End of Year Nonprofit Compliance: Budget Considerations

James Gilmer
Posted on October 23, 2020 by James Gilmer in Nonprofit Compliance.

For most nonprofits, the fourth quarter is reserved for strategic planning for the upcoming year. During this time, organizations establish budgets and means by which to fund and grow their impact. Many organizations have adopted online fundraising platforms to support those programs. As a result, they face far-ranging compliance considerations when soliciting online.

Nonprofits should understand the importance of multi-state charitable registration. Compliance directly impacts the organization’s ability to solicit and grow its base of support. As a result, leadership should consider compliance as part of their program and fundraising strategy. Additionally, they should include the related compliance costs as necessary budget line items. 

This article will provide information about the costs associated with state registration. Each nonprofit naturally has unique state requirements. However, this general information will guide nonprofit leadership during the budgeting process.

Aligning Compliance with the Fundraising Strategy

Forty-one states require nonprofits that solicit charitable contributions to register and report annually. “Solicitation” refers to any variety of traditional, in-person, and online methods. Many states now consider “Donate Now” webpages, crowdfunding, social media, and email to be forms of solicitation.

Many organizations use high-reach online tools to target prospective donors. These activities may trigger registration requirements in multiple states, if not nationally. Most states do not penalize late registrations done in good faith. Organizations that suddenly realize they need to register should adopt a plan to do so in a timely manner. 

For many larger organizations, registering nationally is the easiest way to ensure compliance. In general, nonprofits that do not register everywhere should solicit only where it has registered or is not required to file. As your board meets to establish a growth strategy for the following year, remember that you may need to register to solicit in advance.

What Does It Take to be Compliant?

Nationwide compliance requires a number of annual responsibilities for nonprofits and their leadership. While every organization (and each state) is unique, most can expect to do the following:

  • File Form 990 with the IRS
  • Produce organizational financial statements, which may need to be reviewed or audited by an independent CPA
  • Prepare and submit first-time registration applications with state agencies 
  • Prepare and submit applications to renew solicitation licenses annually
  • File extensions with state charity offices as needed
  • Maintain legal good standing with secretary of state offices
  • Maintain a registered agent for service of process with state charity offices, where required
  • Maintain compliant donor disclosure statements on its website and solicitation materials

Nonprofits have ongoing responsibilities in addition to specific annual tasks. Organizations must report major changes to state agencies when they occur. For example, states need to know when a nonprofit changes its name or address, or starts to use paid fundraising professionals. This requires processes to keep records and relay updates to state agencies in a timely manner. 

Many nonprofits consider managing compliance in-house. State registrations are not impossible, but they require substantial staff time and expertise. Leadership should weigh the internal costs of management against the benefits of outsourcing a majority of the work. 

Budgeting for Compliance

One of the most common questions your board will have is around the annual cost of compliance, especially during budget season.

The most important thing to remember is that compliance is an investment. Maintaining the proper registrations allows your organization to solicit by any means in a given state. This not only allows you to ramp up development efforts, but it also builds donor trust! Savvy donors know how to research the charities they give to, and you can bet they want to know you’ve done your due diligence. And yes, states can and do penalize non-compliant organizations. Even a single infraction can add unnecessary cost and tarnish your nonprofit’s reputation.

State Filing Fees

Almost every state assesses a filing fee to register and renew. Depending on the state, the fee may a fixed annual amount, or it may be based on your organization’s annual income as reported on Form 990. When you throw 41 states into the mix, the calculation can quickly become complex. 

Remember: Filing fees are set by statute. Regardless of who handles your state registrations, you can expect to disburse fees to state agencies each year. 

The below information is based on nationwide registration and should be used for estimation purposes only. Your organization’s exact filing fees will vary.

New Organizations (No Financial History)

Newly formed organizations and those with no financial activity in the preceding year will face the lowest filing fees. Typically, the total fees across all states fall under $1,500 for the year.

Small Organizations ($100,000 – $999,999)

In a given state, an organization of this size faces a wide range of possible filing fees. However, the total filing fees across all states may range from $1,500 to $3,000 annually.

Medium Organizations ($1,000,000 – $9,999,999)

Once an organization hits $1 million in total revenue, it starts to pay the maximum amount in many states. The total filing fees across all states range from $3,000 to $4,500 annually.

Large Organizations ($10,000,000+)

In general, organizations with revenues exceeding $10 million annually will pay the maximum amount in every state. Across all states, filing fees for these groups may exceed $4,500 annually.

Registration Filing Services

State charitable registration is complex. Many organizations outsource their annual filings to a service provider with the expertise and resources to get the job done. However, not every service provider is the same. A lower sticker price, even by a few hundred dollars, can mean the difference between a great experience and a not-so-good one.

When you compare proposals between service providers, on the surface, things may seem very similar. After all, you expect the vendor to prepare your applications and file on your behalf. You need them to ensure your registrations are approved and track your renewal deadlines so that you stay in good standing. Wash, rinse, repeat. 

But, that’s the baseline. When you’re deciding on a service company, do an honest assessment of the type of relationship you want (and we know you will!). You might ask:

  • How responsive is the service company to your questions? 
  • What kinds of ongoing support will your organization need? Is there an additional hourly fee for additional support?
  • Does a knowledgeable individual answer your questions, both before and during the engagement? 
  • Can you pick up the phone and speak with a human being?

You should also examine what sort of tools and software the provider offers you. For example, you might ask:

  • Does the service company have the resources to file on time, every time for your organization?
  • Does the service company have strong relationships with state charity officials? Can they help you resolve state filing issues?
  • Can you readily see what information and signatures your organization needs to provide? Or must you request manual status reports?
  • Does the service company mail you a packet of forms to sign? Or are forms neatly delivered electronically to your designated contact?
  • Does the service company offer a suite of services, including registered agent representation? Or do you have to find other vendors for other compliance tasks?
  • Does the service company offer software to track your legal entity and license information? Can you use the same software to store copies of organizational records and licenses?

In an era of remote work, it’s more important than ever to ensure key stakeholders have the compliance insights they need. It’s no longer practical to wait for the mail or drive to an office location when cloud-based technology exists.

Harbor Compliance offers purpose-built compliance software. Leadership, staff, CPAs, and even major donors can view registration statuses in one central location. Software access is included with your annual filing service, which is one flat, annual rate for each state in which you need it. We prepare your applications, work with state agencies to ensure approval, and answer your questions along the way. With our expertise, we help you engage with donors and fundraise with confidence.

Investing in Compliance

As your organization establishes its strategy for next year, don’t overlook your investment in compliance. Adopt a proactive plan to register in advance of any expanded program or development efforts. Then, include the cost of state charitable registration in your annual budget. 

When it comes to selecting a service provider to manage your charitable registration filings, it’s not all about dollars and cents. Choosing the right provider will inspire confidence and help you turn compliance into a badge of honor with your donors.

Ready to request a proposal? Contact us for a quote for your organization.

Harbor Compliance does not provide tax, financial, or legal advice. Use of our services does not create an attorney-client relationship. Harbor Compliance is not acting as your attorney and does not review information you provide to us for legal accuracy or sufficiency.


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