Triggers and Thresholds and Exemptions: Oh My!
Charities and other organizations that solicit charitable donations nationwide are required in most states to register with state charity offices pursuant to Charitable Solicitations Acts, unless they meet one of many state-specific exemptions or exceptions. The trigger for registration in the 40 states that broadly require most types of nonprofits to register is the act of soliciting. It does not matter from where the solicitation originates or the form of solicitation used, such as direct mail, telephone, email, events, personal contacts and grants, but rather the act of asking for a charitable donation itself.
Another trigger, in some states, is a monetary threshold, whereby registration is only required if donations exceed a minimum dollar amount. For example: California has no monetary threshold (even small charities that raise little or no money must register), while charities soliciting in New York must register if donations exceed $25,000. Similarly, many states exempt certain types of nonprofits from registration, such as religious organizations, educational institutions and hospitals. So, if one of many exemptions exists, then registration is either not required or a state review or application for exemption is required.
The due diligence required for making a determination about the need to register, or lack thereof, is a difficult task for nonprofits soliciting donations nationwide. This is further complicated for some organizations that raise substantially all of their donations online. In this age of digital commerce, a question I am often asked by nonprofits is, "Does the 'Donate Now' button on our website trigger the need for charitable registration in every state?"
Unfortunately, like many areas where the law is unclear, you will get conflicting answers to this question. Some argue that a "Donate Now" button constitutes an indirect solicitation and therefore requires nationwide charitable registration. Others see it as a passive conduit that facilitates a charitable donation, thereby not requiring registration in any state. These are the "black" and "white" answers on this issue, both of which are inaccurate, in my opinion. When it comes to this question, the reality is that we live in a gray world, one that requires a state-by-state analysis of the statutes and regulations, and consideration of specific activities by charities vis-a-vis their "Donate Now" buttons.
In my attempts to answer this question, I usually remind people that I am not an attorney, so I am not providing legal advice. I also go into a very brief discussion of industry guidelines and then I close with the above mentioned "gray" answer. Fortunately, some states have weighed in very clearly on this issue, such as Colorado and Tennessee, which have addressed this issue in their charitable solicitations statutes. Most states, however, have not clearly answered this question, thus leaving it up to knowledgeable laymen and professionals to make a "best-efforts" determination. This challenge requires an interpretation of how to apply 30-year-old statutes to the realities of the internet era, consideration of the specific facts and the only guidelines available to us, The Charleston Principles.
In 1999, a group of attorneys and state officials known as NAAG/NASCO (National Association of Attorneys General and National Association of State Charity Officials) gathered in Charleston, South Carolina to attempt to address this challenge. The results of their efforts are guidelines known as The Charleston Principles. Under these guidelines, state charitable solicitation registration is required if:
- "the nonprofit's website is used to make charitable solicitations, and
- the nonprofit has sufficient fundraising contacts with state residents, whether through the website or by other means."
The Principles continue by stating that nonprofits with an interactive website must register if it:
- "specifically targets state residents for contributions, or
- receives substantial contributions from state residents on a repeated and ongoing basis through or in response to the website solicitation."