Maryland
Updates
What You’ll Learn
If you’re a nonprofit in Maryland, or you’re a nonprofit considering fundraising or other activities in Maryland, you must understand Maryland’s requirements for nonprofits operating in the state.
How can you become familiar with these laws? Where should you start?
Start here. Reading this profile and implementing appropriate compliance measures will help you prepare your organization for success in Maryland.
Getting to Know the State Nonprofit Corporation Law
Background
*Important primarily for nonprofits incorporated in Maryland
The face of Elrond was ageless, neither old nor young, though in it was written the memory of many things both glad and sorrowful. His hair was dark as the shadows of twilight, and upon it was set a circlet of silver; his eyes were grey as a clear evening, and in them was a light like the light of stars.
- The Lord of the Rings: The Fellowship of the Ring, J.R.R. Tolkien
When reading a novel, we get to know a fictional character by the author’s description. The author tells us about the character’s appearance, purpose, actions, mannerisms, and values.
Nonprofit corporations are something like fictional characters.
We learn how a nonprofit will look and act and make decisions not by reading a novel, but by reading the state law (called the nonprofit corporation act) and the rules the nonprofit makes for itself (called the bylaws and articles of incorporation). The law and the organization’s own rules tell us the organization’s name, purpose, way of acting, and method of making decisions.
To get to know your own nonprofit, be sure to review the sections below.
State Nonprofit Corporation Law
Corporate Governance
Conflict Transactions: Md. Code Ann., Corps. & Ass’ns. § 2-419; Need to review the basic best practices for conflicted transactions? See Bylaws Module 14: Conflicts of Interest.
Director Standards of Conduct: Md. Code Ann., Corps. & Ass’ns. § 2-405.1; Need a refresher on the role of directors? See Bylaws Module 6: Directors.
Members: Eligibility and Statutory Powers: Md. Code Ann., Corps. & Ass’ns. § 5-202; Md. Code Ann., Corps. & Ass’ns. § 5-204; Not sure what a “member” is? Need to review the basics? See Bylaws Module 5: Members.
Indemnification: Md. Code Ann., Corps. & Ass’ns. § 2-418; Not sure what “indemnification” is? Need to review the basics? See Bylaws Module 8: Indemnification.
For Religious Nonprofits
Nonprofit Religious Corporation Act: Maryland’s nonprofit corporation law lacks: (a) specific provisions permitting the formation of nonprofit religious corporations; (b) specific protections for religious exercise at faith-based organizations, and (c) express acknowledgement of an option for nonprofits to incorporate for religious purposes. Md. Code Corps. & Ass’ns § 5-301; Confused about what it means to be a religious nonprofit corporation? See our whitepaper “Why a Religious Corporation?”
Reliance on Religious Guidance in Governance: Maryland law permits a director, in the fulfillment of the director’s fiduciary duties, to rely on the opinion of individuals who can reasonably be assumed to have expertise on a certain matter, but does not expressly allow a director to rely on guidance from religious figures within his or her faith tradition.
Understanding Religious Liberty in this State
Case Study
*Important for all nonprofits doing business in Maryland, whether incorporated in Maryland or elsewhere
The religious education and formation of students is the very reason for the existence of most private religious schools, and therefore the selection and supervision of the teachers upon whom the schools rely to do this work lie at the core of their mission. Judicial review of the way in which religious schools discharge those responsibilities would undermine the independence of religious institutions in a way that the First Amendment does not tolerate.
- Our Lady of Guadalupe School v. Morrisey-Berru, 140 S. Ct. 2049 (2020).
Sometimes, the state or local government (like the city or county) makes laws that could conflict with your organization’s free exercise of religion or its sincerely-held religious beliefs.
For example, a law might require employers not to make faith-based distinctions between job candidates. If your organization’s mission is to pass on the teachings of your faith, you will need to make faith-based distinctions in evaluating candidates because their faith commitments will impact their abilities to partner in your mission and witness the faith to your program participants.
So what do you need to do? Be aware of the laws listed below. If any of the laws impact your organization—for example, if you are an employer or a facility open to the public—learn more about how you can protect yourself by reviewing Napa Legal’s religious liberty resources. Talk to an attorney if you have specific concerns.
Religious Liberty Protections
State Religious Freedom Restoration Act: Maryland has not enacted a RFRA and has enacted nondiscrimination laws that conflict with the beliefs of many religious organizations. Not sure what a “religious freedom restoration act” is? Click here to learn the fundamentals.
Constitutional Protections for Free Exercise: The Maryland Constitution follows in lockstep with the federal constitution’s protections, meeting but not exceeding the required minimum protections of the First Amendment. State Constitution, Article 36
State Blaine Amendment: The Maryland Constitution does not contain a Blaine Amendment but also does not expressly protect faith-based organizations’ freedom to participate in public benefit programs on the same terms as similarly situated secular institutions. Not sure what a Blaine Amendment is? Review the basics here.
Other Relevant State Laws and Regulations
Maryland currently has several laws related to organizations’ beliefs about human anthropology. Be sure you understand these and any local regulations that may apply to your organization.
Religious Freedom and Public Accommodation Laws: Maryland’s nondiscrimination laws generally restrict religious freedom for religious organizations that offer public programming and facilities and provide no meaningful religious accommodations or exemptions. Md. Code Ann., State Gov’t § 20-304; Md. Code Ann., State Gov’t § 20-303; Not sure what a public accommodation law is or what it means for your organization’s religious liberty? Learn the basics in this article which discusses the issue in the context of the case Fulton v. City of Philadelphia.
Protections for Religious Exercise in State of Emergency: Maryland law has no explicit constitutional or statutory protections for religious exercise during a time of emergency.
Key Employment Laws and Regulations
In addition to protecting the classes included in the federal anti-discrimination employment law, Title VII of the Civil Rights Act of 1964, Maryland prohibits employers from discriminating on the basis of marital status, sexual orientation, and gender identity. These requirements do not apply to a religious institution with respect to roles that perform work connected with the activities of the religious entity.
Religious Freedom for Faith-Based Employers: Md. Code Ann., State Gov’t § 20-606; Need to review the basics on religious freedom and employment matters? Walk through a self-audit of best practices here.
Religious Freedom for Employees: Not Present
Conducting Activities or Programs in this State
Understanding the Business Registration Requirement
*Important primarily for nonprofits doing business in Maryland but incorporated elsewhere
If you are fundraising or conducting activities in this state, you must consider whether you need to register as a foreign nonprofit corporation. State law requires entities that are “doing intrastate business” to register. An attorney can help you decide whether you need to register based on the type and volume of activities you have in this state.
Business Registration Statute
Fundraising and Charitable Registration in This State
How to Know (And What to D0) If You're Fundraising In This State
*Important for both Maryland and Foreign Nonprofits
Not sure what “charitable registration” is? Need to review the basics? Read this article for a refresher.
This state generally requires organizations to register prior to soliciting donations. However, the registration requirement has a religious exemption. Religious organizations must apply to receive the exemption—it is not automatic.
This state has a very broad definition of solicitation and does not specify a minimum threshold of solicitation which triggers the registration requirement. However, organizations that (1) do not use a professional solicitor and (2) receive less than $25,000 in total annual contributions may apply for a registration exemption. The statute does not specify whether the $25,000 maximum is for total contributions or Maryland contributions only.
If You're Fundraising In Multiple States, Make Sure You Understand the URS
In this state, organizations that are required to register have the option of registering through the Unified Registration Statement, which is a standardized charitable registration accepted in many states. Using the URS, rather than a state-specific registration form, has pros and cons. The URS typically must be submitted by mail. Maryland has an online filing system and using that system may be more efficient than completing and mailing the URS manually.
Additionally, creating the online profile will save the organization time in preparing future annual reports, which are processed using the same system.
Evaluate Whether You'll Need a Registered Agent
If you are fundraising in this state, you must consider completing a foreign not-for-profit registration and designating a registered agent in the state. More information about this is included below.
Follow the Rules About Communicating with the Public
This state requires an organization to include specific statements whenever the organization is requesting donations (also called “charitable solicitation”). Religious organizations generally are not required to include this statement, but posting the language is often a best practice to build trust with donors and state regulators. Below is sample language to use with charitable solicitations in this state:
This solicitation is made on behalf of *ORG*, which is located at *ADDRESS* and can be contacted at *TELEPHONE*. A copy of *ORG*’s current financial statements is available on request. A copy of *ORG*’s charitable organization filings is available from the Maryland Secretary of State upon request, for the cost of shipping and printing.
Charitable Registration Statute
Charitable Registration Exemption Statute
Annual Report Requirement
Md. Business Regulation Code § 6-408 (2019)
Audit Requirements: As a condition of maintaining authorization to fundraise in the state, Maryland requires the submission of reviewed or audited financials for organizations with annual contributions of more than $300,000. Md. Code Ann., Bus. Reg. § 6-402
Get Acquainted with State and Local Taxes and Exemptions
State and Local Taxes
*Important for all nonprofits doing business in Maryland, whether incorporated in Maryland or elsewhere
In this state, organizations that have received federal income tax exemption under IRC § 501(c)(3) are eligible for exemption from state income tax. The exemption is not automatic; organizations must affirmatively apply to receive the exemption. Note that, although an organization may be exempt, if it has unrelated business taxable income (“UBTI”) that is subject to federal taxation, that UBTI may be subject to state income tax (see Md. Code Ann., Tax-Gen. § 10-304(2)).
It is also important to consider whether your organization might be eligible for sales and use tax or property tax exemptions. In this state, federal § 501(c)(3) status does not automatically provide an exemption from sales, use, and property taxes. More information about the sales and use tax exemptions and applications is available on the Maryland Office of the Comptroller website and in the Maryland administrative rules. An accountant or attorney can provide answers to specific questions regarding your organization’s eligibility for exemption.
Corporate Income Tax Statute
Maryland imposes a corporate income tax but offers an exemption to organizations with federal 501(c)(3) exempt status upon application. Md. Code Ann., Tax-Gen. § 10-104; Exemption Application
Corporate Franchise Tax Statute
This state does not have a corporate franchise tax.
What You Need to Know About Sales Tax
Sales and Use Tax: Maryland imposes a sales and use tax on religious organizations’ sales and only provides limited exemptions for certain items. Maryland imposes a sales and use tax on religious organizations’ purchases but generally provides a broad and comprehensive, entity-based tax exemption for 501(c)(3) religious organizations’ purchases upon application. Md. Code Ann., Tax-Gen. § 11-204; Exemption Application
State Tax Treatment of Unrelated Business Income: Md. Code Ann., Tax-Gen. § 10-304(2)
Property Tax: Maryland imposes property tax and provides only fragmented property tax exemptions for properties owned by religious groups and used exclusively for religious worship, parsonages and convents, or educational purposes. Md. Code Tax-Prop. § 7-204
State-Specific Special Requirements
Miscellaneous
Reviewed by
Legal Disclaimer
This resource contains general educational information related to legal concepts, but this information does not constitute legal advice. Anyone seeking legal advice is strongly encouraged to consult with a licensed attorney regarding any of the matters discussed herein. Although licensed attorneys work with Napa Legal, Napa Legal is not a law firm and does not undertake legal representation on behalf of any clients. Further, no licensed attorney working with or on behalf of Napa Legal agrees to undertake legal representation on behalf of any client unless the terms of such representation are set forth in a separate, written representation agreement.
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**Please note that the following state profiles are forthcoming and will be published soon:Hawaii and Washington