Why and How to Register Your Nonprofit Organization for Fundraising?

Nonprofit fundraising registration takes time and costs money. Most states charge an application fee to register, ranging from as little as $10 to over $400. Registering in all the states that require it (39 plus the District of Columbia) would cost up to approximately $3,000, depending on the size of your nonprofit. If your nonprofit engages in nationwide fundraising, you'll have to bite the bullet and register in every state. But if, like many smaller nonprofits, you fundraise in only one or a few states, you can minimize your registration costs by not registering in every state that requires it.

Why Register Your Nonprofit?

Until recently, all but the largest nonprofits that solicited contributions nationwide tended to ignore state registration requirements. Indeed, some experts estimate that as many as 90% of all nonprofits failed to register in one or more states even though they were required to do so by state law. Typically, nothing happened because most states lacked the resources and desire to enforce their registration laws.

However, the game has changed. The IRS's recently redone Form 990 now requires nonprofits to provide information about their state registration. Thus, nonprofits need to pay attention to state registration requirements to properly complete their annual IRS information returns. If you don't, you risk unwanted attention and scrutiny from the IRS and states, and potential problems with donors.

You don't just have the IRS to worry about. If you don't register in a state where you are required to, you are breaking that state's law. States may impose fines and other penalties on nonprofits that fail to register. These fines can be substantial. For example, Pennsylvania imposes a minimum $1,000 fine for failing to register. Moreover, the state may order your nonprofit to cease soliciting donations within the state until you register there.

How to Register Your Nonprofit with the State?

Registration involves filing an application with the appropriate state agency and, in most states, paying a registration fee. You'll usually have to provide financial information with your application. Often, this can be a copy of your most recent Form 990. Registration usually consists of two parts: an initial registration application and an annual renewal/financial reporting requirement.

Unfortunately, there is no single national registration application that works in every state. Instead, your nonprofit must individually register with each state where it is required to do so, following that state's particular requirements. These requirements differ from state to state -- sometimes dramatically -- so the more states you fundraise in, the more registration work you will have. Even the name for registration varies depending on what state you're in -- in some states, it's called a registration statement; in others, it's called a license, solicitation permit, or certificate

Where Is It Worthwhile to Register?

Your nonprofit should always register in your home state, unless you are exempt or it is located in one of the 11 states that do not require registration. Given their importance as financial and philanthropic centers, you may wish to always register in New York and Washington, D.C. However, when it comes to registering in other states outside your home states, you should look at how much your nonprofit actually receives in donations from residents of such states. Unless you receive at least $250 in donations each year from a state's residents, it makes no sense to register there because the cost of registration will exceed the value of the donations your nonprofit receives from the state.

If your nonprofit has been in operation for a while, carefully examine your fundraising history to examine which states the bulk of your contributions come from. If, like most nonprofits, your nonprofit is a local or regional organization that only receives donations from residents of one or a small handful of states, it may only make sense to register in those few states. On the other hand, you may want to register in many states if your nonprofit actively fundraises nationally by sending emails or other fundraising materials to residents of all or many states.

Almost half the population of the United States resides in just ten states that require registration: California, New York, Florida, Illinois, Pennsylvania, Ohio, Michigan, Georgia, North Carolina, and New Jersey. You might conclude that it's only worthwhile to register in these larger states. Or, you might want to cast your registration net wider and include all states with populations over 5 million. There are only 20 such states. Certainly, unless it's your home state or you intend to solicit there, there would seem to be little reason to register in a very small state like North Dakota or Rhode Island.

States That Require Fundraising Registration

Strategies to Avoid while Registering for Fundraising

If you're not careful, your nonprofit will be legally required to register in states from which you receive only a few dollars in contributions. Indeed, you may be legally required to register in states where you don't receive contributions from any residents at all. Remember, it's asking for contributions, not receiving them, that triggers the registration requirement.

Your Nonprofit May Be Exempt from Registration Requirements

Fundraising registration can be a hassle, but many types of nonprofits are exempted from most states' registration requirements. Most states exempt nonprofit hospitals, educational institutions, religious institutions, and very small nonprofits from the fundraising registration requirement. A few states also exempt nonprofits that receive contributions from less than a specified number of state residents. For example, Massachusetts exempts nonprofits that receive contributions from ten or fewer people during the year.

If your nonprofit is fortunate enough to fall into one of the exempt categories, your registration burden will be greatly lessened or even eliminated. Unfortunately, determining whether your nonprofit is exempt can be difficult. The list of exempt nonprofits varies from state to state. Thus, a nonprofit can be exempt in one state but not another. For example, a nonprofit that receives contributions under $25,000 per year is exempt from registering in New York, but not in California. This means that you will have to look at the laws of each state to see if an exemption applies to your nonprofit. In addition, in 12 states, exemptions are not automatic -- a nonprofit must have its exemption confirmed by the state charity office.

Be Careful Where (From What States) You Solicit Donations

Unless your nonprofit is exempt from registration in a state that requires it, there is only one way to avoid having to register there: You must not solicit contributions in that state. This means you must not ask for donations from state residents in writing, in person, or through the media (including the internet). Moreover, you must not hire fundraisers to solicit on your behalf in the state. This can require a good deal of care and discipline. For example, if your nonprofit has a newsletter distributed by postal mail or email that contains an appeal for contributions, you have to make sure you don't send it to residents of states in which you haven't registered.

If, like most nonprofits, your nonprofit has an interactive website—that is, a website that contains a "donate now" button or other means of accepting online donations—you should place a disclaimer on it making it clear that you do not accept donations from residents of the state or states in which you do not want to register.

If your nonprofit accepts online donations, you should consider using donation software that permits you to block donations from residents of the states you select. This software can even eliminate selected states from the pull-down menus donors must use to make their contributions.

Can You Register Your Nonprofit Yourself?

Larger nonprofits typically hire law firms or registration specialists to handle their registrations. However, this route can get expensive. You can register your nonprofit yourself, but you will need to understand the registration rules, exemptions, and application process in all the states where you may need to register. For detailed guidance on all aspects of the state fundraising registration process, including links to all the forms you need to register and renew, see Nonprofit Fundraising Registration: Nolo's State-by-State Digital Guide (updated quarterly).