August 14, 2024

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Many nonprofits seek to fund their organization through charitable solicitation (seeking and receiving donations), but the legal consequences of fundraising can get confusing when an organization is receiving funds from different states with different laws governing charitable solicitation.  

Charitable solicitation registration requirements are how states regulate nonprofits’ fundraising and protect their citizens from swindlers. Basically, this means that to fundraise in a state, a nonprofit is often required to fill out an application or registration and be approved to solicit or receive funds within that state. Nonprofits must ensure the organization is following the laws in each state where they solicit or receive funds. For a full guide on how to determine where your organization may have registration requirements, see Napa Legal’s Charitable Solicitation Guide.

Case Study

A small, volunteer-run, faith-based nonprofit radio station hosts programming with reflections on religious texts, religious music, and shows discussing the intersection of faith and daily life. The station plans to broadcast an annual appeal to defray the costs of operating the station. In a state like Arizona, the station is free to do so, provided it avoids misconduct such as fraud. However, to receive funds from donors in other states, the station may need to complete an initial registration prior to holding the appeal and then file annual reports with the state every year in which a fundraising appeal will be held or donations will be received.

The rules for registering and maintaining a registration can often be burdensome to charitable organizations to navigate. To help ease the burden, some states offer exemptions to the charitable registration requirements for religious organizations (or 501(c)(3) nonprofit organizations in general). Exemptions will differ from state to state, so an organization should understand the particular laws of each state in which they receive or from which they solicit donations.  

There are a few general categories that state charitable registration exemptions typically fall into.  Some states do not require you to file because the laws grant an automatic exemption or there is no registration requirement, while other states require nonprofits to apply for an exemption or to register before soliciting or receiving donations.  

1. States with No Charitable Registration Laws

In these states an organization may solicit funds without registering. Arizona is an example of a state that does not have a charitable registration requirement.

2. States with Broad Automatic Exemptions

Kansas is a good example of a state with a broad, automatic exemption. Kansas’ charitable registration laws have a broad, automatic exemption for religious organizations. The exemption law tells us that an organization is exempt from the charitable registration statute if they are “incorporated or established for religious purposes, or established for charitable, hospital or educational purposes and engaged in effectuating one or more of such purposes, that is affiliated with, operated by or supervised or controlled by a corporation, trust or organization incorporated or established for religious purposes, or to any other religious agency or organization which serves religion by the preservation of religious rights and freedom from persecution or prejudice or by fostering religion, including the moral and ethical aspects of a particular religious faith . . .”

Another example of a state with broad exemptions for faith-based organization is Nevada. In Nevada there is a general registration requirement for charitable organizations, but “an organization that is established for and serving bona fide religious purposes” is exempt from the registration requirement. In states like Kansas and Nevada, faith-based nonprofits often fall within the broad exemptions from charitable registration requirements without the need to apply for the exemption.

Note that many states have exemptions for religious organizations, except those that employ a professional fundraiser. For example, Louisiana offers an initial broad exemption, but an organization may lose the exemption status if they employ a professional fundraiser. Professional fundraisers can frequently change an organization’s duty to register, so if you employ or plan to employ a professional fundraiser, be sure to know the registration laws governing the use of a professional fundraiser.

3. States with Broad Exemptions Available Upon Application

Arkansas is a state where a religious organization can apply for a religious exemption from the charitable solicitation registration requirements. Generally, in Arkansas an organization that is receiving donations from within the state must register before they can solicit or receive funds. However, Arkansas’s solicitation law exempts “[Religious Organizations, i.e., any bona fide, duly constituted religious entity,] not subject to the reporting requirements . . .  provided each organization submit an application for a reporting exemption to the Secretary of State, on forms prescribed by the Secretary of State, together with any information as the Secretary of State may require to substantiate a reporting exemption.” (for more see A.C.A § 4-28-404). When compared with the states with automatic exemptions listed above, Arkansas’s registration laws do exempt faith-based nonprofits but require the administrative burden of requiring them to apply for an exemption.

4. States with Narrow Exemptions

Some states have exemptions that are limited to certain subsets of religious organization. For example, Pennsylvania generally requires charitable solicitation registration but offers an exemption for certain organizations, such as churches and hospitals. A nonprofit is only exempt from registration laws if it falls within the categories identified in the statute.

5. States with an Exemption only for Organizations that Do Not Need to File a Form 990

Finally, some states have exemptions from charitable registration laws only for organizations that are not required to file IRS Form 990. These organizations are usually churches and local units of a church (such as religious orders and integrated auxiliaries). Although faith-based nonprofits often are aligned very closely with the mission of a church, they still must file a 990. Such organizations will have to register in states with only this narrow exemption. This is the most burdensome scenario for a faith-based nonprofit because the organization will not be exempt from charitable registration requirements and will have to register and remain in compliance with states’ regulatory laws governing charitable solicitation.

Conclusion

Knowing the charitable registration laws in each state in which your organization solicits or receives donations is paramount to setting up a donor network while remaining compliant. Consult with Napa Legal’s Charitable Solicitation Registration Guide and  consider speaking to an attorney to ensure that your organization is compliant in all the states in which it fundraises.  

For a more comprehensive understanding of state solicitation laws, see Napa Legal’s resource: Considering a Fundraiser?

Consult Napa Legal’s Multistate Matrix and Faith & Freedom Index to explore the laws of the different states and see how each state ranks on charitable solicitation registration and other factors that may affect your organization.