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New Jersey Charitable Solicitation Law Update

According to the Center for Non-Profits, the state association of nonprofits in New Jersey, effective May 1, the  New Jersey Division of Consumer Affairs is requiring all annual charities registration renewals and extension requests to be filed through a state-run online portal. New Jersey requires most charitable organizations that solicit funds in the state to register and file annual financial reports. There are exceptions for small organizations that raise less than $10,000 annually and do not use a professional fundraiser, religious organizations, and educational organizations. The Center for Nonprofits has asked the Division to revert to accepting paper filings due to concerns about the online portal, including vague instructions, lack of available context-sensitive assistance, limited responsiveness to inquiries, difficulty in locating and uploading information, recordkeeping and processing backlogs at the Charities Registration office which can prevent access to key areas of the portal, and that it fails to meet the statutory requirement to incorporate Form 990 information by reference.

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Alabama Fundraising Regulation Update

If your organization (professional fundraiser, professional solicitor or commercial co-venturer) is registered with the Alabama Attorney General to solicit charitable contributions, on-going compliance can now be fullfilled through the new online portal effective immediately.  Renewal applications, contracts, bonds and other documents can be uploaded directly onto the site.  This site also accepts credit or debit cards to process payment.  Paper forms and checks will no longer be accepted for registration processing in Alabama. Annual registration is still due every year on or before September 30th.

Commercial co-venturers registering for the first time with the Alabama Attorney General must complete the application online.  Similarly, professional fundraisers registering for the first time must complete the application online online.

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Arkansas Charitable Solicitation Law Update

As of January 1, 2018, registration for charitable solicitation moved from the Arkansas Attorney General to the Arkansas Secretary of State.  The revised forms can be accessed at the Secretary of State’s website.

Further, the state changed its registration renewal deadline from May 15th (for calendar year groups) or 6 months (for organizations with a fiscal year other than calendar) to August 1st for all organizations.   The Secretary of State will honor any deadlines (extensions) previously granted for the first year of this transition.

A charitable organization that requires additional time to submit its renewal can still request a six (6) month extension which may be granted for good cause shown.   The extension request should be emailed to charities@sos.arkansas.gov.  In the subject line include the words “Annual Financial Report Extension.”   A copy of the IRS Application for Automatic Extension of Time to File an Exempt Organization Return (form 8868) may be sent along with the extension request but is optional.  The extension request can also be mailed to the SOS office.

The filing fees and deadlines for Fundraising Counsels and Paid Solicitors remain the same.

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Welcome Changes to Pennsylvania Fundraising Laws

On December 22, 2017 the Governor of Pennsylvania signed two bills into law amending the Solicitation of Funds for Charitable Purposes Act.  The new laws go into effect February 20, 2018.

Act 71: Under prior law, Pennsylvania required registered charities with gross annual contributions of $300,000 more to have an independent CPA audit the organization’s financial records. This was one of the lowest audit thresholds in the country. The new law does not require an independent audit until the registered charity’s  gross annual contributions meet or exceed $750,000. This will save many small charities thousands of dollars in audit fees that would not otherwise incur. Still, the higher threshold for independent audits does not mean that registered charities do not have to submit financial information. The new thresholds and requirements for financial reports required for charities registered to fundraise in Pennsylvania are as follows:

Less than $100,000: internally prepared, compilation, review, or audit
$100,000 to less than $250,000: compilation, review or audit
$250,000 to less than $750,000: review or audit
$750,000 or more: independent audit

 

Act 72:  To help charitable organizations comply with registration deadlines and, possibly, eliminate late filing fees, the annual registration statement will be considered timely filed if the renewal is postmarked on or before the deadline rather than by the date received by the Bureau. This aligns the Bureau’s filing requirements with the “mailbox rule” followed by the IRS and most other regulators.

This Act also provides the Bureau with more time to review and process registration filings submitted by charities, solicitors and fundraising counsels.  The number of days the Bureau has to review the filings has increased from 10 to 15.

Both laws will be applied to all registration renewals due February 15, 2018 and thereafter beginning with organizations whose fiscal year ended 3/31/2017 and has not yet refiled with the Bureau.  For organizations that are filing an initial application, the changes will apply for organizations that file on or after February 20, 2018.

Lastly, the Bureau revised the Charitable Organization Registration Statement and the Instructions.  Check the website (http://www.dos.pa.gov/BusinessCharities/Charities/Pages/default.aspx) for the August 2017 revised form which promises to be shorter and more user-friendly.

 

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Fundraising – When to Seek Permission

Fundraising to carry-out a nonprofit’s charitable purpose is necessary for the survival of the organization.  However, holding a 501(c)(3) tax exemption does not give unlimited permission to fundraise.  Many nonprofits are unaware of charitable solicitation laws within their own state much less other states where they may be asking for and/or receiving contributions.

Nonprofits that solicit donations or funds (directly or indirectly) must register in its home state if its home state requires registration. Nonprofits may also be required to register outside of their home state depending on where the donors its solicitations are reaching reside the amount and frequency of donations. Examples of fundraising that could trigger the duty to register include the following:

Traditional Fundraising

Traditional fundraising techniques include direct mail, telephone solicitation, door-to-door fundraising, individual asks, special events, grant applications, and corporate solicitations. If a nonprofit conducts any of these direct methods of fundraising, it must register in its state of domicile and any state its solicitation is targeted to reach if those states regulate fundraising.  Some states may not require an organization that solicits grants solely from foundations and governmental units to register if that is the only method in which it solicits donations in the state.

Media Fundraising

Fundraising through radio, television, newspaper and magazine ads raises special compliance considerations. If the solicitation is distributed or aired locally or regionally, the organization must register in each state where the residents of such state can encounter the broadcast or periodical.  If the advertisement or program is distributed or aired nationally, the organization must register in all states that require registration.

Internet Fundraising

Internet fundraising includes solicitations delivered via email, a website, or social media. While email is digital and included in the list of Internet based fundraising methods, for registration purposes email is treated like direct mail.  Therefore, the organization would be required to register in the state(s) where the individual(s) receiving the email is located.

For online solicitation mediums such as having a donate now button on the organization’s website or the website of a fundraising intermediary, or being the beneficiary of a social media or crowd funding promotion, registration may be required.

Some states follow the Charleston Principles which offers a guideline based on repeated, substantial or ongoing donations received through these methods.  However, the organization may be required to register with those states that have not adopted the Charleston Principles and where it has met the Charleston Principals repeated, substantial or ongoing donations test. If the organization receives an unsolicited donation via a donate button on its website it may not trigger a duty to register in states that follow the Charleston Principals. However, once the organization takes that individual’s contact information and sends a request for a follow-up gift, that is considered a solicitation and triggers state registration requirements.

Auctions, raffle/bingo, vehicle, cause-related marketing

Many states restrict raffles, bingo and other forms of gaming. Violations of gaming laws can result in criminal liability. Some states offer exceptions for nonprofits but the rules must be strictly adhered to. Many such states require nonprofits engaging in gaming activities to obtain state and local licenses.

Contracts with Professional Fundraisers

If the nonprofit organization engages professional fundraisers (Professional Solicitor, Professional Fund-Raising Counsel, Commercial Co-venturer) to assist with fundraising or strategy for any of the methods listed above, the nonprofit and the professional fundraiser may both be subject to filing requirements depending on the state and type of assistance provided. For more information, see our blog post on Working with Professional Fundraisers.

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Working with Professional Fundraisers

Donations are the lifeblood of most charities and therefore maintaining the right to fundraise in various states is of critical importance. While many charities know they must maintain their own state registrations to protect their ability to fundraise, they aren’t always as vigilant when it comes to working with professional fundraisers.

Professional fundraisers are regulated in many states where they are also known as professional solicitors, professional fund-raising counsel and commercial co-venturers. Once a fundraising contract is executed, both parties have an obligation to disclose the relationship in the states where fundraising will occur based on services being provided. If both parties are registered and the contract has all the required information, the contract should be accepted and charitable solicitations may commence upon acceptance.

However, from time to time, a charity may receive a notice that the professional fundraiser is not properly registered or current with its registration or vice versa.  The notice will state that fundraising in the state must cease until the unregistered party obtains or renews its license.  The unregistered party will receive a separate notice notifying them of the need to register or submit a renewal application.

If the fundraiser does not register and the charity, knowingly, continues to use their services to solicit in the state they received a notice from, both the charity and the fundraiser can be subject to fines and consent agreements which they would be required to disclose in other states.  Depending on the severity of the violation, a state can impose more severe penalties.  For example, a charity can have its registration exemption revoked (if it is on record as an exempt organization from registration), fined, or required to return funds received during the period of non-compliance.

We recommend both the charity and the professional fundraiser include language in their contract requiring each party to comply with state law in the applicable states and to make the failure to keep each other updated on changes to the status of their registration a basis for termination of the agreement.

It is important to remain in communication throughout the contract term with regard to the status of registrations – especially when preparing for a campaign.  Coordination to ensure both parties are properly registered can prevent loss of revenue, for example, in printing for a direct mail campaign and/or avoid financial penalties if caught unregistered.

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North Dakota Annual Report for Charitable Solicitation

North Dakota’s Charitable Solicitation Annual Report is due September 1.  The Annual Report can be obtained online at http://sos.nd.gov/business/nonprofit-services/charitable-organizations-soliciting-contributions/required-solicitation-reports.  Note that North Dakota does not require a copy of the organization’s tax return.  If your organization’s fiscal year ends between June 1, 2017 and September 1, 2017, a three (3) month extension can be requested by submitting the state extension form.  If your organization follows any other fiscal period, it must file by the deadline or pay the late fee.

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Registration Strategies for Small Nonprofits

Yes, charitable registration laws really do apply to small charities. Many states have minimum fundraising thresholds, but those thresholds generally apply to funds raised by the organization nationwide, not in that specific state (a common misconception!). Therefore, unless your charity is so small as to be practically non-existent or fits into another common exemption (e.g., churches), it is still likely required to register in most states with registration requirements.

One approach for small organizations with online fundraising operations is a strategic registration. A strategic registration requires the charity to review its fundraising and determine where it is currently soliciting. Next, the charity must determine which states regulate fundraising and whether the states in question have exemptions that may apply. Based on that analysis, the charity can then register in only those states.

Further, if the charity has a “Donate Here” button on its website, several states refuse to follow the Charleston Principles and  interpret that as a solicitation in their state. Accordingly, the charity should either state on its website that the solicitation is not directed toward residents of those states or it should register in those states.

Donations that come in from states where the charity is not soliciting do not trigger registration. Its the solicitation that triggers the requirement to register, not donation. However, any good fundraiser worth his or her salt will want to follow-up and ask for more. At that point, the charity is once again soliciting in a new state and will have to evaluate whether it needs to register.

The key to making strategic registration work  is staying on top of solicitations and ensuring that registration requirements are considered whenever solicitations are directed to a new state.

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Cause Related Marketing and Commercial Co-Venture Best Practices

Cause Related Marketing and Commercial Co-Venture Best Practices

According to causegood.com, cause marketing campaigns have exploded in the last decade – driving $700 million in sales in 2002 to $2 billion in 2016. Everywhere consumers look there are offers that promise to benefit a charity or cause. What many companies don’t know, is that cause related marketing triggers legal obligations for both the businesses making the offer and the charities that benefit.

Often companies are blissfully unaware that their charitable sales promotion is a regulated activity and are surprised to learn that there are regulations they must comply with. However, states have an interest in protecting consumers from false and misleading advertising. They also have an interest in protecting charities from being exploited. Accordingly, at least 20 states regulate cause marketing offers which are referred to interchangeably as “commercial co-ventures” or “charitable sales promotions.”

While definitions vary from state to state, in general, a commercial co-venture is an advertising or sales campaign conducted by a business which represents that the purchase of goods or services offered by the business will benefit a charitable organization or purpose.

A number of states require the business making the offer to enter into a contract with the charity they plan to benefit. As of this writing, four states require some form of registration. Others require the parties to enter into a written contract and even specify certain terms to be included in the contract. Two states require copies of the contract to be filed with the state before any actual sales occur. Two states even require the business to obtain a bond and register it with the state.

Most state regulators also require the charitable beneficiary to register to fundraise in the states where the offer is going to be made. Failure to register can lead to fines, and in some states, criminal penalties.

Best Practices for Businesses

  • Carefully vet charitable beneficiaries to ensure the charity enjoys a good reputation as an ethical and effective organization;
  • Enter into a written contract with the charitable beneficiary securing the right to use their name and marks to promote the offer and that includes the terms and disclosures required by certain states’ laws;
  • Ensure the charity files a copy with the states that require it;
  • Either obtain and register a bond in the states that require a bond or clearly state the offer is not valid in those states in all promotional material;
  • State the offer in clear and unambiguous terms;
  • Include the required disclosures at the point of sale;
  • Ensure advertisements list the donation on a per unit basis wherever possible;
  • If an offer is based on a percentage of profits, clearly disclose any minimum sales requirements or sales caps; and
  • Look for charitable beneficiaries who are registered (or who are willing to register) to solicit in the states where the offer will be valid.

Best Practices for Charitable Beneficiaries

  • Before agreeing to participate in a charitable sales promotion, make sure the business is aware of and willing to fulfill its legal obligations;
  • Require a written contract;
  • Ensure the contract makes clear the dates of the offer and which states the offer will be valid in and register to fundraise in those state before the campaign begins;
  • Ensure the item or service that is being sold is clearly described;
  • Ensure the offer is clear and unambiguous and written in a way that the amount owed to the charity can be tracked;
  • Include a limited, non-exclusive, nontransferable, non-assignable, revocable license to use the charity’s trademarks and service marks as part of the promotion;
  • Clarify how and how often payments will be made to the charity and ensure the reporting schedule adheres to any statutory minimums (every 90 days is typical); and
  • Require regular accountings of the campaign.

Cause Marketing can be an effective strategy for companies to promote products and gain market share. It can also be a welcome source of funds for charities. However, cause marketing can backfire when proper consideration isn’t given to legal compliance. For assistance preparing protective cause marketing agreements and complying with the various state’s laws, please contact info@carternonprofitlaw.com.

If you are seeking advice regarding co-venture contracts, disclosures and registrations, contact info@caritaslawgroup.com or call us at 602-456-0071.

 

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Charity Website Disclosures

Charity Website DisclosuresIn today’s world of technology and the World Wide Web, almost all charities have a website. If your charity has a website, here are a few tips regarding charity website disclosures that are recommended:

Key Documents

The organization should make the following accessible to visitors of their website:

1) Mission statement of the organization

2) Summary of the organization’s programs

3) Roster of Directors and Officers

4) Link to the organization’s most recent form 990 (minus Schedule B)

5) Summary of finances of the past fiscal year (Annual Report)

Some organizations go for full transparency and may include a copy or link to their organization’s formation documents: Articles of Incorporation, Bylaws, IRS Determination Letter, etc. These documents are not required or necessary to disclose and can subject the organization to other scrutiny by the public and private sector. Therefore, we recommend making them available on the organization’s website only after careful consideration of the pros and cons.

Solicitation Related Disclosures

If the organization’s website includes a donate here button, the organization may be subject to charitable solicitation registration requirements. Many states follow the Charleston Principles but others do not. Therefore, the organization may need to review what state the donor(s) that donate through the webpage come from and determine if registration is required in those state(s). The organization will also need to consider whether it receives contributions from the state on a repeated and ongoing basis or a substantial basis through its website. If so, then the organization either needs to get registered as soon as possible or include a disclosure statement on the donate page to omit donations from residents of those states where the charity is not registered. In addition, the organization should have a link to the state required written disclosure statements regarding registration and location of financial records. If the charity accepts quid pro quo donations on its website, it must also ensure that the disclosures for quid pro quo donations are provided to donors.

Privacy Related Disclosures

Lastly, the organization should have its privacy policy posted. The policy should include the four (4) standards: notice, access, choice, and security.

Following these tips will help charitable organizations create informative, transparent, and compliant websites that communicate a culture of accountability and stewardship to both donors and regulators.

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