickly find themselves pulling in donations from all over the country.

You are probably asking what’s wrong with raising money? Nothing — as long as your organization is in compliance. With state coffers running low across the country, states are looking for revenue sources in places that previously received little attention. For years, many businesses operating on the assumption that without a physical presence in the state in one form or another, that they were not subject to sales tax or any other obligations to register either to do business or to raise funds. This has never been entirely correct, but with nonprofits publishing websites and entering cyberspace every day, its also no longer all that relevant.

Typically, states exercise regulatory authority over nonprofits based on one (or both) of two premises: the nonprofit is physically “present” in the state (e.g., has an office, owns real estate, or conducts program activities) or the nonprofit raises funds in the state. Today, most states regulate fundraising through specialized statutes called “solicitation laws” — these laws are primarily concerned with the solicitation of charitable contributions from the public. In short, with some 40 states enacting statutes that regulate charitable solicitation within their borders, publishing a website that asks for and receives money from residents in any of those states can be enough to trigger compliance obligations. Failure to register before soliciting is a violation of law and could subject the organization (and in some circumstances, its officers or directors) to substantial fines and penalties and could conceivably result in the organization being barred from raising funds in that state.

As you might expect, there is little consistency in the way each state handles this process. Some states have a one-time registration; others require annual renewal; some require voluminous disclosures while others do not. A nonprofit’s compliance requirements breakdown into two components: (i) registration, which is focused on providing the state basic data about the organization’s finances and governance; and (ii) financial reporting, an ongoing obligation to keep the state updated on fundraising activities. Most states require an organization to do both.

The Unified Registration Statement (URS) represents an effort to consolidate the information and data requirements of all states that require registration of nonprofit organizations performing charitable solicitations within their jurisdictions. The effort was organized by the National Association of State Charities Officials (NASCO) and the National Association of Attorneys General, and is one part of the Standardized Reporting Project, whose aim is to standardize, simplify, and economize compliance under the states' solicitation laws.

In 37 jurisdictions, the URS is accepted in lieu of the state form(s) for registration. In those states, the URS is a valid alternative to the registration process, but it cannot be used to satisfy financial reporting requirements. And, although the URS is widely accepted, a few states, including Colorado, Florida and Oklahoma require registration but do not accept the URS. In addition to the URS, about 15 states also require supplementary forms to accompany the registration, making the registration process subject to the nuances of each those jurisdictions to some degree.

The take away from this article should be two-fold: (i) fundraising on the Internet represents a powerful, effective and very accessible marketing tool to help your organization meet its financial needs; and (ii) failure to register before soliciting could land your Board and your organization in hot very water. Adopt a Registration Plan and follow it.

Benjamin A. Stolz is a Texas attorney with the Perliski Law Group. You may contact him at bas@perliskilawgroup.com | www.perliskilawgroup.com He regularly represents nonprofits, both large and small, including churches, religious organizations, foundations, veterans organizations and other nonprofits dedicated to the arts, animal welfare, sports & recreation and community service.  Many of our clients' charitable, educational and religious activities operate in the U.S. as well as in other countries. 



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