The Nonprofit FAQ

How is fundraising regulated in the US?

Harriet Bograd wrote in "Cyber Accountability" (the cyb-acc mailing list, hosted by CharityChannel.com) on 3/2/96 to discuss regulation of nonprofits and fundraising in the United States. She was responding to comments from an observer based in Germany. Her text follows: I think it is urgent to have some kind of international compact on charitable solicitation of funds on the Internet. This message is an attempt to give you and others from outside the U.S. a picture of our current regulatory system, so you can see why we in the U.S. are concerned. As I understand it, you start out with a situation where there is too little regulation of charities. We in the U.S. start out with, perhaps, regulation that is too burdensome and yet not effective enough. And because of our federal system, in which each state regulates independently, we already have a chaotic system of many jurisdictions with inconsistent laws. Let me make it clear at the start that I'm an advocate of strong, clear, reasonable regulation of nonprofits in the area of accountability. I'm absolutely in favor of such regulation. But inconsistent laws in a multiplicity of jurisdictions cause a heavy burden on the charities and inadequate public access to accountability information. I hope that things like centralized databases, information on the Web or CDROM will make the systems less burdensome and more accessible. Here is the background. Something between 30 and 40 states (out of our total of 50) have laws regulating charities and/or fund-raisers. There are requirements for one-time or annual registration, and annual reporting. A group of states are working with representatives of the nonprofit sector on a uniform registration form, but though about 23 states have agreed on this, I don't think the forms and package of instructions for charities registration is available yet for use by charities. For annual financial reporting by charities, many states now use the national Internal Revenue Service's Form 990, supplemented by their own form for additional questions. Even to obtain the appropriate forms and instructions from all the appropriate state offices is challenging and very time-consuming. In many states, out of state charities soliciting in the state are required to register. In many states, charities also have to file with the Secretary of State as corporations "doing business" in that state. (NOTES -- 1/9/10: The Unified Registration Form, which allows submission of initial registration to many states using one form, is available, along with a lot of detailed information about the various states' procedures, at http://www.multistatefiling.org. 5/29/05: There is a complete list of all the state charities regulators online, on the National Association of State Charities Officials (NASCO) website. Use this web address: http://www.nasconet.org/agencies --Ed.) There is a group exploring the possibility of challenging aspects of the registration laws, on the theory that simply mailing a letter into another state should not be considered "doing business." A recent U.S. Supreme Court decision, the Quill case, decided that a state could not charge sales tax if all the company was doing was mail-order sales into a state. The litigation group argues that the Quill case is relevant to state regulation of charities. So for charities that solicit in many states (notably the ones that use professional fund-raisers and either direct mail or telemarketing strategies), there is an overwhelming burden. The multi-state charities complain that they have to file different reports, on different forms, with different instructions, and different conceptual categories, for each state - some states are even fussy about the size or color of the paper. And many states charge substantial fees along with the filing. There is little correlation between the size of the fees and the quality of the charities bureau. Some charities offices have reasonably modern database programs, while others have difficulty retrieving a form when a citizen asks to see it. At least one state bureaucrat allegedly said that they put all the forms in a shoebox and send them to a warehouse. In some states, citizens who want to get access to the charities' reports can go to the state charities office and make copies, for a fee. But even in New York, one of the best of the charities bureaus, when I wanted to get such a form in a hurry it took three trips to the office over the course of a few days - once to submit a signed request, once to bring in money to pay for the copying (after they had determined how many pages were to be copied) and once to pick up the copies. States also vary greatly in their resources - some have reasonably large and competent staffs of attorneys and investigators who work on enforcing the charities laws, while other states have hardly any staff assigned to enforcement. With this background, when I hear of a group like Diversity University, run in cyberspace by a small group of volunteers, I shudder at what to tell them about the laws that would govern them if they post a solicitation for funds on the World Wide Web. At least one state charities official has told me that, as she reads her state law, solicitations on the Web ARE covered by her state laws, and any charity that solicits on the Web must register and report in her state. Thus I welcome your offer to take the initiative to lead the discussion on what we need instead. Your message about an unauthorized credit-card contribution system suggests that some kind of oversight is needed soon. [Reminder - I'm trying out these ideas, and the Nonprofit Coordinating Committee's research project should not be blamed for any outrageous statements herein! -- HB] Pete Kidder wrote on July 21, 1999, to fundraising@gilbert.org about ONLINE Fundraising and discussions of regulation: "Accountability in the Nonprofit Sector" (1996) from the Nonprofit Coordinating Committee of New York, by Peter Swords & Harriet Bograd, is an excellent source of information about who regulates the non-profit sector and the types of problems they encounter. (A copy of this paper in .pdf format is posted online here: http://www.idealist.org/media/pdf/FAQ/Bograd-Swords-96.pdf --Ed.) Posted 3/23/96; further additions 8/3/99; note about address for state charities offices revised 5/30/05; Swords-Bograd broken link repaired 11/4/05, and again 8/18/08 -- PB