Frequently Asked Questions

Fundraising and Charitable Registration

We don’t have our tax-exempt status yet – can we engage in fundraising?

Yes – but with caution. Unless your organization meets one of the exemptions from registration in your state, it is likely that your first step should be to register for charitable solicitation purposes. In most cases, registration is required prior to engaging in any fundraising activities. Second, while fundraising it is extremely important not to mislead potential donors who may think that they can claim a tax deduction for their gift. State fundraising regulations prohibit fraudulent or misleading communications. It would be untruthful for your organization to promise a donor a deduction – and misleading not to explain that the organization’s tax-exempt status is pending. Many donors will not be comfortable giving a contribution until your nonprofit’s tax status is settled. You may wish to explore using a fiscal agent in the interim.

  • For more information on fiscal agents (also called “fiscal sponsorship”) visit Compass Point’s Resource Directory and search for the articles on fiscal sponsorship.

Do we have to register for fundraising purposes in more than one state? Example: Our organization primarily solicits donations in the state where we are incorporated, but several of our long-term donors have now retired and moved out of state. We are planning a conference next year in yet another state where we will solicit corporate sponsorships.

This question raises two issues: whether your organization should register for fund-raising purposes, and whether your organization should also register to do business in another state. There are 39 states and several municipalities that require registration for fundraising residents in those states even if the solicitation is for small contributions or via the internet rather than direct mail. It is always safest to know the specific laws where your organization is engaged in any solicitation and determine whether registration is required. Failure to register can result in significant penalties and in extreme instances, prevent your nonprofit from solicitation activities in that state. It’s always safest to check with the Secretary of State, Attorney General or whichever government unit has oversight for charitable organization’s solicitation activities.

If our organization is tax-exempt, why are we being charged sales tax?

Sales tax exemption is a state-specific benefit. Your organization has to apply to be recognized by the state as exempt from sales tax. Exemption in one state is not transferable to another state. (And nonprofit should NOT “loan” out their sales tax exemption certificate to others! That’s a big No-No – think tax fraud…) Nonprofits are required to apply for and receive a sales tax exemption where ever they are purchasing items in order to be tax exempt. Some states will only grant tax-exemption for sales tax purposes if the charity is incorporated in that state. Also consider whether the charity is actually “doing business” in another state. If so, the charity may be required to register to conduct business as a “foreign business” in the other state but would then be in a position to apply for an exemption from sales tax.

  • Something to think about when your nonprofit is hosting a conference in another state: Ask the venue whether sales tax will be charged to you. It may be necessary to register as a foreign business in order to obtain an exemption from sales tax in that state.

Must an organization be a recognized 501c3 tax exempt entity in order to receive contributions?

"Yes" in order to receive tax-deductible contributions, but not in order to receive a contribution if a donor is willing to contribute to an organization that is not yet recognized as tax exempt. Typically donors, especially private foundations, are unwilling to give a contribution to an organization unless it is recognized as tax-exempt by the federal government. When an organization is not yet recognized as tax-exempt should be very clear in communications with potential donors that they are not yet tax-exempt otherwise the charity could violate state laws governing fraudulent charitable solicitations. One strategy commonly used by start up organizations is to identify a "fiscal sponsor" to receive a contribution on its behalf and administer the gift acknowledgement function. A fiscal sponsor or "fiscal agent" is another charity willing to serve in a fiduciary capacity to receive gifts on behalf of your organization. This arrangement should be formalized in a written agreement. For more information on fiscal sponsorships, see this resource.