Solicitations Corner ö Myth Buster:
So you mean schools must register in states other than the state in which it resides?

Charity Advisor Resource Newsletter - Volume 1.2 (2009)

BY JONATHAN D. ACKERMAN

Educational institutions and their supporting foundations must comply with the state charitable solicitations laws (and not just those laws in the state in which it resides!).

Background

Virtually every state has some regulation regarding charitable solicitation, whether it is in the form of (1) registration requirements for charitable organizations, professional solicitors, professional fundraisers or commercial co-venturers, or (2) civil, criminal and deceptive practice sanctions.

The basic problem charitable organizations face in trying to comply with the charitable solicitations laws of each applicable state (and some local jurisdictions) is the lack of uniformity in technical registration requirements, such as the definition of significant specific terms: Charitable Organizations; Charitable Solicitation; Exemptions to Registration; Professional Solicitors; Professional Fundraisers and Commercial Co-Venturers.

For instance, every state that defines ãCharitable Organizationä uses unique language under its particular statute. Thus, the definition of a ãCharitable Organizationä is subject to differing interpretations in every state. However, a charitable organization is essentially defined as any person organized and operated for a charitable purpose, with ãpersonä and ãcharitableä being very broadly defined. Charitable organizations may include organizations that are not public charities under Code Section 501(c)(3).

In general, charitable organizations that intend to solicit charitable contributions within a particular state must register with the appropriate regulatory authority within that state. States generally require an initial registration, as well as, an annual renewal registration filing, with some or all of the following to be filed by the charitable organization: State Registration Form; IRS Form 990; Articles of Incorporation and By-laws; IRS Determination Letter; Fundraiser contract(s), if any, and an annual financial report.

In addition, most of the registering states laws contain exemptions. These exemptions may be found under a specific ãexemptionsä provision or embedded in the definition of a charitable organization. There are several distinguishing features of the exemptions, such as the nature of the charity, the type of solicitation or the amount raised from the solicitation requests, but these exemptions are different among the applicable states.

As a general rule, numerous exemptions among the registering states apply to the following: (1) Churches; (2) Religious Organizations; (3) Schools; (4) Hospitals; (5) Libraries and Museums; (6) Membership Organizations; and (7) Limited Solicitations. Exemptions may apply to the entirety of the charitable solicitations act or solely to the registration requirement. In some states, application for the exemption must be made and accepted.

Though charitable organizations may sometimes question the need to register given their particular circumstances, the potential penalties for a failure to comply are clear. Civil and criminal penalties can be imposed for a failure to comply with the charitable solicitations laws. The civil penalties range from (1) revocation, cancellation, suspension, or denial of state registration, investigation by the appropriate governmental officials, the levying of fines to charitable organizations ranging from $100 to $25,000 for failure to comply (similar fines are also imposed on persons with fiduciary responsibility who are willfully non-compliant or fraudulent), and loss of tax-exempt status in the state. In addition, violation of a stateâs charitable solicitation act may constitute a violation of that stateâs unfair trade practices or deceptive practices law. Generally, criminal sanctions for a failure to comply ranges from misdemeanor to felony among the various states, and may be imposed on officers or trustees who evidenced an intent to defraud or a willful violation of the law.

Enough Background ö Letâs talk about Schools & Their Supporting Foundations

Schools and their supporting foundations are clearly charitable organizations subject to the charitable solicitations laws, and engage in charitable solicitations under the definition of that phrase as it is generally defined among the applicable states. Thus, to the extent that schools and their supporting foundations solicit donations from residents of any state, they have to consider compliance with these rules.

There are approximately 38 states (including the District of Columbia) that require charitable solicitations registration, and possibly more if a paid solicitor assists the charity with such solicitation. Of those 38 states, there are a myriad of exemptions, some of which relate to schools and their supporting foundations. For instance, there are (on last count and confirmation with the regulatory agencies of the applicable states) approximately 16 states that require registration for a school to solicit contributions from a resident of those states. It is strongly recommended, and in some of the other 21 states required, that the school make a specific request for such exemption. Please also note that there is a lack of uniformity among the applicable states, and particular facts with respect to the school can impact these filing requirements.

So, you say that a supporting foundation of the school is the only entity that solicits charitable donations ö does that matter? Yes - there are even more states that require registration for a supporting foundation to solicit contributions from residents of those states. What if a school or supporting foundation solicits charitable donations only from its students, faculty, and alumni - does that matter? Yes ö certain exemptions apply where the school or supporting foundation solicits from only those constituencies. However, most schools that desire to register do not desire to limit such solicitations to those groups, as there are many opportunities for fundraising from professional advisors, interested persons in the community, friends of the school, etc., that may be proper and fruitful resources from which to solicit contributions.

In addition, an entirely different issue is raised when a charity solicits contributions solely on their website. However, we will save that question for another Solicitations Corner. But, as a big caveat, internet solicitations clearly implicate these rules, and some states do require registration in that case, while other states look to certain facts and circumstances to determine the necessity for registration.

Conclusion

For those who work for or with schools and their supporting foundations, busting this myth may be a surprise for some ö but ignorance is not bliss in this environment, and compliance now is in the best interests of the schools and their donors, as one of the overriding purposes for the state charitable solicitations laws is to provide greater transparency and availability of important information about charities that solicit contributions from the general public.

For more information, please review www.charitableregistry.com or contact Terri Ackerman with the Charitable Registry at tackerman@charitableregistry.com.