Nonprofits Crossing State Lines
If your nonprofit performs “charitable solicitations” in another state, you may be required to register there. This does not apply to passive fundraising, such as donors from other states who give through your website or send you checks in the mail. It does apply, however, to galas, alumni/ae events, concerts, or any other active fundraising activities that you host outside of your home state. Currently 40 states require registration, each with their own regulations. Until recently, you almost needed a law degree to figure out what they were and how to comply with them!
In May of 2010, an attempt was made by the National Association of Attorneys General and the National Association of State Charities Officials to standardize registration procedures for nonprofit organizations across state lines. The resulting Multi-State Filer Project produced a form called the Unified Registration Statement , or URS, which has so far been adopted by 36 of the states that require registration for out-of-state nonprofits, as well as the District of Columbia. The additional 3 states, Colorado, Florida and Oklahoma, still require registration but do not accept the URS.
The goal of standardization was only partially met. In addition to the URS, which has to be filed separately for every state where you solicit charitable donations, each state has its own list of exemptions, required documentation, and fee requirements ($0 to $300) which also have different renewal structures! Thirteen of these states require extra documentation. Where the Multi-State Filer Project was successful, however, was in bringing this information together in one place where it is easily accessible to nonprofit leaders. All of it, including the URS form and directions on how to fill it out, is posted on the website: www.multustatefiling.org.
A case in point is Rebuilding Together Houston (RT-H). For over 30 years, this nonprofit has recruited hundreds of volunteers each spring and fall to make repairs on houses owned by low-income elderly Houstonians and veterans.* Over the past few years, RT-H has entered into a partnership with Home Depot to expand its veteran home repair services. In order to obtain this funding, RT-H must apply to The Home Depot Foundation, which is located in Atlanta. To ensure compliance with Georgia state laws, RT-H consulted the Multi-State Filer Project website. As it turns out, RT-H falls into one of the exempted categories of “national charities with registered Georgia affiliates,” so it is not required to register in that state. Had that not been the case, it would have had to pay an initial registration fee of $35, with a $20 renewal fee every 2 years.
What about nonprofits based outside of Texas, that wish to solicit funds or donations in the Lone Star State? As of yet, Texas has not adopted the URS. To quote the Texas Secretary of State: “If an organization was formed under, and the internal affairs are governed by, the laws of a jurisdiction other than Texas, the organization is (considered) a ‘foreign entity.’” That about sums it up! A “foreign” nonprofit’s requirement to register in Texas hinges upon whether it is legally viewed as “transacting business” in the state, or if its contacts with Texas are only through interstate commerce (for example, by mail or by telephone), or through independent contractors. [Click HERE to learn more.]
Since failure to comply can result in penalties, it would be wise to seek legal counsel on this matter. [See Resources below.] Penalties can include the following:
Inability to maintain an action, suit, or proceeding in a Texas court until registration;
Injunction from transacting business in Texas;
Civil penalty equal to all fees and taxes that would have been imposed if the entity had registered when first required; and
Late filing fees owed to the Secretary of State by an entity registering more than 90 days after first transacting business in Texas.
To summarize: In most states, registering your nonprofit in order to conduct fundraising activities is relatively easy and can offer many benefits to your organization, if done correctly.
* Rebuilding Together Houston’s Spring 2013 volunteer weekends are April 6 and April 13. Fall dates will be in October.
Resources: For legal issues pertaining to nonprofits, check out attorney Erin McClarty’s blog, Notations on Nonprofits.