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Guidance: Internet transaction fees

March 2001

AFP Ethics Committee guidance: payment of Internet fees for service

The Internet has produced many innovations in charitable fundraising. This discussion focuses on the numerous websites that have been established to facilitate online donations to unrelated organizations.

The majority of such websites are maintained by entities that are not themselves tax-exempt. Most of these websites also profess not to be soliciting donations, but rather providing administrative and related services. Generally, such websites retain either a negotiated percentage, or a uniform percentage of each donation as an administrative fee, deducted from the donation prior to payment of the net to the charity.

The Association of Fundraising Professionals' (AFP) Code of Ethical Principles and Standards of Professional Practice set specific guidelines for fee payments. AFP members are required to follow the Code. Questions are being raised concerning the Internet transaction fee arrangements summarized above, and the relevance of Code Standard 24. Standard 24 directs that "members shall not pay finder's fees, or commissions or percentage compensation based on contributions and shall take care to discourage their organizations from making such payments.'

The issue concerns the proper characterization of the 'fee' taken by website operators who facilitate donations to charities. Such websites are to be distinguished from those maintained by charities themselves for the purpose of receiving direct donations.

Website operators who administer electronic contributions facilitate the donor-donee relationship. Such websites do not take the role of 'finders.' Rather, they represent a convenience for the donor who in virtually all instances initiates the transaction. A website operator in these circumstances receives a definite fee for a specific service. Such transactions and related fees are similar to charges for electronic fund transfers, credit card fees, and stock transfers by brokerage houses.

These factors clearly indicate that the web transactions addressed in this discussion should not be characterized as fundraising for purposes of the AFP Code and Standards. If the transaction involves as a primary purpose a service to the donor, the provisions of the AFP Code and Standards are not applicable.

For these reasons, a donor-initiated transaction involving the transmission of a donation (including appropriate recordkeeping services) by a website operator to a charity does not fall within the purview of the AFP Code and Standards. Thus, an Internet donation transaction fee that is based on a percentage of the funds donated is not prohibited by the AFP Code and Standards.

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