Some Thoughts on MultiState Nonprofit Registration

If you’re part of a small nonprofit organization that solicits gifts in multiple states, you’re probably a little familiar with multistate nonprofit registration. This is the requirement that nonprofit organizations that are based in one state and ask for gifts in another state have to register with the second state.

So, for example, an organization based in Davenport, Iowa, that sends a direct mail appeal across the Mississippi River to its neighbor, Rock Island, Illinois, must also register as a soliciting organization in Illinois.

Now, just so we have some clarity on this and don’t cause anyone to panic, a few notes. First, churches are often exempt from registration. So a congregation in Davenport that sends a pledge form to a member in Rock Island probably does not need to register. Second, an organization doesn’t need to register in order to receive gifts. If someone from Rock Island sends a gift to the nonprofit in Davenport, that doesn’t mean the organization in Davenport needs to register. The organization only needs to register if it solicits gifts in another state. Third, there’s no firm ruling on how this affects online solicitations like emails, social media, or a nice shiny donate button on a website.

Multistate registration is required by something like 38 states plus the District of Columbia. For organizations that solicit in just a couple of states, that might be no big deal. For organizations that solicit in a lot of states – organizations that have a national donor base – it is a tremendous challenge. Even though there is a movement for a unified registration form, some states haven’t agreed to it, and the states that have agreed to it often require additional forms that are state-specific. In addition to the forms, of course, there are supplemental materials that need to be collected and fees that need to be paid.

For a large organization, this might be feasible (though I won’t claim that it would be easy). A sizable accounting department, with help from the development office, might be able to take care of these registrations in the normal course of business. For small or mid-size organizations, however, this is a serious challenge.

To give an example, I know of an organization with a national donor base that could not handle the work of all of these registrations in house. There simple wasn’t the staff with the necessary expertise (not to mention time). They hired a very reputable company that handles this work for them. The total cost – the service fee to the company, the registration fees to states, and other fees – was about $10,000.

That represents less than one percent of that organization’s budget (it’s about the same amount they actually spend on direct mail appeals each year). It also represents children not fed, families not housed, people not clothed, case management not provided, homes not repaired, and dozens of other tasks not completed. For a smaller organization, with a national donor base, this would be debilitating.

I’m sure that the logic behind multistate registration is to protect unwary residents from being scammed by fake ‘charities’. I’m also suspect that some states see this as an opportunity to bring in a little revenue. But I am also absolutely sure that there is a better way to do this. For example, what if every organization that is registered with the IRS was exempt from these requirements? The IRS could share its list of legitimate organizations with the states. That would protect the unwary and remove a burden on nonprofits that would much rather use those registration fees to help people.

So, perhaps rather than a movement for a unified form that would be used as part of the package sent to some of the states, we need a real push for national — and only national — nonprofit registration.