Bureaucracy is alive and well in non-profit managementThere is a saying that you can’t avoid two things in life: death and taxes. The saying is true, even if you are a nonprofit. For most people the word nonprofit is a shortcut to ‘you don’t have to pay taxes.’ Technically true, the world does extract its pound of flesh from a nonprofit in other ways that sometimes make paying taxes seem the lesser of two evils.

In this case, I am addressing the requirement that each state has for a nonprofit to register with the Attorney General or other office at the Capitol, and pay registration fees to operate in their state. As you may expect, this process is neither linear nor logical, but not addressing this in some fashion has proved to be ruinous to some.

States Want to Know, and so do the Feds

The nonprofit tax ’return’, the 990, has been revamped recently, requiring more and more information about the funds used by the organization. For the past two years, it has also required information about compliance. Compliance means have you registered in the states in which you have or plan to fundraise, paid the fees and maintained current registrations.

Did you even know you had to do this? Many don’t . Not knowing, and further, not acting, has had consequences for some. Donors can claim a solicitation is not legal, other gifts may be challenged. A Florida nonprofit with an annual budget of $11,000 was fined $10,000 for nonfiling. Although this fine was later reduced to only $1500, I sure wouldn’t have wanted to have to deal with that problem.

Unified Registration: Ha!

Bureaucracy is alive and well in non-profit managementWho needs to do this? Really, anyone with a DONATE HERE button on their website: soliciting for donations is considered doing business in a state. The fact of your website, fundraising letter through the mail, phone tree and other activities along these lines are considered solicitations. There is a whole body of information about whether it is an active or passive solicitation that is the subject of another blog, let’s leave it at the fact you are doing business in that state.

There is an animal called the Unified Registration Statement that really isn’t, but is a good start. Many states require additional forms and collateral documents including organizing documents ( articles of incorporation, bylaws and exemptions letters) . Georgia even requires the social security numbers of board members!

The best part is the fee structure; again all over the map and some are more punishing than others. It behooves you to know about this, in fact it is part of the fiduciary responsibility of the board, however my experience is that few board members are even aware of this requirement.

Ah Jeez, What Do I Do?

Bureaucracy is alive and well in non-profit managementAs with washing an elephant, one part at a time. Prioritizing is helpful here: for sure, be registered in your founding state, and the state in which you operate, if not the same. Take a look at where your biggest donors hail from, and if out of state, register there. If you are planning an event in another state, be sure to register there prior to the date.

Ideally, a nonprofit that solicits via the web needs to be registered in all states. By beginning with your most local, and most active, the biggest exposure can be addressed. Over the course of the year, sections of the country can be reviewed and handled. Some states have small or no fees, Hawaii is the most expensive. Some have exemptions, and some have special considerations.

Managing this is yet another of the too fun and so sexy aspects of nonprofit management that is so often overlooked. Contact me on 310 828 6979 or via email for a plan to identify the most urgent states to complete and how to negotiate the other 48.

Image Credits:
Ten Boxes by jspad on Flickr

Death means paperwork by troismarteaux on Flickr
Elephant Was by mmarchin on Flickr