Online Fundraising, Charitable Solicitation Laws, and the WayFair Decision
South Dakota v. Wayfair, 585 U.S. ____(2018), established a new standard for a state to establish jurisdiction over an individual or corporation. If you followed this case about the reach of a state sales tax law, you may be asking yourself 'What does this have to do with charitable fundraising?' While the Wayfair case was about state sales tax laws and not charitable solicitation laws, the underlying issue in the case is the same. The question is one of jurisdiction, whether or not a State's court would constitutionally have the power and authority constitutionally to enforce state law against you. As I write this post, in 2019, about online fundraising and charitable solicitation requirements it is astonishing to me that most states have not yet adopted laws regulating this activity. Nonetheless, here we are. Most (all?) nonprofits have a website and conduct at least some fundraising online. There are many apps and websites that help make this very easy for even the smallest of charitable organizations. However, state governments have been slow to update their charitable solicitation laws. I believe updates are coming in many states that will be based, not on an organization's physical presence in a state, but rather whether the organization has an "economic" interest in the state. This is quite a leap from the old standard that required out of state organization's to have a physical presence in the state before a state could require compliance with its laws. However, the recent Supreme Court decision in South Dakota v. Wayfair seems to pave the way for this type of law. The Wayfair case involved a new South Dakota law that changed who was subject to the state's sales tax rules. Historically, an organization selling items in a state needed to have a physical presence in that state for the state to impose sales tax collection and remittance requirements. With many retailers using online stores, South Dakota updated its law to require online sellers to collect and remit sales tax if the seller meets some minimum sales requirements. In the Wayfair case, the Supreme Court found this to be permissible and thus created a new "economic nexus" standard for states to assert jurisdiction over an out-of-state corporation. A few states already have similar laws for charitable fundraising. For Example, in 2018 the State of Colorado updated the Colorado Charitable Solicitations Act. Among the changes, a new section on Internet-Based Fundraising. Under the new law, an out of state charity must register in Colorado if:
It has a website that enables a donor to give online and either targets persons in Colorado with solicitations, receives 50 or more contributions per year from Coloradans, or raises the lesser of $25,000 or 1% of total contributions from Colorado; or
Has a website that directs Coloradans to give off-line or establishes other contacts with Colorado such as sending emails or other communications that promote the website.
I am not aware of any lawsuits challenging this law (it is probably easier to just comply with the requirements), but if I were representing the State of Colorado the Wayfair decision would be my best friend. In Wayfair, the Supreme Court gave its blessing to the economic nexus theory of jurisdiction over an out of state corporation and there is no reason to believe it would not be extended to charitable solicitation laws and registration requirements.