If an organization is planning to conduct any type of activity outside its incorporated state, certain measures need to be taken to maintain state-level compliance. An organization must have a clear understanding of what it is planning so it can properly meet the requirements of the additional states.
To be considered as operating in multiple states, an organization must be conducting its tax-exempt activity outside its incorporated state. For instance, if an organization’s purpose is to provide children with music lessons in Tennessee and decides to expand its lessons to children in Kentucky, the organization is operating in two separate states. In this situation, the organization needs to file a Certificate of Authority in the state of Kentucky so it can legally carry out its mission in that state. This process is required for every state outside the original incorporated state (though each state varies in their guidelines and filing process). Many states are now requiring a Certificate of Authority if the organization will hold an event or anything that would require the organization to have liability insurance. For instance, a 5K fundraising event may require a Certificate of Authority, in addition to Charitable Solicitations registration (which is discussed below). Information about a state’s process for filing a Certificate of Authority can typically be found on the state’s Corporation’s Division website.
An organization can conduct or participate in events and fundraising activities in another state without being considered operating within that state. For these types of activities, the organization will likely need to file for charitable solicitations. 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. Currently, 40 states require organizations to register for charitable solicitations. Keep in mind that organizations need to file with their incorporated state as well as any additional state in which they are conducting activities. As an example, an organization may participate in benefit shows taking place in several different states. An organization’s participation in these events is not its tax-exempt purpose, but rather outlets that generate funds so the organization can carry out its purpose.
Because each state has unique compliance requirements, an organization must apply to meet the standards of each state independently. What if an organization wants to operate and/or solicit funds in each state? Unfortunately, there is not a one-size-fits-all solution to filing either document with all required states, so it is critical to understand the requirements of each state.