Vol. IV, No. 3
May - June 1996
North Dakota: Only Worthy Charities May
Solicit in State
Lightly-populated North Dakota has moved
front and center in the creation and imposition of more
intrusive regulation on nonprofits. Its charitable
solicitation law:
Requires the North Dakota
Secretary of State to choose which charities are "worthy" to
be permitted to solicit in the state;
Requires fundraisers to "domesticate" their
corporations in North Dakota by registering to do business
as "foreign corporations." Fundraisers must also provide the
social security numbers of all officers and directors;
Requires consulting firms and other fundraisers to
report confidential business information &endash; such as
the value of their stock, the total value of their assets,
even their total annual income; and
Apparently requires nonprofits to obtain the state's
approval before retaining &endash; or changing &endash;
their professional fundraiser.
The North Dakota Century Code ("NDCC")
(effective July 1, 1995) states that, before permission may
be granted to solicit within the state, the Secretary of
State's office must investigate: the financial
responsibility, experience, character, and general fitness
of the applicant. If the investigation warrants the belief
that the solicitations are for a worthy charitable purpose
and that the applicant will conduct solicitations in
accordance with the law, the secretary of state shall issue
a license
[Section 50-22-01, para. 6.]
The North Dakota "Charitable Solicitation
License Application" requires nonprofits to agree "not to
allow any professional fundraiser/solicitor to conduct a
solicitation on [their] behalf without prior
approval from the Secretary of State" (emphasis added). This
apparently is based on Section 50-22-02.1 of the NDCC, which
states in part:
The secretary of state or the secretary's
designee shall examine each initial application of a
charitable organization for the right to solicit funds and
each renewal application of a charitable organization for
the right to solicit funds. If the solicitation is to be
made in whole or in part by a professional fundraiser or
professional solicitor, the secretary of state shall approve
registration if the arrangement for payment conforms to the
requirements of this chapter and all relevant rules.
[Emphasis added.]
Apparently, therefore, the Secretary of
State may disapprove the retention or change of a
professional fundraiser if the "arrangement for payment" is
deemed inconsistent with the statute &endash; or even with
rules created by the Secretary of State. (The statute does
not clearly indicate whether the Secretary of State's
approval must be based on: (i) the payment to the state for
registration, or (ii) payments to the fundraiser from the
nonprofit.)
Fundraisers not incorporated in North
Dakota must register to do business as a foreign corporation
in North Dakota and pay all associated fees. By requiring
the domestication of these foreign corporations, North
Dakota pulls these fundraisers, over which it would
otherwise have no jurisdiction, into North Dakota so that
they can be threatened more effectively, and even fined or
sanctioned more easily, for supposed violations of North
Dakota laws.
As foreign corporations, they must file
an annual report to receive permission to raise funds in the
state. North Dakota also requires that foreign corporations
report:
"The value of all the property
owned by the corporation wherever located" (total assets)
(Instructions to File Foreign Corporation Annual Report, 9A
[SFN 17156 12/95]); and
"Total income" as reported on the
federal tax return (Instructions to File Foreign Corporation
Annual Report, 10.A); and
"The total gross income the
corporation derived from business operations in North Dakota
during the fiscal year" (Instructions to File Foreign
Corporation Annual Report, 10.B).
Washington Kills Proposed Audit Requirement
Washington State's proposed mandatory
audit requirement is dead. After intense lobbying by FSC and
its members, the proposed Washington State regulations, that
would have forced almost all nonprofits, and their
fundraisers, to file audit reports by independent CPAs,
along with other new, unreasonable requirements, were
rejected after a March 27, 1996 public hearing held in
Olympia, Washington. The audit proposal alone would have
added thousands of dollars in new costs to charities and
their fundraisers (the state government estimated that the
proposed new requirements would cost fundraising agencies
between $4,000 and $16,000, at a minimum). Since all costs
are ultimately passed along, donors would in essence pay a
new "tax."
An April 26, 1996 letter by the Secretary
of State's office's notified FSC that, "[t]he
proposed rule making for WAC 434-120-105-130-and 255
[all the offensive sections] were not approved."
FSC's key role in having the proposed rules dropped was
reported in Philanthropy Monthly, which complimented FSC and
its members by saying, "Bravo for initiative and a job well
done."
Background on FSC Lobbying Success
After the proposed Washington State regulations were
reviewed in mid-March, and in response to the abbreviated
schedule (the regulations were to be implemented just two
days after the scheduled public hearing), FSC rushed into
action. First, FSC wrote and faxed our members, informing
them of the proposed rules' adverse impact. Next, FSC
drafted testimony, and retained a Washington State-based law
firm to present FSC's testimony at the hearing. The firm
communicated FSC's position to key government leaders and to
other Washington State nonprofits.
FSC then faxed, wrote, and called its
members again _ as well as others around the country,
requesting that they send comments to the Secretary of
State. Ultimately, numerous FSC members publicly joined the
Free Speech Coalition's opposition to the proposed
regulations. Additionally, FSC coordinated the delivery of
individual letters of objection to the Secretary of State
before the public hearing.
FSC Only Group to Testify Against Rules
When the public hearing took place, FSC was the only
group to testify against the proposals. Our nine-page
testimony included the following points:
Individuals in the United States
have a fundamental right to speak freely and to organize
themselves into many different sorts of groups, independent
of the state. While elected representatives forge public
policy, the people must retain the opportunity to determine
its direction. Governmental roadblocks that directly or
indirectly deter individuals or organizations from
associating together to petition the government are clearly
unconstitutional.
Many small, nonprofit groups cannot afford the
lawyers, accountants, and other costs of opposing such undue
and burdensome regulation. Their only choice may be to go
out of business, thereby limiting the range and reach of
political discourse. And the harm is not limited to small
groups. Where nonprofit groups can stay afloat against this
tide of overregulation, the public ends up paying the
additional taxes and fees to local government, through its
donations, without receiving any resulting public
benefit.
When charitable organizations are being asked to take
up the slack in an era of shrinking government budgets,
should not the Secretary's office examine ways to reduce
regulation, instead of proposing more regulation? As a
matter of public policy, charities' work should be
encouraged and supported. The proposed regulations will
clearly make it more difficult for new and smaller charities
to deliver services. Requiring nonprofits to submit audited
financial statements adds one more administrative expense at
a time donors demand that charities cut such expenses and
spend more on the people they are trying to help.
The representative from the Washington
Attorney-General's office said he was "astonished with the
flood of letters and comments he received" opposing the
proposed regulations. FSC is pleased to have participated in
this effort to inform the Secretary of State of the negative
effect these proposed regulations would have had on the
nonprofit community.
Utah Rescinds Fingerprinting Requirement
In the June 1995 edition of FREE SPEECH,
we reported that, "Utah's fingerprinting requirement may be
on its way out." We were right. Effective May 1, 1996 the
State of Utah no longer requires professional fundraisers to
submit fingerprint cards and photographs. The repeal effort
began over fifteen months ago, when an FSC member
organization wrote to the State of Utah objecting to the
requirement. While the fingerprinting regulations were in
effect, some charities removed Utahans from their mailing
lists. Over the past year, FSC members and others questioned
both the rationale and the legality of this requirement. The
fingerprinting requirement was viewed by a commercial
fundraiser as one of the most offensive regulations in the
country.
Nevertheless, Utah did not lift the
entire regulatory burden. The newly-revised Utah Charitable
Solicitation Act adds 223 lines of new regulations, and
deletes only 57. The revised Act requires, among other
things, that fundraising counsel operating outside the state
give the name and address of a "registered agent" and
consent to service of process [Section 13-22-9 1 b
vi]. Just like in South Dakota, this device of requiring
the appointment of an in-state registered agent seeks to
gain jurisdiction over firms not present in the state.
FSDEF Begins Fundraising Drive
The newly-created Free Speech Defense
and Educational Fund (FSDEF) announced the commencement of
its 1996 litigation fundraising drive at its April 10, 1996
board meeting. The FSDEF Board is establishing case
selection criteria and is conducting an expansive
fundraising campaign to reverse the tide of increasing state
charitable solicitation regulation. FSDEF will support
efforts to challenge states' jurisdiction to require the
registration of nonprofits and fundraisers located outside
their borders.
Shortly after announcing its fundraising
campaign, FSDEF received pledges of $9,000 towards its war
chest. FSDEF is exempt from federal taxation under IRC
Section 501(c)(3). Inquiries and tax-deductible
contributions should be directed to Ms. Edythe Ledbetter,
President, the Free Speech Defense and Educational Fund,
8180 Greensboro Drive, Suite 1070, McLean, Virginia
22102.
The Free Speech Coalition, Inc. is a
nonpartisan, nonprofit 501(c)(4) organization which
educates, lobbies, and litigates to defend the rights of
advocacy organizations and their members. FSC needs your
support to continue its fight to protect the rights of
citizens to associate together and exercise their First
Amendment right to petition their government for redress of
their grievances. Contributions to the Free Speech
Coalition, Inc. are not tax-deductible.
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