With e-commerce as the fastest-growing retail channel, online charitable sales promotions have similarly exploded in popularity in the last decade. An example of a charitable sales promotion is one in which a company advertises that it will donate $1 per product sold to benefit a named charity. These types of promotions are subject to state charitable solicitation laws., which includes registration and reporting requirements in certain states. If the company fits the statutory definition of a “commercial co-venturer” (generally defined as a company that advertises that the purchase or use of its goods or services will benefit a charitable organization), the company must determine whether it is subject to any state registration requirements.
In order for a state to impose its regulations upon an entity’s online fundraising activities (including by requiring the entity to register), the state must meet the constitutional “minimum contacts” standards set forth in the seminal Supreme Court case, International Shoe v. Washington. “Minimum contacts” refers to the minimum amount of contacts necessary for a state to exercise jurisdiction over a person or entity.
In 2001, the National Association of State Charity Officials (“NASCO”) issued advisory guidelines, called the Charleston Principles (“Principles”), which represent the states’ effort to consistently apply minimum contacts principles to determine when charities and their fundraisers, including commercial co-venturers, may be required to register to conduct online charitable solicitations.
There are up to 7 states that require companies to register or file contracts or campaign reports in connection with a charitable sales promotion conducted in their state. See our chart of the commercial co-venturer state registration and reporting requirements. Charities are required to register to solicit charitable contributions in about 38 states, and have certain filing or disclosure obligations in connection with any commercial co-venturers conducting charitable sales promotions. See our chart of charities’ registration and reporting requirements.
The following summary outlines five key considerations for evaluating whether a company or charity must undertake state registration or reporting to conduct an online charitable sales promotion.
- The Company is Domiciled in the State. If a company is conducting an online-only promotion, the company must register or report as a commercial co-venturer in the state where the company is domiciled, i.e., its principal place of business. Some states may also require the charity to be registered in the company’s state of domicile to be the beneficiary of the promotion.
- The Company is Conducting or Advertising the Promotion in Certain States. If a charitable sales promotion is being conducted online as well as in physical locations, or if advertisements for an online charitable sales promotion are being targeted (e.g., via mail, TV, etc.), the company and charity must register or report the promotion in those targeted states.
- The Company is Sending Targeted Email Solicitations. According to the Principles, companies that promote online charitable sales promotions via email are considered to be targeting any state where an email recipient is located if the company knew or reasonably should have known that the recipient was a resident of or was physically located in that state. Companies should review their email marketing plans when assessing whether they will need to register or report as a commercial co-venturer in any states in connection with their online charitable sales promotions.
- The Company is Using Geo-Targeted Social Media Ads. Companies that are engaging in geo-targeted social media marketing of online charitable sales promotions (i.e., targeting users by their location, including states, cities, and zip codes) must register or report as a commercial co-venturer in such states. Some companies target users on social media based on other characteristics, such as age or gender, but not based on their location – this type of social media strategy would not on its own trigger registration.
- The Company’s Online Promotion is Generating Significant Contributions in Certain States. The Principles state that companies or charities must register in a state if the entity receives online contributions from a state on a “repeated and ongoing basis” or a “substantial basis.” This jurisdictional nexus is based on having a sufficient volume of online donations to establish that the online donations are regular or significant, as opposed to rare, isolated, or insubstantial. Only three states, Mississippi, Colorado, and Tennessee have formally adopted thresholds by regulation, and consider 25 to 100+ online donations, or $25,000+ in total online donations, per year from the respective state’s residents to meet the “repeated and ongoing basis” or “substantial basis” thresholds. Given these guidelines, companies should periodically monitor their sales in each state to see if either the per-state online sales volumes or the amount of donations being generated for the charity based on online sales to any state’s residents are sufficient to justify registering.
The Principles note that even if an entity is not required to be registered in a state, a state can still bring an enforcement action against an entity based on fraudulent or deceptive charitable solicitations if a donor who has been misled by the entity’s fraudulent or deceptive online statements is located in the state, regardless of whether the entity is required to be registered in the state.
The information provided above does not constitute legal advice and is not intended to substitute for legal counsel. Prepared by: Perlman & Perlman, LLP.