U.S. States: February 2004 Public Policy Update
Feb. 4, 2004
For Government Relations Chairs: Because it's the beginning of the legislative year, there are many bills in this month's Update. AFP International Headquarters will be working to stay on top of all of these bills and address those that seem to be receiving serious consideration. If your state is included in the list below, AFP encourages you to please check with your state legislature to see if the bill(s) are currently being considered. One easy way to do this is to check your state legislature's website; most have bill search functions that will allow you to see the bill's legislative history and where it is in the legislative process. Email your findings to firstname.lastname@example.org.
Senate Bill 1066 would add to the information nonprofit organizations are already required to submit to the secretary of state, provide for alternative registration forms and would free the attorney general to terminate investigations into alleged registration violations under certain circumstances. Although some aspects of the bill may be beneficial, a key component exposes the bill to serious and legitimate constitutional concerns.
Among the numerous added disclosures with which a nonprofit organization will be burdened is a requirement that the organization provide within its registration financial report a statement 'that shows that at least ninety percent of the organization's income is used for charitable purposes.' If an organization, instead of submitting a financial report, opts to submit a IRS form 990, it must be accompanied by a sworn statement to the same effect. Although 'charitable purposes' could be broadly defined to lessen the impact of the bill, the secretary of state has implemented a formula on its registration statements whereby a registrant ascertains the percentage of income spent on 'charitable purposes' by dividing the amount expended on 'program services' by the organization's total expenses. Furthermore, the secretary of state requires organizations to distinguish the broader categories of 'management and general' and 'fundraising' expenses from 'program services' expenses. The result, if the bill passes, would be a severe--not to mention absurd and undoubtedly unconstitutional--restriction on an organization's necessary collateral expenses. Similar efforts to restrict expenditures have been struck down by the United States Supreme Court and lower courts throughout the country on the now-unquestionable basis that such limitations unconstitutionally infringe upon a nonprofit organization's free speech rights.
The bill also requires organizations to provide the following information in addition to what the current law requires: (1) the organization's balance sheet; (2) a statement of support, revenue and expenses and any change in the fund balance; (3) a statement indicating (a) whether the organization is authorized by other states to solicit contributions, (b) whether the organization or any of its officers, directors, trustees or salaried executive personnel have been enjoined in any jurisdiction from soliciting contributions or have been found to have engaged in unlawful practices in the solicitation of contributions or administration of charitable assets, (c) whether the organization has been denied authorization to solicit funds by any government agency or has otherwise had such authorization revoked or suspended by any government agency, including the reasons for such denial, suspension or revocation, and (d) whether the organization has entered into any agreements with attorneys general assuring compliance with registration requirements in exchange for the termination of an investigation; and (4) a description of the terms of agreements with independent fundraisers or solicitors, specifying salaries, bonuses, commissions and other expenses.
Additionally, organizations registering for the first time will be required to provide the following information: (1) when and where the organization was established; (2) the tax exempt status of the organization and a copy of any federal tax exemption determination letter (within 30 days of the receipt of the letter if no such letter has been issued at the time of registration); and (3) notification of an IRS challenge to its entitlement to tax exempt status within 30 days of receipt of notice of the challenge.
The bill offers organizations a choice with respect to registration forms; however, the information required will essentially be the same, and any substantive differences are unclear. Submission of a IRS form 990 with a schedule A or a form 990-EZ for the preceding year will satisfy many of the registration requirements, including the requirement to provide a financial report for the immediately preceding year. New organizations with no financial history will be required to file a budget for the current fiscal year.
While the language of the bill is relatively coherent, a provision that permits organizations either to file financial reports that have been independently audited by a certified public accountant or to file an internal audit with an opinion by an independent certified public accountant may cause some confusion. This provision is distinct from the provision requiring submission of the organization's financial information. Therefore, it is not clear whether an organization's decision to consult with an accountant is discretionary. The language suggests that it is. Additionally, the provision requiring organizations to update their registration information is too vague. Amendments to the bill should endeavor to make this requirement periodic rather than ongoing, as much of the financial data may change on a daily basis.
Finally, the bill empowers the attorney general to terminate investigations into alleged violations of any of the registration requirements upon acceptance of a written assurance of voluntary compliance with the requirements. This seemingly benign provision should be amended to inform organizations of the possible consequences of signing such an assurance.
House Bill No. 2060 would extend the charitable property tax exemption currently enjoyed by fraternal organization recognized under section 501(c)(8) of the Internal Revenue Code to the broader class of nonprofit social organizations recognized under section 501(c)(7). The exemption would only apply to property used by such organizations for the purpose of providing student housing, however. Although the goal to be served by the bill is commendable, the student housing limitation is rather narrow and the term 'student housing' extremely vague. Broadening the exemption to encompass other public services many of these organizations do and could promote would strengthen the exemption's publicly beneficial impact. More importantly, though, the language should be clarified to guide these organizations in utilizing the exemption.
House Bill No. 2228 dramatically expands upon the regulations concerning charitable organizations entering into gift annuity agreements. The bill limits the number of organizations that can qualify to enter into such agreements, imposes burdensome information requirements on organizations that do qualify to enter such agreements, provides for a private right of action for violation of the regulations, and restricts qualifying organizations from outsourcing efforts to obtain or negotiate gift annuities in exchange for a commission or fee.
Under the bill, only charitable organizations with 'a minimum of three hundred thousand dollars in unrestricted cash, cash equivalents or publicly traded securities,' not counting the amount used to fund the annuity agreement, on the day the agreement is entered into may enter into a charitable annuity agreement. Additionally, to qualify, an organization must have been in continuous operation for at least three years or must be a continuation of a predecessor organization in operation for at least three years. And, the organization must have been independently audited annually for the two years immediately preceding the agreement.
With respect to reporting requirements, under the bill, any person or organization offering a gift annuity must provide prospective donors with the following information in writing: (1) the name and address of the charitable organization offering the annuity; (2) descriptive information, including the state of organization, date of organization and a description of the organization's current operations; (3) a statement that the organization's financial information will be made available on request; (4) a disclaimer noting that the annuity is not insurance and is not so regulated, and that the annuity is not protected by any state guaranty fund; and (5) a statement that neither the State nor the Department of Insurance have approved or disapproved of the annuity or have made any determination with respect to the truthfulness of the information the organization is providing.
In the event an organization enters into an agreement without fully complying with the new requirements, the bill provides donors the right to pursue a civil lawsuit to recover the amount paid for the annuity, with interest, less any income already received. The donor will also be able to recover costs and attorneys' fees.
Finally, the bill prohibits any person or organization from either paying or accepting compensation in exchange for efforts to solicit or negotiate a charitable annuity when the compensation is contingent on succeeding in securing a donation or is otherwise tied to the amount of the gift annuity.
House Bill No. 2417 overhauls numerous tax provisions, eliminating many of the tax exemptions enjoyed by nonprofit organizations, exposing them to a tax of 3 1/2 percent of their tax base, which is lowered by the bill from 5 percent.
Under the bill, the sale of tangible personal property by nonprofit organizations recognized by sections 501(c)(3), 501(c)(4) and 501(c)(6) of the Internal Revenue Code and either associated with a major league baseball team or national touring professional golfing association; or sponsors or operates a rodeo; or organizes or promotes cultural or civic related festivals or events would no longer be exempt from the retail sales tax. The bill also removes all exemptions from the transient lodging tax classification, including convalescent homes, homes for the elderly, hospitals, jails, military installations or fraternity or sorority houses and structures used exclusively by organizations for religious, charitable or educational purposes. Likewise, the bill eliminates all the exemptions currently in force under the amusement classification. This will affect musical, dramatic and dance groups as well as botanical gardens, museums and zoos.
In addition, activities and events of, or fees received by, nonprofit organizations that are federally exempt under section 501(c)(6) and that produce, organize or promote cultural or civic related festivals or events would be exposed to the amusement tax. Finally, the bill exposes all currently exempt organizations to the state's use tax. The use tax is simply the reciprocal of the sales tax. It is imposed on the purchaser at the rate of 3 1/2 percent of all purchases to be used by the organization (including property originally intended to be resold), except prescribed drugs and medical oxygen and related equipment; prosthetic equipment prescribed or recommended by a licensed medical professional; prescription eyeglasses and contact lenses; insulin, insulin syringes and glucose test strips; hearing aids; medical equipment covered by medicare and food to the extent otherwise exempt.
AFP understands that the state of California is developing a comprehensive bill to amend its Government Code and Business and Professions Code related to the registration of charitable fundraisers and fundraising counsel. The bill is said to contain new requirements for audits and audit committees, the filing of fundraising contracts, and the type of information that fundraisers and counsel must submit to the State. AFP believes that registration of charitable organizations is, for the most part, unaffected. The bill is expected to be introduced later in February or March.
Senate Bill No. 85 would amend the Colorado No-Call List Act in such a way as to transform the law into an unconstitutional infringement of free speech. Currently, compliance with the act on the part of nonprofit organizations is voluntary. The bill would mandate compliance by all solicitors, which the bill defines to include any person who makes or employs another to make a telephone solicitation. The bill also expands the definition of 'telephone solicitation' to include the acts of '(1) proposing a financial transaction; (2) urging support for or opposition to a political candidate or ballot issue; (3) conducting political polls or soliciting the expression of opinion, ideas, or votes; or (4) soliciting financial or other support for, or otherwise advancing the interests of, any charitable organization or cause.'
The bill restricts organizations from contacting even those persons who have initiated contact or who have an established relationship with the organization. Violation of the provision would constitute a deceptive trade practice, exposing the organization to private lawsuits and actions by the attorney general. Given the breadth of the bill's scope and the use of language that is obviously offensive to First Amendment ideals, Senator Grossman is apparently inviting a challenge that is certain not only to occur but also to succeed.
Senate Bill No. 1478 requires all nonprofit organizations exempt from federal taxes under sections 501(c)(3) and 501(c)(4), including all charitable organizations as defined under the current state laws and all religious institutions, to file their annual financial reports with the Department of Revenue. Organizations that are currently required to file such a report with the Department of Agriculture and Consumer Services may simply send the Department of Revenue a copy of that report. Organizations will have the option of submitting instead a copy of their IRS form 990 and schedule A or a copy of their 990-EZ. The bill authorizes the Department of Revenue to review the reports and report those organizations suspected to be violating the requirements associated with the tax-exempt status to the state attorney's office.
House Bill No. 1280 would significantly change the state's gaming laws as applied to nonprofit organizations qualified to conduct games of chance. The bill authorizes card game tournaments and establishes a licensing procedure for holding such tournaments. Additionally, the bill sets forth specific procedures for ascertaining the net proceeds of any game of chance allowed by law, allowing for the following deductions: (1) the value of the prizes awarded, including door prizes; (2) the amount of the license fees for the event; (3) the amount of the purchase price of the licensed supplies used for the event; (4) and the amount of expenditures allowed under the current law. Although, authorized organizations conducting games currently must limit the use of the proceeds from games of chance to the 'lawful purposes of the qualified organization,' the bill defines such lawful purposes to include the following: (1) the religious, charitable, community or educational purposes for which the organization is specifically chartered or organized; (2) expenses associated with the acquisition, construction, maintenance, or repair of any interest in real property or the acquisition and maintenance of equipment, vehicles or other personal property utilized by the organization for its authorized purpose; (3) raising and awarding scholarship funds; and (4) under supervision of the Department of State Revenue, payment to or on behalf of a sick or deceased member or the member's immediate family.
Moreover, the bill would limit the use of the net proceeds to exclude the following: (1) social or recreational activities open primarily to the organization's members and their families unless a substantial public benefit can be demonstrated; (2) salaries and honoraria to the officers, directors, members or employees of the organization; (3) payments, other than those otherwise authorized, made directly to or for the benefit of a member or the member's immediate family; (4) any illegal activity; and (5) any activity that would violate the organization's charter or bylaws. Allowable expenditures would be limited to the following: (1) rent for the premises utilized for the event; (2) rent of personal property used for the event, not to exceed $50 per event; (3) reasonable expenditures for food and drink and the necessary accompaniments, such as plates, cups, etc.; (4) reasonable advertising expenditures; and (5) the reasonable expense of providing security personnel, not to exceed three security guards at any one event. To ensure compliance, the bill would require organizations to file a detailed annual accounting of the use of the net proceeds. Allowable expenditures subtracted in calculating the net proceeds would have to be supported by receipts or other evidence.
Under the bill, a lease of facilities to hold the event must be in writing between the owner of the facility and the organizations and may not be a sublease. The maximum rent to be paid under current law ($200) would remain the same, with a yearly cap of $73,000 applied when the organization utilized the facility for the organization's business extending beyond games of chance.
An organization would be limited to obtaining only one license per day. And, the following prize limitations, some of which have been increased by the bill, would apply: (1) unless otherwise authorized by the Department of State Revenue, awards for door prizes could not exceed $5,000 total per event or $25,000 total per year; (2) awards for pull tab, punchboard or tip board games could not exceed $599 for a single prize per game and $5,000 total per game, with ticket prices not to exceed $1; (3) awards for card tournaments could not exceed $500 per tournament and $20,000 per year, with the entry fee not to exceed $10. Only U.S. currency and coins would be accepted at the events. Wagering with respect to the card tournament would not be permitted. No one under 18 would be permitted to serve food or drinks in the gaming area or otherwise interact with participants in the gaming area. And, games could not be conducted on the internet, although organizations could advertise on the Internet.
Currently, qualified organizations may have their licenses revoked for a number of reasons, including the broad and ambiguous 'conduct prejudicial to public confidence in the [D]epartment' of State Revenue. The bill limits application of that particular provision to allow revocation or suspension of a license only in the event an organization (1) fails to file a tax return; (2) conducts a regulated gaming event without a license; (3) engages in sports betting; (4) operates a gambling device, such as a slot machine, for example; (5) uses or possesses technologic aids proscribed by the department; (6) engages in any other conduct prohibited under the state's criminal gambling statutes; and (7) engages in any conduct that gives the appearance of impropriety. These regulations mirror those found in many other states.
Senate Paper No. 623 would overhaul the state's Charitable Solicitation Act. The bill clarifies the definitions of 'charitable organization,' 'commercial co-venturer,' and 'professional fund-raising counsel,' but it is not clear whether these changes would have any substantive effect.
The definition of 'charitable organization' would be expanded to ensure application of the act regardless of the means utilized by a nonprofit organization to solicit, accept or obtain contributions from the public. 'Commercial co-venturer' would actually be narrowed to include only persons 'regularly and primarily engaged in trade or commerce in this State, other than in connection with the raising of funds for charitable organizations or purposes and who conducts a sale, performance, event or collection and sale of donated goods that is advertised in conjunction with the name of any charitable organization.'
How the definition of 'professional fund-raising counsel' will read once the severe grammatical errors are corrected is not yet clear. A common sense interpretation as it currently reads leads to the conclusion that the changes are not noticeably substantive, with the exception of the provision exempting an employee of a charitable organization from the definition. The current law provides an express exemption that applies even to employees of parent organizations, whereas the bill would eliminate that language and state only that '[a] bona fide nontemporary salaried officer or employee of a charitable organization is not considered to be a professional fund-raising counsel.'
With respect to registration, the bill adds to the information a registering organization must provide to include a determination letter from the IRS confirming the tax-exempt status of the organization. The changes to the registration renewal provisions are primarily cosmetic, though the bill does require the Department of Professional and Financial Regulation to provide organizations with the renewal application at least 30 days before their registration expires. The bill also requires renewing organizations to include a IRS form 990 with schedule A or a 990-EZ with their renewal packet.
Some of the more dramatic changes relate more directly to the relationship between nonprofit organizations and professional fundraisers. Under the current law, organizations retaining an outside fundraiser (professional fundraising counsel, professional solicitor, or commercial coventurer) must provide the details of the particular fundraising campaign within 30 days of completion. The bill would repeal this provision and would require organizations to file within 60 days of their registration's expiration an annual fundraising activity report that must comport with the report (discussed below) the fundraiser is required to submit. Failure to file a report or filing a report that conflicts with the fundraiser's report would result in disciplinary action.
In filing the report, organizations would have to include (1) general information about the organization and the fundraiser(s) with which the organization contracted; (2) the date of each fundraising campaign; (3) the total dollar amount raised during each campaign; (4) the total dollar amount received by the charitable organization from each fundraising campaign and for the year; (5) the total dollar amount retained by any professional solicitor from each fundraising campaign and for the year; (6) the total amount paid to any professional fundraising counsel from each fundraising campaign and for the year; and (7) the total amount received from any commercial co-venturer from each fundraising campaign and for the year. Finally, organizations would be prohibited from contracting with unregistered professional solicitors, fundraising counsel or commercial co-venturers.
As noted, professional solicitors, fundraising counsel and commercial co-venturers would also be required to file an annual report at least 60 days prior to the expiration of their registration. The information to be submitted mirrors that required to be submitted by the charitable organization, except rather than provide the dollar amount retained by the professional solicitor, fundraising counsel or commercial co-venturer, their report must note the amount remitted to the organization.
The bill would leave in place the requirement to file all contracts between organizations and the professional solicitors, fundraising counsel or commercial co-venturers. The bill also adds a requirement that the contracts include the signatures and legibly printed or typed names of individuals representing the contracting parties.
The bill also addresses solicitor misrepresentation and would require professional solicitors and, under certain circumstances, commercial co-venturers to disclose a variety of information. Professional solicitors would be explicitly prohibited from misrepresenting any aspect of their relationship with the charitable organization, including the percentage of the contribution the fundraiser will pay over to the charitable organization. Moreover, professional solicitors would be prohibited from invoking the name of a charitable organization without the organization's previous written consent to such use.
In addition, professional solicitors would be required to clearly and conspicuously make the following disclosures before the person solicited makes or authorizes any payment of a donation: (1) the name and address of the professional solicitor; (2) that the solicitor is being paid by the charitable organization on whose behalf the solicitation is being made; and (3) how the potential contributor may obtain information from the State on the respective percentages of contributions that will be paid to the charitable organization and to the paid fundraiser.
With respect to commercial co-venturers, any promotional materials used by a commercial co-venturer to disclose that a component of the purchase price of the goods will accrue to the benefit of a charitable organization must also state either the percentage of the purchase price or the dollar amount to be remitted. The bill would exempt from the disclosure requirements any national or federal banks and their subsidiaries or any other financial institution or credit union chartered under the laws of the United States or any state subject to supervision and regulation by a federal financial regulatory agency.
Finally, the bill would empower the commissioner for the Department of Professional and Financial Regulation to deny or refuse to renew a registration for fraud, misrepresentation or deception on an application or any other violation of the regulations.
Legislative Bill No. 879 would create a tax credit for contributions to certain charitable gifts by individuals, business entities and estates and trusts. The bill would allow an individual to take a credit against her income tax due in an amount equal to forty percent of the present value of the aggregate amount of the charitable gift portion of a planned gift made by the individual during the year to any qualified endowment. The bill defines 'planned gift' to mean 'an irrevocable contribution to a permanent endowment held by or for a tax-exempt organization' in one of the following forms: (1) charitable remainder unitrust, subject to certain restrictions described below; (2) charitable remainder annuity trust, subject to certain restrictions described below; (3) pooled income fund trusts; (4) charitable lead unitrust; (5) charitable lead annuity trust; (6) charitable gift annuity, subject to certain restrictions described below; (7) deferred charitable gift annuities, subject to certain restrictions described below; (8) charitable life estate agreements; (9) paid-up life insurance policies qualifying for a federal deduction. The bill defines 'qualified endowment' as a 'permanent, irrevocable fund that is held by a 501(c)(3) organization incorporated or established in Nebraska or by a bank or trust company that is holding the fund on behalf of a tax-exempt organization.'
Under the bill, charitable remainder unitrusts and annuity trusts would be considered planned gifts only if the trust agreement provides that the trust cannot terminate and the beneficiaries' interest in the trust cannot be assigned or contributed to the qualified endowment before the date of the beneficiaries' death or five years after the date of the contribution, whichever is sooner. Likewise, charitable gift annuities and deferred charitable gift annuities would not be considered planned gifts unless the annuity agreement provides that the interest of the annuitant(s) in the gift annuity cannot be assigned to the qualified endowment before the date of the annuitant's death or five years after the date of the contribution.
Additionally, to be considered a planned gift for purposes of the credit, the gift annuities must qualify for gift annuity status under the Nebraska Charitable Gift Annuities Act. Finally, with respect to the deferred charitable gift annuities, to qualify for the credit, the payment of the annuity must be required to begin within the life expectancy of the annuitant or of the joint life expectancies of the annuitants as determined using the actuarial tables adopted by the Department of Revenue.
The bill limits the credit to a maximum of $10,000 and cannot in any case exceed the individual's income tax liability. Furthermore, the credit could not be claimed to the extent that the taxpayer has included the contribution upon which the amount of the credit was computed as a deduction on his or her state income tax return. And, finally, the credit could not be carried back or forward, and it would only be applied for the year in which the contribution was made.
As noted above, the credit would be available to business entities as well as estates and trusts. With a few exceptions, the regulations are the same as those imposed upon the individual taxpayer. The business entities that would qualify include small business corporations, partnerships, or limited liability companies carrying on in a business that qualifies for the federal business exemptions or 'any rental activity.' The bill apportions the credit among the shareholders, partners or members in accordance with the apportionment used in reporting the entity's income or loss for income tax purposes. A larger corporation may also claim a credit of up to twenty percent of a contribution made to a qualified endowment. In all other respects, the regulations regarding business entities mirror those applied to the individual.
Endowments by resident estates or trusts may qualify for either the forty percent or twenty percent credits. If the contribution is a planned gift, as defined in the act, the forty percent credit would apply. If the contribution is simply an outright gift, the twenty percent credit would apply. The bill terminates the credit after the 2009 tax year.
Senate Bill No. 204 provides for dramatic changes to the Charitable Registration and Investigation Act. Initially, the bill expands on the definitions of 'commercial co-venturer', 'fundraising counsel' and 'independent fundraiser' to include any 'assignee, subcontractor, independent contractor or successor in interest.' The bill broadens the definition of 'solicitor' by stating simply that it 'means any individual who attempts to solicit or solicits contributions for compensation.' The bill eliminates the provision limiting the term 'solicitor' to only those 'subject to the control of an independent paid fundraiser.' But, the bill does exclude officers, employees and volunteers of an organization from its definition of 'solicitor'.
With respect to disclosure, the bill would add to the information organizations already report in the long form registration by transferring, in amended form, all of the information currently required upon initial registration to the long form registration. Thus, the organization would need to provide the following with the long form: (1) whether an officer, director, trustee or principal salaried executive staff employee has a financial interest in the activities of professional fundraisers or vendors contracting with the organization and, if so, the name and address of the interested person; (2) the place where and the date when the organization was legally established and the form of the organization; (3) the principal address and phone number of the organization and, if the organization does not maintain an office in the State, the name and address of the individual possessing the organization's financial records concerning operations or solicitations within the State; (4) the date the organization's fiscal year ends; and (5) a statement setting forth (a) whether the organization is authorized to solicit contributions in any other state and a list of such states, (b) whether the organization has ever been enjoined in any jurisdiction from soliciting contributions or has been found to have engaged in unlawful practices in the solicitation of contributions or the administration of charitable assets; (c) whether the organization's registration has ever been denied, suspended or revoked by any jurisdiction and the reasons for such action; and (d) whether the organization has voluntarily entered into an assurance of voluntary compliance agreement or something similar with any jurisdiction, federal agency or federal officer; and (6) whether the organization intends to solicit contributions from the general public.
The bill does not relieve initial registrants of the burden of providing a copy of the organization's charter, articles of organization, agreement of association, instrument of trust, constitution or organizational instrument and bylaws, and a statement setting forth the organization's tax exempt status with copies of federal or state tax exemption determination letters. Nor does the bill relieve registrants of the burden of updating the information.
The bill requires organizations that are currently required to file short forms to provide the following additional information: (1) the name of any independent fundraiser, fundraising counsel or commercial co-venturer the organization has engaged; (2) the contact information for each officer, director, trustee and principal salaried executive staff employee (limited to the five most highly paid employees) of the organization; (3) a statement whether any of those persons have ever been adjudged liable in an administrative or civil action (whether in the context of an injunction or denial, suspension or revocation of a registration or an assurance of voluntary compliance) or convicted in a criminal action involving theft, fraud or deceptive business practices, to include guilty and no contest pleas; and (4) a statement setting forth (a) whether the organization is authorized to solicit contributions in any other state and a list of such states, (b) whether the organization has ever been enjoined in any jurisdiction from soliciting contributions or has been found to have engaged in unlawful practices in the solicitation of contributions or the administration of charitable assets; (c) whether the organization's registration has ever been denied, suspended or revoked by any jurisdiction and the reasons for such action; and (d) whether the organization has voluntarily entered into an assurance of voluntary compliance agreement or something similar with any jurisdiction, federal agency or federal officer.
The bill would exempt some organizations from the registration requirement. Organizations that raise only $10,000 or less in gross contributions during the fiscal year would not need to register as long as the fundraising activities are undertaken by volunteers, members, officers or persons who are not compensated for solicitation contributions. If the gross contributions during any fiscal year do exceed $10,000, however, organizations would be required to register with the attorney general within 30 days.
The bill also would require agreements between a fundraising counsel or independent fundraiser and any other fundraising counsel or independent paid fundraiser to be in writing and in compliance with the contract filing and information requirements currently in force with respect to contracts between charitable organizations and the professional fundraisers. In addition to the current requirements, all such contracts must also disclose the authorized signatories for withdrawals from accounts in which fundraising receipts will be deposited. The bill would also require fundraising counsel and independent paid fundraisers who have or intend to have custody, control, possession or access to a charitable organization's funds to retain a copy of each advertisement, publication, solicitation or other material used as part of the charitable sales promotion to directly or indirectly induce a contribution.
Contracts between charitable organization and commercial co-venturers would be subject to the same requirements as the other contracts and would need to include a clear and conspicuous statement that the parties are subject to the Charitable Registration and Investigation Act. The bill would also require the report currently required to be submitted at the end of a commercial co-venture to be certified by an officer or principal of the commercial co-venturer. Additionally, the co-venturers would include with the report a copy of each advertisement, publication, solicitation, or other material used as part of the charitable sales promotion to directly or indirectly induce a contribution.
The bill would require an independent paid fundraiser to file the registration information of any solicitor retained. Also, any organizations soliciting funds and suggesting in any way an affiliation with emergency services employees, law enforcement officers or a government agency would need to disclose the nature of the affiliation or relationship, if any, or clearly state that no such relationship exists. The bill also states, however, that use of a name tending to raise the implication of such an association when there is no such association is a violation of the law, as is the use of a name, symbol or statement that misrepresents the geographic origin or location of a charitable organization and its intended beneficiaries.
The bill also would also prohibit fundraising counsel, independent fundraisers or commercial co-venturers to contract with anyone required to register but who has failed to do so. Furthermore, the bill extends liability to the organization itself for acts of any officers, directors, trustees or principal salaried executive staff employees that violate the statute, and the attorney general would be empowered to suspend or revoke an organization's registration upon a finding of, among other things, liability in an administrative or civil proceeding. This is true whether in the context of an injunction, a proceeding resulting in penalties or an assurance of voluntary compliance. Maximum penalties for violation of the statutory provisions would be raised from $7,500 to $10,000 for the first offense and from $15,000 to $20,000 for additional violations.
Finally, the bill incorporates the changes proposed in Assembly Bill Nos. 1133 and 1445. The details of those bills are discussed below.
Senate Bill No. 227 would extend to colleges, schools, academies, seminaries, public libraries, and schools for developmentally disabled children the stipulation accompanying the religious and charitable property tax exemptions that any portion of such property leased to profit-making organizations is subject to the property tax. With respect to public libraries and schools for developmentally disabled children, the bill also clarifies that any part of the property used for anything other than exempt purposes would also be taxed regardless of whether it is leased to another entity. Conversely, if the public library or school for developmentally disabled children utilizes part of its property for exempt purposes beyond what the organization was formed for, that property would continue to be exempt.
Assembly Bill No. 184 would create an income tax deduction for charitable contributions. Charitable contributions currently deductible from a taxpayer's federal income tax would be deductible from the State income tax as well, regardless of whether the taxpayer claimed the federal deduction. This bill may conflict with Assembly Bill No. 107, which essentially eviscerates the State's current income tax structure in favor of what the bill calls a 'simplified' tax. It is not clear, however, what affect passage of bill no. 107 would have on the charitable deduction outlined in bill no. 184, as bill no. 107 does not eliminate all deductions the State currently has in force.
Assembly Bill No. 1133 amends the Charitable Registration and Investigation Act to require the attorney general to provide information regarding nonprofit organizations and charitable solicitations on the Internet. Currently, the attorney general is only required to provide such information via a special telephone line. Accordingly, the notification organizations are required to submit with printed solicitations, confirmations, receipts or reminders of contributions must be altered to include a notice that information is available electronically.
Rather than simply provide the Internet URL for purposes of accessing this information, however, the bill inserts within the notification a statement explicitly informing the recipient that they may ascertain the percentage of the contribution that will be used for the organization's charitable purposes. As stated in the bill, the amended notification would read as follows: 'INFORMATION FILED WITH THE ATTORNEY GENERAL CONCERNING THIS CHARITABLE SOLICITATION AND THE PERCENT OF YOUR CONTRIBUTION THAT WILL BE DEDICATED TO THE CHARITABLE PURPOSE MAY BE OBTAINED FROM THE ATTORNEY GENERAL OF THE STATE OF NEW JERSEY BY CALLING 000-000-0000 AND IS AVAILABLE ON THE INTERNET AT www.xxxxxxxxx.xxx. REGISTRATION WITH THE ATTORNEY GENERAL DOES NOT IMPLY ENDORSEMENT.'
Assembly Bill No. 1290 would limit the liability of religious and charitable organizations for the property tax imposed on property leased to for-profit organizations. Establishing 2002 as the year from which affected organizations could be held responsible for such taxes, the bill seems to go further by stating that 'in no event shall a portion leased to a profit-making organization but used for an exempt purpose . . . be liable for any added or omitted assessments for property taxes for any prior tax year.' The bill also clarifies that no building actually used for religious or charitable purposes would lose its tax exempt status due to leasing any part of the building to preschool or kindergarten programs.
Assembly Bill No. 1445 would raise the threshold value for requiring charitable organizations to submit an audited financial statement that has been examined by an independent certified public accountant. Currently, organizations receiving contributions of $100,000 or more must submit such a statement. The bill would raise the threshold to $150,000. Accordingly, the bill would also require the president or other authorized officer of organizations receiving more than $25,000 but less than $150,000 to certify the organization's financial statements. Currently, this requirement applies to organizations receiving between $25,000 and $100,000.
Senate Bill No. 2077 would create a property tax exemption applicable to religious, charitable, scientific and nonprofit educational institutions for property occupied for the purpose of operating a thrift shop. To be eligible for the exemption, (1) the organization must be exempt from federal taxes under 501(c)(3); (2) the thrift shop must be operated to provide training for persons needing occupational rehabilitation or must be operated in whole or in part by volunteers; (3) the thrift shop inventory must be made up of donations obtained by the organization owning the shop; (4) the goods must be priced in accordance with the decreased value of used property; (5) goods must be provided for free to persons who are financially unable to pay; and (6) the thrift shop proceeds must be used solely for the charitable purpose of the organization owning the shop.
House Bill No. 2240 and its counterpart Senate Bill 2186 would require qualified 501(c)(3) organizations to obtain a permit before holding a lottery, despite the fact that the Legislature will have already approved the lottery by a 2/3 vote in each house pursuant to the State constitution. The bill would create a broad array of regulations that would apply not only to the organizations but also to the professionals obtained to assist in planning and managing a lottery.
Organizations wishing to hold what the bill refers to as an 'annual event' will first be required to obtain a permit. To do so, the organization must submit an application within 60 to 120 days prior to the event providing the following information: (1) a copy of an IRS letter confirming the organization's 501(c)(3) tax exempt status; (2) a copy of the organization's Form 1023 and all relevant schedules; (3) a copy of the organization's last annual report filed with the IRS and all relevant schedules; (4) a copy of the organization's governing documents providing proof that the organization has been in existence for at least three years; (5) a waiver of privacy rights, allowing public inspection of tax forms and other documents filed with the state; (6) the organization's main address and the address of any offices in the state (if there is no office in the state, the name and address of the person having custody of the organization's financial records); (7) the names and address of any of the organization's chapters, branches or affiliates in the state; (8) the names and addresses of the officers, directors, trustees and the principal salaried executive staff officer; (9) the names and addresses of all professional fundraising event counsel and professional fundraising event managers employed by the organization in connection with the annual event for which a permit is sought and copies of any contracts with such persons; (10) a copy of the authorization obtained by the legislature; (11) a statement that the organization has not conducted such an event in at least one year; (12) a description of the annual event; and (13) the dates, time and location of the annual event. Before obtaining a permit, the organization will have to pay a fee, which will be established by the secretary of state.
If the organization holds the lottery without having employed a professional fundraising event manager (one paid to organize and operate the event and who can hire others to assist) or a professional fundraising event counsel (one paid to assist either by planning, managing or advising an organization on holding the event but who does not hire or otherwise obtain other assistance), the organization will be required to file a post-lottery report with the secretary of state within 30 days after the even was held. This report will include: (1) the gross revenue from the proceeds; (2) the amount of proceeds disbursed to be disbursed to each sponsoring organization from the proceeds of the event; and (3) the expenses incurred in holding the event. Failure to file such report within the time allowed will result in the organization being suspended from holding another event for three years.
Fundraising event managers and professional fundraising event counsel will also be required to register by submitting a sworn application in writing and providing information to be determined by the secretary of state. Persons having been convicted of violating any of the bill's provisions within five years will be prohibited from registering as will convicted felons until their civil rights have been restored. Registrations expire annually on December 31, and failure to renew on time will expose managers and counsel to a $25 per month late fee. With the registration application, both managers and counsel will be required to file a bond in the amount of $25,000 naming the manager or counsel as principal and providing guarantee by one or more other parties. The bond will be made payable to the state for use by the secretary of state and any person who may have a cause of action against the manager or counsel for negligence in conducting the events. The bond will remain effective until the registration expires. Finally, fundraising event managers will have to pay an $800 registration fee, while counsel will pay a $250 registration fee.
Employees of fundraising event managers must be registered and bonded, which would be the managers' responsibilities. In addition to providing general contact information, employee registrations must disclose whether the employee has been convicted of any felonies or misdemeanors involving violation of state or local charitable solicitations law. Additionally, the employee will have to disclose: (1) whether she has been arrested or indicted for actions involving moral turpitude; (2) whether she is involved in any other civil, administrative or other actions related to state or local charitable solicitations law; and (3) whether the employee has been affiliated with any professional fundraising event manager who has been subject to civil, administrative or other actions. These disclosures will need to be supplemented with a summary of the proceedings and the disposition. Furthermore, the bill would give the secretary of state discretion to require other information. And, finally, employees would be required to pay a $10 registration fee.
With certain exceptions, within 90 days after the completion of the annual event, fundraising event managers will be required to file a financial report that has been audited by a certified public accountant, signed by the manager and signed and certified by two authorized officials with the organization. The details of what will be required to be included in the report will be determined later by the secretary of state, but at a minimum the report will include the gross revenue and an itemization of all expenditures from the funds. If the manager and the organization agree in their contract that the manager does not receive any of the funds, will not be able to access or make deposits to the funds and has no authority over the funds, the manager will not be required to file an audited financial statement. Instead, the manager would be able to submit a form providing an itemization of expenses, costs, reimbursements, and fees the manager is charging the organization. This report must also be signed by the manager and signed and certified by two authorized officials with the organization. Unfortunately, the law does not make clear whether such reporting requirements apply to professional fundraising event counsel. The provision imposing the requirement on managers makes no mention of counsel, but the provision allowing for the exception suggests that counsel will also be required to file a report. Considering the heavy hand with which this bill aims to regulate the lotteries, in all likelihood subsequent amendments to the bill would require counsel to file a post-event financial report as well. Delay in filing the post-event report, as with the registration application, will result in the imposition of a $25 per month fine.
The bill also sets forth extensive provisions related to procedures the secretary must undertake and appeal procedures available to applicants denied registration. Also, the bill outlines the requirements for renewal registration, which mirrors initial registration in most respects. Furthermore, the bill imposes broad record-keeping requirements and subjects registrants to the possibility that such records would be inspected as part of an investigation. Finally, the bill provides enforcement provisions, subjecting organizations, fundraising event managers and professional fundraising event counsel to civil penalties (including a fine of up to $5,000) as the result of action by the secretary of state but not providing a private right of action.
House Bill No. 195 would amend both the Charitable Solicitations Act and the Telephone Fraud Prevention Act. With respect to the Charitable Solicitations Act, the bill would eliminate the requirement that registration forms be in writing and under oath, thus allowing for electronic registrations. The bill would leave in place the current provisions setting forth the information organizations must provide, however. In addition, the bill would exempt from the registration requirements any corporation formed by act of the U.S. Congress and that is required to submit an annual report detailing the activities of the corporation, including an itemized report of all receipts and expenditures of the corporation, to be audited by the Secretary of Defense and then submitted to Congress.
The bill also would subject organizations already subject to the registration and reporting requirements of the Charitable Solicitation Act to similar requirements imposed by the Telephone Fraud Prevention Act. The bill would expand the definition of 'telephone solicitation' to include solicitation of charitable donations and the definition of 'telephone solicitor' to include persons and businesses making unsolicited phone calls of any kind, rather than just those persons and businesses soliciting sales. The practical effect of these amendments would be to subject charitable organizations and professional fundraisers utilizing telephone solicitation strategies to the coverage of the Telephone Fraud Prevention Act. Consequently, affected organizations would be subject to new registration and reporting requirements in addition to the burdensome registration requirements already imposed by the Charitable Solicitation Act. It is not clear how the public would benefit from the amendments, which simply duplicate the burdens already imposed on organizations formed to serve the public. Therefore, while these proposals should simply be struck from the bill, at the very least, the bill should be amended to exempt organizations regulated by the Charitable Solicitations Act from the registration and reporting requirements of the Telephone Fraud Prevention Act.
A bill drafted but apparently not yet submitted by Representative Young of Orwell would amend the laws regulating charitable solicitations to provide donors with a private right of action against charitable organizations in violation of the charitable solicitation laws. Currently, donors and charitable organizations have such a private right of action against fundraisers who violate the laws. This aspect of the bill is unnecessary, as the attorney general has both the incentive and power to sufficiently enforce the charitable solicitation laws. Although the bill may be aimed at protecting the public, the public will likely only be harmed as organizations formed to serve the public welfare will be forced to fend off frivolous lawsuits.
The bill would also empower the attorney general to adopt rules to require paid fundraisers to submit electronically the information, including the bond, currently required to be submitted in hard copy. The bill does not, however, impose any additional registration or reporting burdens on those affected.
House Bill Nos. 2070 and 2095 both would limit the property tax exemption currently enjoyed by public institutions serving the education needs of deaf, mute and blind children and by all hospitals to those organizations whose annual net taxable income is less than one million dollars. Bill 2095 stops there, but bill 2070 would require any income generated from the tax imposed on organizations whose net taxable income exceeds $1,000,000 to be dedicated to the expense fund of the State's public employees insurance act.
House Bill No. 2380 would prohibit professional solicitors from soliciting on behalf of charitable organizations unless first agreeing to receive no more than thirty-five percent of the proceeds for compensation. Limitations such as these, although appearing to restrict only professional fundraisers, impose an unconstitutional restraint on charitable organizations' exercise of free speech. Provisions similar to this have been struck down by the United States Supreme Court and courts throughout the country as unconstitutional.
In addition, the bill would also require charitable organizations, professional fundraising counsel and professional solicitors to inform donors, upon request, of the percentage of the proceeds of the solicitation that the solicitor will receive as compensation. Provisions such as this are generally unnecessary because donors are already protected by provisions prohibiting solicitors from misleading potential donors. Thus, if asked by the donor, effective solicitors essentially would be compelled to provide the information regardless of whether the bill is enacted.
House Bill No. 2432, which would establish a do-not-call list, would prohibit organizations soliciting funds on behalf of charitable organizations for compensation from making an 'unsolicited telephone sales call' to persons who have had their name placed on the State's do-not-call list. The bill would not apply to calls made on behalf of charitable organizations made by a person receiving no compensation. The bill would also exempt calls made to persons with whom the solicitor already has a business relationship or calls made in response to a request made by the person called. To comply with the provisions of the bill, organizations will ultimately be forced to purchase copies of the do-not-call list on a regular basis.
The bill also requires anyone making telephone solicitations to inform all persons contacted how the person called may have her number placed on the do-no-call list. Furthermore, the bill prohibits telephone solicitors from knowingly blocking their telephone number from appearing on caller ID services. Telephone solicitors would also be unable to utilize automatic dialing systems, and any contract entered into as the result of a telephone solicitation would be unenforceable unless reduced to a writing setting forth the contract terms as well as the following statement, which is to be in ten point bold type: 'You are not obligated to pay any money unless you sign this contract and return it to the seller.'
Anyone contacted more than once within one year in violation of the bill's provisions would be able to institute a private lawsuit to enjoin the solicitor and recover either monetary loss or up to $2,000 in damages for each knowing violation, whichever is greater. It is not clear, though, what is meant by a 'knowing' violation, a showing of which would seem necessary to impose any sort of penalties, whether public or private. Thus, innocent violations would not subject a solicitor to action by the State or private citizens. It is quite possible, however, that knowingly failing to purchase the do-not-call list would give rise to the presumption that calls to persons on the list are knowing violations.
We are of the opinion that subjecting charitable organizations or persons soliciting on behalf of charitable fundraisers to restrictions such as this violate charitable organizations' free speech rights. Although the law may appear harmless, its effect will be to severely restrict charitable organizations from effectively spreading their message. Furthermore, most people subscribing to do-not-call lists have no idea that their actions will prevent them from receiving information from charitable organizations. Thus, the bill also violates donors' and potential donors' First Amendment right to receive valuable information that the Supreme Court has already determined is much more highly protected than simple commercial speech.
Related AFP ResourcesReal Estate Gifts In Canada, What is the Lay Of The Land And How Is AFP Involved?
AFP/Globe and Mail: Incentives for Taking Canadian Giving to the Next Level
Imagine Canada Releases Paper on Charities as an Economic Sector
Canada: Federal Budget Includes Key Giving, Charity Provisions Pushed by Charities, Fundraisers
AFP Statement on President Obama’s FY 2016 Budget