The internet and the multi-state nonprofit
Saltshaker warning: I attempted to start a multistate non-profit. It failed prior to startup. I’ll explain why as an annex at the end, but I think it fair you know this while you read this.
The internet is a blessing and a curse for the multi-state non-profit organization. Both revolve around one issue: donations. More accurately, the tax exempt status of donations.
The background of the problem is simple. A donation to a tax-exempt organization is itself exempt from taxes; not just federal taxes but state taxes as well. State and federal exemptions are not identical, nor are states identical between themselves. Easy movement of money can, however, easily sidestep fraud protections.
As a result states make easy movement no longer easy.
Now, way back before the internet, courts had a working solution for out-of-state donations. Before you solicited donations from most states, you had to have registered as a charitable or tax-exempt organization.
If you didn’t register and solicited money, that money was not exempt. If you did NOT solicit you could exempt the money. (Usually, with most exceptions falling in the ‘obviously trying to bypass the law’ category.)
Enter the internet. Set up a website, add a donation button, and suddenly states are claiming you are soliciting from their state. Worse, the courts agreed.
So what’s a non-profit supposed to do here, anyway? There are actually several choices.
First, and worst, you can gamble. If you’re small enough MOST states will not pursue you as there’s a cutoff line, legally, besides being not worth the time and effort. As a guideline, $5,000 total revenues is pretty universal.
Second, best, and most expensively you can register as a charitable/tax exempt organization in every state that requires it. This will cost you a couple thousand dollars in addition to hundreds of pages of documentation plus the manhours necessary to track and complete all in timely fashion. There’s a partial alternative I’ll get to shortly.
Thirdly, and a compromise, you can register only in SOME states and put a restriction on your website donation button.
I want to expand that third before I get to nation-wide registration. If you want to gamble good luck but I won’t advise you there.
If you make a reasonable effort to ensure that donations come only from particular states in which you’ve registered, the courts usually agree that’s acceptable. Note the weasel words, and consult your attorney for your situation. That said, if you’re a small charitable organization sitting near a state border and only want ‘local’ donations, this will probably be sufficient. Make the part of the page for donations include both a notice that you’re only registered in “these” states, and have your webpage designer include a refusal for anyone who uses an address outside those states. If people who live outside that area still manage to send you money, it isn’t your fault - at least, not on the face of it. Did I mention talk to your attorney for your situation?
Now, states aren’t really ignorant of the problems the internet has created, and there are a lot of cooperative projects underway to resolve them. In this case the solution is the Uniform Registration Statement, found at multistatefiling.org. It is still a headache, but it’s not a migraine.
39 states plus DC in the US require registration. 36 plus DC have agreed to use the URS, though 13 plus DC require additional paperwork. ALL of it can be found at and through the multistate website.
Now even though you’ve found this site, it’s not going to be a piece of cake. In general you need the form at the site plus a copy of your federal exemption form plus your various business papers for your home state plus the check for the state’s registration fees. Almost all the forms, certainly the URS and state registration forms, need original signatures. Note the plural, as even though some states allow single officer corporations (to include non-profits) that is not true of all. If you’re a single officer corporation you can’t, as built, do nation-wide multi-state registration.
At that point, it’s not over. Within a year you’ll be reporting to all the states with your annual financial reporting - which is not necessarily your renewal (sigh). Just as one example of the confusion, here’s a list of the states and their report dates. Not fees, not paperwork required, not whether or conditions on which audits are required, just the reporting DATES.
Within 90 days of Fiscal Year end: AL
Within one year of filing: AZ
Within six months of Fiscal Year end: IL, KS, MD, NJ, NM, WI
Last day of fifth month following Fiscal Year end: CA*, CT
On or Before filing date of 990/990EZ: HI
May 15: CA*
September 1: DC, ND
Within two years of filing anniversary date: GA
Within 4 1/2 months of Fiscal year end: KY, MA, NH, NY, NC***, OH, OR, PA, VA, WA
Anniversary of initial registration: LA, MS, RI, SC, WV
November 30: ME**
30 days prior to license expiration: MI
15th day of seventh month following end of FY: MN
Within 2 1/2 months of FY end: MO
Within 30 days of end of year reported: UT
Within 60 days after receipt of renewal paperwork from state: FL#
March 31 OR within 90 days of end of Fiscal Year: OK#
15th day of fifth month after end of FY: CO#
*CA allows choice if using fy that does not match calendar year.
** ME requires a separate report due Sept 30.
*** NC, WA literally 4 months and 15 days, not 4 1/2 months.
# NOT a URS partner.
With all this said, the REALLY good news is that there are professionals, almost always attorneys or offices that include attorneys, that will handle all the grunt work for this for you. This includes providing additional elements such as (where the state requires it) a physical presence within the state or district. If you’ve ever wondered why one address seems to be the home of a bunch of businesses and charities, this is a big reason. You and a bunch of other people are paying a portion of the costs so a clerk can sit in that office instead of paying your own rent and utilities and employment contract.
Did I mention that if you’re intending to solicit from multiple states to talk to your attorney?
To repeat myself: the internet is both blessing and bane for non-profit organizations seeking donations. The reason boils down to the fact easy movement of money allows easy fraud if not watched. If you’re staying local or at most one or two states-next-door it’s not much of a deal. If you’re wanting money from everywhere there is a price to pay; be prepared, as paying it up front is a lot less than paying it after they catch you.
I did 90% of the work toward beginning a multi-state tax exempt (501(c)3) organization. It didn’t get off the ground. It failed for the simplest of reasons: I was starting it for the wrong reason. It was a good charitable concept, but I needed a job. As a result I had ‘minimum’ requirements of revenue that were too much too soon.
The work was solid and as a result I know a lot of the rules for both Georgia and Tennessee as well as national requirements quite well. On the other hand I don’t have the experience of actually running a multi-state non-profit. Running a library (which I’ve done) isn’t quite the same. Don’t forget your salt shaker.