Recently, The New York Times posted a dramatic headline, “State Attorney General Orders Trump Foundation to Cease Raising Money in New York,” calling out that organization’s failure to obtain a solicitation license to request contributions from New York residents.
The article reports the organization also collected public contributions from residents outside of New York — again, with no solicitation license issued from any of those states.
For years, I’ve warned my readers through my blog, books, courses, and workshops of this danger: nonprofits cannot ask for contributions from donors inside or outside their state unless they’ve obtained explicit permission (or exemption*) from that state.
For almost every state, nonprofits and their representatives must obtain and renew a solicitation license (and in some cases, an official exemption*) to engage in any of the following activities:
- mail or email a newsletter that includes request for support.
- send a “snail mail” letter with any request for support.
- hold a fundraising event (or event somehow tied to fundraising).
- send an event invitation.
- email with any sort of link to donation page.
- ask businesses for in-kind donations or sponsorships.
- website “donate now” buttons (where substantial donations come from a particular state).
To be clear, this means you need a solicitation license for each individual state where you attempt to engage a donor — even through an indirect request for support.
Failing to obtain or renew a license can leave your nonprofit in a world of hurt.
You could lose your nonprofit status.
You could face enormous fines.
You can be sued for a return of every single charitable contribution.
Your board members could face criminal or civil charges.
Also, as evidenced by the Trump Foundation’s troubles, calling out a negligent charity makes for an eye-catching headline in the news, particularly if you have high-profile or politically-linked board members.
Many regulatory agencies have warned charities that they are indeed beginning to “crack down” on delinquent nonprofits.
But despite the potential consequences, an alarming number of nonprofits neglect this simple requirement.
This morning, I did a quick survey of the NC Charitable Solicitations License Registry for a handful of small to mid-size nonprofits — who are currently soliciting donations in the state and for whom exemptions do not apply. Of those groups, 31% had either a currently expired license, a recently expired license, or no record of ever applying at all.
With so much at stake, why are so many nonprofits exposing themselves to this risk?
Nonprofits often hire staff or recruit volunteers who are new to fundraising to assist with events, direct mail, online fundraising, and other communications that involve public financial support. These well-intentioned staffers are learning on the job, overwhelmed with their new role — and in the frantic atmosphere of the nonprofit world, there aren’t many prompts for attention to regulatory issues.
The high staff turnover that is rampant in the nonprofit sector leads to responsibilities falling through the cracks.
Additionally, the plethoras of paperwork along with the annual fees required for multiple state licenses, can make it labor-intensive and cost-prohibitive.
Here are three ways to ensure your nonprofit stays compliant:
- Join your state’s association of nonprofits. Most do a great job of informing and reminding their members.
- Create an operations manual for your organization that documents all procedures and processes and keep it up-to-date.
- If you need a license in multiple states, hire a third-party service provider to manage it all.
- Provide your staff, volunteers, and board members thorough training for their fundraising responsibilities.
[*Update: In many states, religious and educational organizations as well as organizations with annual contributions below a certain threshold are exempt from the charitable solicitations licensing requirement. Check your state’s exemption specifics.]
For more information and individual state solicitation requirements: The National Council of Nonprofits.