The following article was co-authored by Alex Counts and Gabrielle Trippe (see their bios below). It received substantial input from Tony Martignetti, the host of Nonprofit Radio and a noted expert on charitable registrations. It was copy-edited by AMC Consulting’s program officer Julia Clark. In addition to taking on board the analysis and recommendations in this article, nonprofits should consult qualified legal and accounting experts before embarking on a major change to their approach to compliance.
Nonprofit organizations in the United States often struggle with the question of whether they need to be registered in all 50 states in order to raise money nationally, especially if they only solicit donations outside their home state in limited ways (such as by sending email solicitations to those who sign up for their mailing lists). Information about this issue is scattered and sometimes contradictory. The purpose of this article is to clarify the legal requirements and options available to mission-driven organizations. The bottom line is that for all nonprofits except those that never plan to approach donors outside their home state, registering in all 50 states probably makes sense despite the costs involved. Outsourcing the initial registration and annual renewals can be a cost-effective way to ensure compliance.
Unfortunately, many states have different requirements for fundraising from their residents, which makes the process more complex than if there were national standards or if states did more to harmonize their registration procedures. This issue has become more complicated with the advent and proliferation of Internet-based fundraising including “giving days” and crowdfunding. It should be noted, however, that the need to register in all 50 states does not always apply to educational institutions and religious groups or to organizations that only solicit their members.(1)
Which States?
According to Harbor Compliance, forty-one states and the District of Columbia require charities to either register or obtain a license before soliciting funds from even a single potential donor in that state, and then to report to the state annually for long as they continue to approach donors there.(2) The states that do not require registration are Delaware, Idaho, Indiana, Iowa, Montana, Nebraska, South Dakota, Vermont, and Wyoming.(3) However, even if a state does not require registration, it may require disclosure statements to be included on nonprofit solicitations for donations. Furthermore, some states require you to file an exemption even if you are not required to register. An exemption from having to register in a state could be due to the organization not meeting the given jurisdiction’s threshold requirement for registering or to meeting certain criteria such as being part of a specific religious group, educational, political, governmental, fraternal, membership-based, or healthcare related organization.(4) Applying for an exemption may reduce filing fees but might not reduce the workload involved in the process.
Nonprofits do not need to register in states that they receive contributions from but are not soliciting in – unless the contributions are substantial or frequent. For example, if you run a homeless shelter in Seattle and your aunt in Montana sends a donation, you can probably accept it without any problems as long as you did not ask her for that donation (the possible wrinkle being if her donations are substantial or frequent). That being said, if you send out a text, Facebook post, and/or tweet asking for money that reaches even a single person in a given state, that would be considered a solicitation and will normally require registration.(5)
Noted expert Tony Martignetti, among others, argues that outsourcing these state by state registrations makes sense for most organizations that expect to approach donors in more than one state. This is due to the fact that the question of what exactly determines a solicitation is quite complicated and often differs by state. Of course, if your organization registers in all the states that require it, the need to scrutinize your solicitations to make sure none are going to places you are not registered becomes unnecessary.
How long will it take to register to fundraise in all the States that require it?
If you choose to outsource your registrations to a company that specializes in this, it normally takes up to two weeks once that firm has all the necessary documents from your nonprofit to get the applications filed. These documents normally include:
IRS Form 990 (i.e., the organization’s most recent completed tax return)
501c3 determination letter
Bylaws
Most recent budget
Balance sheet and other financial information
Articles of incorporation
Conflict of interest policy
Names and contact information of board of directors or trustees
Employer Identification Number (EIN)
Statement of charitable purpose.(6)
It normally takes 1-3 days of staff time to assemble that package, depending on the difficulty of locating particular documents. Once the filing is complete, it can take up to six months to receive approval from a state, though the average time for approval is 3-4 weeks.
If a nonprofit organization chooses to do the filing itself, perhaps because it only plans on doing so in a handful of states, much more staff time will be required. You will need to research for what is required by each state, fill out multiple applications, and gather and send all the required documents. This could take a considerable amount of time depending on how many states you are attempting to register in. If there are errors or omissions in any of your applications, they are likely to be sent back to you in order to refile, which takes additional time. Therefore, the best solution for most organizations that need to register in multiple states is to outsource it to a firm that specializes in charitable registrations.
If you are only going to register in three or fewer states, it may be cost effective to do the process internally. Tony Martignetti estimates that it takes at least 3-5 days of staff time if trying to register in such a small number of states.(7)
How much will it cost?
Some nonprofits have the same firm that files their IRS Form 990 (tax return) submit their registration for soliciting charitable donations to the various states, as there is some overlap in the information required. However, many other organizations choose to outsource this to a law firm or organization that specifically handles this process. Initially, the costs will include the fee the firm charges for filing on your behalf, plus the cost (paid to the states) of the applications themselves. There will be additional fees related to filing annual renewals, and if any deadlines are missed, fines will need to be paid. According to the National Council of Nonprofits, some states require disclosure statements be included as part of all solicitations for pledges or gifts.(8) These disclosure statements are intended to let donors know that the organization is registered in that state. Filing an exemption, which is an alternative to registering that some states allow, will cost approximately $50-$75 per state.
There are several resources to find approximate costs for registering individual states and also for registering across all 50 states. The Nonprofit Hub is a good resource to find out individual state costs. If you choose to register in all 50 states, it will likely cost between $7,000-$10,000. This includes the cost of hiring a firm and the registration fees. Below are some examples of registration costs.
Charity Compliance Solutions is an organization that offers a package for blanket registration in all 50 states. As of 2021, the approximate cost for a nonprofit with revenue of approximately $500,000 is $7,995, and the fee increases to $8,500 once you reach the $1 million revenue threshold. This cost includes all the state filings and fulfilling the requirements of any of the states mandating that nonprofits have registered agents (Colorado, Michigan, North Dakota, and the District of Columbia). This cost will also include any fees payable even if an organization is no longer is soliciting for or receiving donations from that state, as some states require nonprofits to do.(9) In other words, if an organization decides to scale back and is no longer receiving donations in a state it is registered in, they are required to withdraw or close the registration. Some states require only a letter to withdraw, whereas others require an official final filing.(10) Renewals are approximately the same cost as the original filing.
Some organizations such as Labyrinth, Inc. offer the option to do the filing but have the organization pay the filing fees on its own. One can do this for approximately $5,000 for the initial registrations. There will be a cost of yearly renewals as well which will vary slightly according to revenue but will be in the $3,000 to $3,500 range.(11) The fees themselves for all the states requiring registration will be roughly $3,000.(12)
Once a nonprofit is registered, normally it must renew its registration annually, though a handful of states require it only every two years. The cost of renewing your non-profit for all 50 states is approximately $7,000, which will include both the fee to the contractor and the filing fees. When renewing, you need to be mindful of any changes a state has made to its registration or renewal process. Any hired firm will track any applicable changes for you.
A particularly helpful resource is Martignetti’s Planned Giving Advisors, LLC. He offers many resources and also hosts a regular podcast on topics of interest to mission-driven organizations that we highly recommend: Nonprofit Radio.
Is anyone working on reforming this system?
You would think that with all the complications and confusion around nonprofits registering themselves in order to fundraise nationally, there would be advocacy efforts to simplify the process. However, many nonprofits are hesitant that advocacy efforts which cross the line into lobbying might result in their 501c3 status being stripped from them.(13) Perhaps this is one reason why we do not see more advocacy around this issue.
Nevertheless, there has been some to streamline the process. The Unified Registration Statement (URS) allows nonprofits who need to register in multiple states to consolidate registration. However, there are a few states that do not accept the URS, including Colorado, Florida, and Oklahoma. Even if the state does accept the URS, they often require further documentation.(14) In other words, even this route does not completely iron out the problem of each state having its own idiosyncrasies. The Harbor Compliance notes that they have found better outcomes by filing individual state applications due to the fact that examiners process them faster and they are less complex.(15)
According to the Board Effect, “Many states don’t have an adequate budget or the personnel to pursue unethical nonprofits that partake in fraudulent activities. On the flip side, nonprofits sometimes have to pay excessive amounts of their funds to follow through on compliance obligations. For these reasons, some advocates promote the idea of moving all regulatory responsibility for nonprofits to the federal government, which has the financial means and other resources to crack down on unscrupulous nonprofits.”(16)
Industry experts as well as federal and state regulators have been increasingly recognizing how time-consuming, expensive, and duplicative this process is and therefore have begun to develop what is known as the Multistate Registration and Filing Portal (MRFP). The idea behind this is to have a single web-based portal where non-profits can fill in their information only one time and gain their registration status to fundraise in multiple states. A test version of the site launched in October of 2018 in Connecticut and Georgia.(17) It is still in the early stages, but there are currently thirteen additional states selected to participate in the pilot program.(18)
Final thoughts
According to our research, the simplest route is often to hire an organization or law firm to do the flat rate registration in all 50 states. However, not all nonprofits will have this revenue capacity, especially when just starting out. If your organization is soliciting in very few states, at least to begin with, or is a small community organization, you can register in those few states and perhaps register in others if and when your nonprofit expands its fundraising efforts.
One of the key issues to consider is that if you choose to register and file on your own, the amount of staff time this will take could become significant. Your organization must ask itself, “How is our time best spent? Is it really worth our time to figure out all of these nuances and review them yearly for any changes or updates?” Basically, time is money, and this is not as easy a process as it should be.
About the Authors
Alex Counts (@AlexCounts) is an adjunct professor of public policy at the University of Maryland, an affiliated faculty of its Do Good Institute, a nonprofit consultant, and a writer. He is also the founder of Grameen Foundation, where he served as president and CEO for 18 years. He is currently the director of the India Philanthropy Alliance, a coalition of 14 leading nonprofits involved in humanitarian work in India. His recent books include Changing the World Without Losing Your Mind: Leadership Lessons from Three Decades of Social Entrepreneurship (Revised Edition) and When in Doubt, Ask for More: And 213 Other Life and Career Lessons for the Mission-Driven Leader.
Gabrielle Trippe is an international development professional with more than ten years’ experience working in sub-Saharan Africa, India, and the United States. Most recently she has been working to catalyze philanthropic efforts and social impact among the global Indian diaspora. A William J. Clinton Fellow with the American India Foundation, Fulbright-Hays Scholar, and a graduate of the University of California, Los Angeles, Gabrielle holds a Master’s in Public Health from Columbia University.
Endnotes
1 https://www.councilofnonprofits.org/tools-resources/charitable-solicitation-registration
2 https://www.harborcompliance.com/information/charitable-registration?utm_source=councilofnonprofits.org&utm_medium=referral
3 Watkins, Charles M. Esq: Webster, Chamberlain & Bean LLP, “Charitable Solicitation Registration Educational Exemptions”. May 23, 2016, page 5.
4 https://www.harborcompliance.com/information/charitable-registration?utm_source=councilofnonprofits.org&utm_medium=referral
5 https://www.tgccpa.com/2016/04/q-and-a-does-my-nonprofit-need-to-register-in-multiple-states/
6 https://www.merchantmaverick.com/start-501c3-nonprofit/
7 Interview with Tony Martignetti on April 27, 2021
8 https://www.councilofnonprofits.org/tools-resources/charitable-solicitation-registration
9 https://www.charitycompliancesolutions.com/services/registrations/initial-and-renewal-state-charity-registrations
10 https://www.charitycompliancesolutions.com/resources/faq
11 https://labyrinthinc.com/charity-resources/nonprofit-regulations/
12 https://www.nolo.com/legal-encyclopedia/does-your-nonprofit-need-register.html#:~:text=Registering%20in%20all%20the%20states%20that%20require%20it%20(39%20plus,and%20register%20in%20every%20state.
13 https://learning.candid.org/resources/knowledge-base/lobbying/
14 http://multistatefiling.org/
15 https://www.harborcompliance.com/information/unified-registration-statement
16 https://www.boardeffect.com/blog/governs-nonprofit-organizations/
17 https://www.philanthropy.com/article/test-site-launched-to-make-state-charity-registration-easier/
18 https://www.wabccpas.com/streamlining-fundraising-licensure-single-portal-initiative/