Some states have gone so far as to take the position that a nonprofit that requests donations online is “soliciting” donations in their state if any resident actually accesses the site. They have even extended this position to include charities soliciting funds via a “commercial donation” site such as www.igive.com or www.givetocharity.com, where donors can contribute online to charities that are registered with the site.
Here’s a quote from The Center for Nonprofits link http://www.njnonprofits.org/online_fr.html: “This means that non-profits that solicit over the internet may be required to comply with the charitable registration and reporting requirements of as many as 39 states. The state of Florida, for example, has begun to require organizations to register in certain instances, and has actually taken action against at least one charity that was enrolled in an online ‘commercial donation service’ but was not registered with that state. New Jersey charity officials have told us that they, too, consider any Internet solicitation accessed by New Jersey residents to be an in-state solicitation, requiring registration and reporting.”
We believe that this bureaucratic attempt at increased jurisdiction over Internet charitable solicitation should be halted before it grows into a larger problem for nonprofits. For Internet solicitation, the Federal Trade Commission is the proper agency to curb illegitimate fund-raising (we assume that is the reason the states want to regulate), not the individual states which have no true nexus with the soliciting charity which is soliciting online. We are assuming that the charity is not incorporated in the regulating state or is actually operating its activities in the regulating state. If it is, of course, then the state has the power to regulate the solicitation of that nonprofit in that state.
We hope concerted action by some group will end this attempt to increase jurisdiction, bureaucracy, and its own fund-raising attempts through filing fees. Undoubtedly states in this camp will need additional employees to run their regulatory agencies, expanding their bureaucracy. The following article (http://akmcpa.com/wp-content/uploads/2011/10/AKM-Nexus-Report.pdf) has to do with taxation, but it quotes the U.S. Supreme Court as saying that the “connection between the state and the foreign corporation must be more than just the transactions of using mail or common carrier services to connect them to state residents. ” We feel the same principles apply to Internet solicitation: that there must be some physical presence within the state before the state can regulate the soliciting charity. How would the state even obtain personal jurisdiction over a nonprofit if it has no presence in that state? Just because a state mandates a nonprofit to fulfill some requirement, does that mean that the nonprofit must comply with the mandate, even if it has no presence in that state?
I have serious reservations whether this whole attempt on the part of states is constitutional and whether nonprofits should comply (except in the state in which they are incorporated or in which they are actually conducting physical activities). I might suggest that until this matter is settled on the federal level, online solicitation not request the location of any donor, and give tax-deductible receipts only by e-mail. Also, I would advise not specifically targeting donors in any state that you are not registered in. If your primary activity is online solicitation, you might consider incorporating in a state that does not require charitable solicitation registration (e.g., Texas, Wyoming, Nevada, or others to be found at http://www.multistatefiling.org/#no_states. Otherwise, your state could require you to comply with its requirements.
Certainly this attempt by the states is an unconscionable burden on those who are trying to make this a better world. Nonprofits contribute a great deal to our society. They should be encouraged, not burdened. For online solicitation (a PayPal donate button?) to be forced to comply with the myriad of regulations and filings and filing fees of each of (apparently) 40 states will virtually put an end to online solicitation for the small nonprofit. This should not be allowed to happen. One suggestion to solving the problem of illegitimate online solicitation (if it is indeed a problem) would be to have nonprofits that solicit online file with the Federal Trade Commission for no fee or a very small fee.
Nothing contained herein is to be construed as legal or accounting advice.