This is Part III of an open-ended series on running a virtual nonprofit, the Nuts and Bolts. New Media Arts is a very small U.S. nonprofit corporation, tax exempt under IRC 501(c)(3). We're a library and arts organization that has no physical offices. Our services are available all over the world via our websites or virtual world platforms. Our directors, officers and other people actively involved are in all the continental U.S. time zones, Canada and the Netherlands, this year. Every year, a few more locations. Only a few of us have met each other in physical space. We Skype a lot.
Do you raise funds via online donation buttons at your website, YouTube, anywhere? Or solicit for funds at a forum?
One of the less-advertised and least convenient of the rules for nonprofits is this: If a U.S. charity solicits for donations online, then those solicitations are considered to be taking place in all of the United States, and come under the jurisdiction of every state that requires registration. Most of those charge fees.
If you solicit for donations online, you probably should be filing reports or returns in about 38 states.
For most practical purposes, we're covered by tax treaties for the rest of the world, but there are around 40 U.S. state agencies that want to hear from us, most of them annually. There's not much use complaining about it, because of the US Constitution, Tenth Amendment:
“The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.”
Which means that even though we file with the IRS, who regulates the taxation of nonprofits, the states can regulate us too, if they want to.
There are varying legal opinions about the requirements. A few tell us that if we refuse donations from New York, New Jersey, Pennsylvania and Florida, then all we have to do is register in our home state and anywhere we're sending out solicitation emails, thank you letters, or delivering services or goods.
Problem: the donation buttons go to our PayPal account – we might know the donor's email address, and not much else. All of our services and projects are delivered online at our websites or in virtual worlds – anyone in the world who can get to a smart phone or computer and connection can access our stuff.
So, early on, we made a decision: register and file in all of the states who require it. That turned out to be the right decision, even though we're a small organization. As we slowly grow, and with the information we have, we see that donations, most under $25, but not always, come in from every state in the US, most of the countries in Europe, Asia and Australasia, and a few countries in South America, Africa and the Middle East. A big chunk of our donations are not cash, they are valuable scans of antique books, another wrinkle in our nonprofit's profile.
Twelve U.S. states choose not to require registration or reporting for charities, other than legislating something to the effect: Don't Cheat or Lie to Our Citizens, Or We Will Hurt You. Let's give a shout-out to Arizona, Delaware, Iowa, Indiana, Montana, Nebraska, Nevada, South Dakota, Texas, Vermont and Wyoming for their enlightened views on not regulating stuff that doesn't need it.
All the other states get a big raspberry, but also an annual form and, usually, money. We are complaint.
If you use a professional fundraiser (we don't), your reporting requirements go up. The state agencies – Attorney General Offices, Secretaries of State, Departments of Consumer Affairs – depending on the state, are picky about reporting. Most of them charge annual fees, usually based on a nonprofit's size or annual revenues.
Some are easy-peasy, like Colorado, who has a straight-forward online registration and rational well-informed staff - their guy even called me after our first filing, to give me good advice and direct me to the right resources. Some states want anyone not incorporated in their state to register as a “foreign entity”, or pay for a registered agent in that state. California has three agencies we report to, North Dakota requires two reports to the same agency with different deadlines.
Some states like to do it old-fashioned and require notarized signatures or get ugly when a nonprofit's directors refuse or are unable to provide a social security number or driver's license number, which yes, might be published at a state website or stored with less than ideal security. Quite a few require signatures from two or more officers, and a few won't accept a digital signature.
Our board and officers are separated by thousands of miles across three countries. This is not convenient.
The filings are not technically difficult to fill out, if you have someone in your organization who has the time and patience, you can probably get it done yourself. There are services who say they'll file your forms for you, for a fee. They're expensive and tend to take a one-size-fits all to your filing requirements, which can have disastrous results. I tried it one year, for one state, thinking that because the registered agent worked in the same building as the state agency, we might have a shot at getting it filed on time and correctly. Not so, and it took months to straighten it out.
We also, after the first couple of years, abandoned the use of the so-called Universal Registration Statement – URS. I found that the URS made it harder, not easier, to comply with a state's regulations, as I had to go look them up anyway and usually fill out a required attachment, rather than getting it done with that state's simpler form and instructions.
We now use a CPA firm near one of our board members' homes to prepare the forms and efile when possible. This is cheaper and better, as she can keep up with changing requirements better than I can; it's what she does. One of us still has to check the paperwork, get it printed and signed, write the checks, mail them certified, and make the occasional phone call when things go wrong. We try to take turns. CPA firms in the larger cities who specialize in nonprofits are outrageously expensive, and not necessarily better at it.
Reliable resources:
Do you raise funds via online donation buttons at your website, YouTube, anywhere? Or solicit for funds at a forum?
One of the less-advertised and least convenient of the rules for nonprofits is this: If a U.S. charity solicits for donations online, then those solicitations are considered to be taking place in all of the United States, and come under the jurisdiction of every state that requires registration. Most of those charge fees.
If you solicit for donations online, you probably should be filing reports or returns in about 38 states.
For most practical purposes, we're covered by tax treaties for the rest of the world, but there are around 40 U.S. state agencies that want to hear from us, most of them annually. There's not much use complaining about it, because of the US Constitution, Tenth Amendment:
“The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.”
Which means that even though we file with the IRS, who regulates the taxation of nonprofits, the states can regulate us too, if they want to.
There are varying legal opinions about the requirements. A few tell us that if we refuse donations from New York, New Jersey, Pennsylvania and Florida, then all we have to do is register in our home state and anywhere we're sending out solicitation emails, thank you letters, or delivering services or goods.
Problem: the donation buttons go to our PayPal account – we might know the donor's email address, and not much else. All of our services and projects are delivered online at our websites or in virtual worlds – anyone in the world who can get to a smart phone or computer and connection can access our stuff.
So, early on, we made a decision: register and file in all of the states who require it. That turned out to be the right decision, even though we're a small organization. As we slowly grow, and with the information we have, we see that donations, most under $25, but not always, come in from every state in the US, most of the countries in Europe, Asia and Australasia, and a few countries in South America, Africa and the Middle East. A big chunk of our donations are not cash, they are valuable scans of antique books, another wrinkle in our nonprofit's profile.
Twelve U.S. states choose not to require registration or reporting for charities, other than legislating something to the effect: Don't Cheat or Lie to Our Citizens, Or We Will Hurt You. Let's give a shout-out to Arizona, Delaware, Iowa, Indiana, Montana, Nebraska, Nevada, South Dakota, Texas, Vermont and Wyoming for their enlightened views on not regulating stuff that doesn't need it.
All the other states get a big raspberry, but also an annual form and, usually, money. We are complaint.
If you use a professional fundraiser (we don't), your reporting requirements go up. The state agencies – Attorney General Offices, Secretaries of State, Departments of Consumer Affairs – depending on the state, are picky about reporting. Most of them charge annual fees, usually based on a nonprofit's size or annual revenues.
Some are easy-peasy, like Colorado, who has a straight-forward online registration and rational well-informed staff - their guy even called me after our first filing, to give me good advice and direct me to the right resources. Some states want anyone not incorporated in their state to register as a “foreign entity”, or pay for a registered agent in that state. California has three agencies we report to, North Dakota requires two reports to the same agency with different deadlines.
Some states like to do it old-fashioned and require notarized signatures or get ugly when a nonprofit's directors refuse or are unable to provide a social security number or driver's license number, which yes, might be published at a state website or stored with less than ideal security. Quite a few require signatures from two or more officers, and a few won't accept a digital signature.
Our board and officers are separated by thousands of miles across three countries. This is not convenient.
The filings are not technically difficult to fill out, if you have someone in your organization who has the time and patience, you can probably get it done yourself. There are services who say they'll file your forms for you, for a fee. They're expensive and tend to take a one-size-fits all to your filing requirements, which can have disastrous results. I tried it one year, for one state, thinking that because the registered agent worked in the same building as the state agency, we might have a shot at getting it filed on time and correctly. Not so, and it took months to straighten it out.
We also, after the first couple of years, abandoned the use of the so-called Universal Registration Statement – URS. I found that the URS made it harder, not easier, to comply with a state's regulations, as I had to go look them up anyway and usually fill out a required attachment, rather than getting it done with that state's simpler form and instructions.
We now use a CPA firm near one of our board members' homes to prepare the forms and efile when possible. This is cheaper and better, as she can keep up with changing requirements better than I can; it's what she does. One of us still has to check the paperwork, get it printed and signed, write the checks, mail them certified, and make the occasional phone call when things go wrong. We try to take turns. CPA firms in the larger cities who specialize in nonprofits are outrageously expensive, and not necessarily better at it.
Reliable resources:
I
shouldn't have to say this, but I will: don't take advice from a
website whose main purpose is to sell you something, even if it's a
law firm.
Since
I'm a retired CPA, I made a tracking spreadsheet. Of
course I did :). And here it is, in case you're a virtual nonprofit
yourself, or thinking about becoming one.
Notes
about the spreadsheet:
-
Screaming yellow highlight - the filing needs a notarized signature, so get that one done early. Pale yellow is some other requirement, such as a specific officer, or must be real ink instead of the far-more-convenient digital signature. If you get it wrong, they'll kick it back and make you do it again, or even revoke your registration if you can't get back to them fast enough.
-
Other highlights are for filing dates, to make them easier to see and schedule – we sort the spreadsheet by filing date while we're getting them done, then by state abbreviation when we need to look something up. Our outside CPA has access to the spreadsheet and our folder of past years' returns; saves time.
-
I left “filing fees” blank, as it depends on the size of your organization, or total revenues or whatever that state's criteria is. We track what we're spending so we'll know what the estimate is for next year's budget.
-
Each year, one or two states change their requirements or the URL that gets you to the right page and we might not get the notice. I'll do my best to keep the spreadsheet current.
