Tracy Teale, CPA, Audit Partner and San Francisco Office Head.
Tracy TealeCPA / CFO / A&A Department Head / San Francisco Office Headview bio

Providing Services Outside Your Geographic Area

Charity without borders

7/1/2021

In general, charities incorporate in the state either where their headquarters are located or where most of their activities take place. As a not-for-profit organization grows and evolves, a need to operate in more than one state may arise.
 
Not-for-profit organizations can operate nationwide, even though they are legally registered in one specific state as a domestic entity. However, if an organization decides to expand its operations outside its incorporated state, it must comply with each specific state’s requirements where it chooses to conduct its programs.   
 
The federal/IRS part of the compliance standards will not change if operating in additional states
 
Certificate of Authority

To be considered as operating in multiple states, an organization must be conducting its tax-exempt activity outside its incorporated state.
 
For example, if an organization’s purpose is to provide services to those in need such as food, housing and crisis assistance in California and decides to expand its services to people in Nevada, the organization is operating in two states.
 
California Nevada border at Lake TahoeIn this case, the Nevada branch would have to register as a foreign corporation (here the term “foreign” means “outside the state of domicile”). In some states, however, you will be required to file a “Certificate of Authority” to transact business in a particular state.  In addition the organization may need to change it exempt purpose if the purpose is specific to a location or area.
 
Because each state has unique compliance requirements, an organization must apply to meet the standards of each state independently. This process is required for every state outside the original incorporated state.
 
Information about a state’s process for filing a Certificate of Authority can typically be found on the state’s Corporation’s Division website.
 
Please note that once you are registered as a foreign entity in a particular state, you are then required to do annual filings and reporting in the second state of operations, in addition to the filings you must do in your home state. 
 
Charitable Solicitations Registration

Because fundraising activities are regulated by state law, many states require charitable not-for-profits to register with the state before the not-for-profit solicits any donations from residents of that state
 
This means that an organization can conduct or participate in events and fundraising activities in another state without being considered operating within that state as long as they register for charitable solicitations. Some states consider online marketing to be solicitations in their state, if the organization receives significant donations from that state.
 
Being registered for charitable solicitations allows an organization to legally solicit funds; if an unregistered organization is soliciting for funds in a state that requires registration, it will be subject to whatever sanctions exist in each state’s law.
 
Receiving donationsCurrently, 40 states require organizations to register for charitable solicitations. The states that don’t include Delaware, Idaho, Indiana, Iowa, Montana, Nebraska, South Dakota, and Wyoming.
 
Additionally, if your not-for-profit partners with a business to receive a percentage of sales, then your organization may require a special registration filing. This activity is often referred to as a commercial co-venture and is required by 22 states.
 
If you decide to expand your operations outside your state, you must keep in mind that you will have to comply with each specific state’s requirements where you choose to conduct your programs.   Each state has different registration requirements and exemptions, and you will have to conduct thorough research of the proper registration procedures prior to conducting any activities in that state.
 
We recommend you reach out to your RINA professional if your not-for-profit is considering expanding outside your area.

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