Nonprofit Filing Thresholds Vary by State
As nonprofits seek to attract donors, many consider how wide of a net to cast for charitable solicitation and what that means for tax and audit purposes. Should they be broad with their fundraising activities and try to reach as many potential donors as possible, or should they have more narrow focus? Casting too wide of a net could mean multiple state filings and an administrative burden.
While tax exemption starts at a federal level, most states require organizations to file tax returns where they either have a physical presence or are incorporated. In addition, states require organizations to register with them if they solicit contributions in their states. It’s important to note that each state is different, and each has its own specific requirement. Once an organization determines that it does solicit in a particular state, the organization might also be subject to tax filing and audit requirements imposed by that state.
Each state has its own definition of solicitation, therefore, it might be hard to determine if the organization is, in fact, actively soliciting in a particular state. If an organization does solicit and doesn’t register with the state, it will be prohibited from further solicitation until it’s in good standing. Take, for instance, a university that receives contributions from alumni living now in various states. Does it mean that the university solicited a donation in the states the alumni live, or did the donors just donate without any solicitation?
In New Jersey, solicitation means “the request, directly or indirectly, for money, credit, property, financial assistance or other thing of any kind or value which will be used for a charitable purpose or benefit a charitable organization.1” If an organization is not domiciled in New Jersey but solicits contributions, it must register with the state to do so. Once it does, it must file a registration statement annually and, thereafter, pay a fee. If its total gross revenue is more than $500,000, it has to also submit a certified audit.
However, New Jersey does have exemptions for small organizations. Small charities are not required to have audited financial statements attached to their annual registration filing unless their gross receipts are over $500,000. If the gross receipts are below that threshold, the certification can be done by an officer of the organization. If that same charity wants to solicit contributions in New York or Pennsylvania, it will have to incur costs of receiving either a compilation or review. At that point, an organization should consider the amounts they can potentially raise versus the cost of the additional filing and financial information certification.
Organizations intending to solicit funds from New York residents must register with the New York Attorney General before doing so. There are some exemptions, but those are mainly for religious and educational institutions. Once an organization is registered, it must file annually, pay fees and submit a financial statement of some kind. New York’s audit requirement level is changing. Currently, an organization with annual gross revenue over $750,000 must submit audited financial statements with its filing. This threshold will be increased to $1,000,000 in 2021. Also, unlike New Jersey, New York requires those charities with gross revenue between $250,000 and $750,000 to have the financial statements reviewed by an independent auditor. New York, unlike other states, does not require any attachments for registered charities if the organization doesn’t solicit more than $25,000 from its residents.
Organizations intending on soliciting in Pennsylvania need to register with the state prior to doing so. Once registered, there is an annual filing, filing fees and financial statement requirements. The threshold for audited financial statements is $750,000, while a review by an independent accountant is required for contributions between $250,000 and $750,000. Compilation is required for gross revenues between $100,000 and $250,000.
There is a lot to consider when intending to solicit in a particular state, but it’s also important that if a charity no longer solicits in a particular state, it should unregister and withdraw from the state, which could save money. Above all, with the state requirements in mind, the solicitation should be a business decision followed by a review of state requirements.
Magdalena M. Czerniawski
Magdalena M. Czerniawski, CPA, MBA, is a partner and member of the Nonprofit, Government & Healthcare Group at Marks Paneth, LLP. She is a member of the NJCPA Nonprofit Interest Group.
This article appeared in the May/June 2020 issue of New Jersey CPA magazine. Read the full issue.