Issue

Charitable solicitation registration requirements with states are a large area of noncompliance for Christian colleges, seminaries, and universities.  Is your institution in compliance with regard to “state charitable registrations?

Situation

Saltwater Christian College (SCC) is a private college that is exempt under Internal Revenue Code section 501(c)(3) and 170(b)(1)(A)(ii).  We had a conversation with their CFO about the growth of the school and how their Development Team has been active – receiving charitable contributions from 44 of the 50 states this year.  We ask about whether SCC has registered with all of the required states in accordance with each state’s charitable solicitation laws for charitable organizations.

After a pause, he says, “Umm.  I don’t know anything about that.”

We tell him that this is a difficult area to manage as each state (and Washington D.C.) all have separate, distinct, and intricate charitable registration laws.  It is also an area where the states are getting more and more active in enforcement, meaning they might disallow fundraising in their state and/or impose penalties.  There is little uniformity among the states, however, there have been past and ongoing efforts toward uniformity.

So, what does “solicit” mean?  The definition varies from state to state.  The National Association of Attorneys General (NAAG) has developed a model charitable solicitation law that can give us an idea.  In that document, NAAG defines “solicit” to mean any request, oral or written, and either direct or indirect, for anything of value; any announcement over the press or any written advertisement; or, the sale of, or offer to sell, something in return for a charitable contribution.

The good news is that you might not have to deal with all 51 jurisdictions. 12 states do not have charitable registration laws.  In addition, 32 states offer potential exemptions for educational institutions (this may be affected by your accreditation) – but you may have to “notify” these states with a letter or specified form.  Thus, generally, if you do not hire a professional fundraiser, Christian colleges will only have to deal with seven states annually.

We tell him, “we can help you navigate all of this.”

Rules

From “A Model Act Concerning the Solicitation of Funds for Charitable Purposes” (NAAG, 1986):

“‘Solicit’ and ‘solicitation’ mean the request directly or indirectly for money, credit, property, financial assistance, or other thing of any kind or value on the plea or representation that such money, credit, property, financial assistance, or other thing of any kind or value, or any portion thereof, will be used for a charitable purpose or benefit a charitable organization. Without limiting the scope of the foregoing, these words shall include the following methods of requesting or securing such money, credit, property, financial assistance or other thing of value:

(1) Any oral or written request;

(2) the making of any announcement to the press, over the radio or television or by telephone or telegraph concerning an appeal or campaign by or for any charitable organization or purpose;

(3) the distribution, circulation, posting or publishing of any handbill, written advertisement or other publication which directly or by implication seeks to obtain public support;

(4) the sale of, offer or attempt to sell, any advertisement, advertising space, book, card, tag, coupon, device, magazine, membership, merchandise, subscription, flower, ticket, candy, cookies or other tangible item in connection with which any appeal is made for any charitable organization or purpose, or where the name of any charitable organization is used or referred to in any such appeal as an inducement or reason for making any such sale, or when or where in connection with any such sale, any statement is made that the whole or any part of the proceeds from any such sale will be used for any charitable purpose or benefit any charitable organization.

A solicitation shall be deemed to have taken place whether or not the person making the same receives any contribution.”

The math works like this:

51 jurisdictions (50 states plus Washington, D.C.) are in play.  12 states do not have charitable registration laws or registration requirements.  32 states provide an exemption for educational institutions (but possibly not their foundations, alumni associations, booster clubs, etc.).  In several states, the exemption may be foregone if the educational institution hires a professional fundraiser.  Thus, most institutions reading this will have to “navigate” the charitable filings of seven states annually.

Many of the 32 “exempting” states require that the educational institution file a one-time letter (or, in some cases, a state-specified form) which serves to notify the state that the institution believes itself to be exempt.  Generally, this letter will inform the states that your institution is a 501(c)(3) that is exempt under I.R.C. section 170(b)(1)(A)(ii) as a school.  We recommend that an initial letter (or specified form) be sent to all 32 of these states notifying them of your institution’s exemption.  This will put the states on notice that you are fundraising in their state but exempt from registration.  Also, you will generally receive a letter back from some states acknowledging your exemption – this can be very helpful if they try to assess penalties or suspend fundraising activities in the future.

For the seven states where there is not an exemption for educational institutions (Alaska, Colorado, Washington D.C., Massachusetts, New Hampshire, Oregon, and Washington), there are thresholds that may apply (i.e. less than $25,000 in contributions in a year).  However, it is generally wise to file annually in these states.  For 2016, the total fees for registering in all of these seven states is not excessive, but the penalties can add up.

Please email me if you’d be interested in a webcast on state charitable registrations!

Bottom Line

There are many factors that come into play with regard to state charitable registration issues.  We have just skimmed the surface here.  Your institution should be diligent about getting informed, gaining “exemption letters”, and annual filings.  Please consult with a qualified tax advisor and get their guidance and assistance on these issues.

Specific questions? Email Dave Moja

The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.