MEMORANDUM FOR: FSC MEMBERS AND FRIENDS

At our monthly leadership breakfast, we discussed FSC members attending the NASCO Conference in San Diego to provide input into the NASCO plan to regulate the Internet. The following is a report on this conference.

FSC members must be aggressive in speaking out on this issue in order to prevent massive new regulatory burdens being imposed on the Internet.

REGULATING THE INTERNET

by F. Hayden Codding, Esquire

The National Association of State Charity Officials (NASCO) held its annual conference on October 16 in San Diego to discuss the Internet. The meeting focused on NASCO’S proposed "Charleston Principles," which are recommendations for state regulation of charitable solicitations made on the Internet.

NASCO claims to recognize the current plight of nonprofit groups that are forced to register, to pay fees and to be exposed to repetitive regulatory restraints in 38 states and other jurisdictions. Nonetheless, in an informal vote, the meeting participants voted overwhelmingly for the states to extend their regulatory reach to web sites and e-mails that ask for charitable solicitations. The NASCO participants concluded the meeting by adopting the Charleston Principles which, if used in all different jurisdictions, will force nonprofits that solicit or collect contributions on the Internet to register in an infinite number of localities.

Karl Emerson, president of NASCO and director of Pennsylvania’s Charities Bureau, opened the meeting by referring to the pre-meeting comments filed by participants, including FSC members, complaining about the burden of registration. During the meeting’s open session, Mr. Emerson and nonprofit representatives agreed that registration, when viewed in the context of having to register in 38 or more jurisdictions, is a serious burden. Other state officials also acknowledged this burden and supported measures to streamline the process. It appears that the previously filed legal challenges and objections to the burdensome registration process made by the nonprofit community are at least making the states acknowledge the problem.

Mr. Emerson said NASCO’s goal is to set up an Internet based registration system so that a nonprofit would be able to access one web site where it could register in all of the participating states. The site would also allow a nonprofit to fill out its Form 990 on-line. While some constitutional and jurisdictional questions would still remain, an on-line registration system requesting reasonable information on nonprofits could be a significant step toward reducing the burden of registration. As the state officials acknowledged, the current burden of filing the same paperwork in state after state benefits no one, particularly if the same information is already on the Internet (the Guidestar nonprofit organization is already providing 990 information on www.guidestar.org). Some states indicated they would rather use their departments to chase fraud rather than to chase paperwork violations. NASCO officials said the use of the Internet for on-line registration could also apply to fund raising counsel and solicitors in the future.

FSC members had met with the Virginia Attorney General’s office the week prior to the NASCO conference to address the burden of registration and the possibility that the Internet could be used to reduce the problem. The suggestion was made that a nonprofit or a fund raising counsel could register only in its home state and then that information could be shared electronically. Apparently, NASCO intends to work with the Urban Institute to develop a similar model. A number of states, including Virginia and Pennsylvania, have expressed interest in the program.

In regard to the Charleston Principles, NASCO has tried to address some concerns by emphasizing that a single web site that attracts contributions with no direct appeal for funds or a mechanism for collecting donations will not be subject to registration in every single state where it could be viewed. However, NASCO proposes to adopt guidelines where using interactive web sites or sending out e-mail solicitations may subject a nonprofit to registration. Or, if a charitable program showcased on a web site is directed at citizens in a particular jurisdiction, NASCO hypothesizes that same jurisdiction would have the authority to require registration.

At the meeting, FSC members argued that these requirements are too vague and unenforceable. The Supreme Court does not favor barriers to communication on the Internet because of the endless numbers of restrictions that could be imposed by various jurisdictions. Any action by the states to claim that a state has the authority to demand registration from an entity across the country that is soliciting over the Internet will likely be challenged in court. Further, if NASCO succeeds in developing its plan for nonprofits to register on the Internet, this issue may become moot in a few years if a group’s information is already available in one location on the Internet.

NASCO officials briefly addressed the U.S. Supreme Court’s decision not to grant certiorari in the American Target Advertising, Inc. v. Giani case. Officials stated that, following that decision, states could continue to enforce their registration requirements. However, the officials recognized that bonding provisions such as Utah’s $25,000 bond for a fund raising counsel are now barred in the 10th Circuit as a result of the ATA case. However, other states indicated they would continue enforcing their bonding provisions in other circuits and await any further legal challenges. In regard to Pinellas County’s case where the county is defending its separate, county-wide registration requirements, even some state officials commented that this is an example of registration requirements going too far.