Soliciting Charitable Contributions in Washington State: New Legislation Changes the Rules

Washington State, like most states, regulates organizations that solicit funds from the public within the state for use for charitable purposes. Most organizations are required to register with the Secretary of State’s office before soliciting funds, and must file reports regarding their solicitation activities.

The Washington State legislature has amended the state law that governs charitable solicitations (RCW 19.09, the Charitable Solicitations Act), effective July 22, 2007. The intent of the changes is to increase accountability and transparency of nonprofit organizations. The significant changes are summarized below. More information about the new legislation is available on the Secretary of State’s website, here.

Financial Reporting

The legislation grants the Secretary of State the authority to establish independent financial reporting requirements for charitable organizations. These new financial reporting requirements will not take effect until rules are adopted by the Secretary of State. Boards of directors of charitable organizations (or a committee authorized by the board) will be required to review and accept all financial reports submitted to the Secretary of State’s Office. The charitable organization may be subject to penalties (currently up to $1,000) if the financial information is incorrect in any material way.

• Independent Review of Financial Reports for Organizations with More Than $1 Million in Annual Revenue. Organizations with annual gross revenue exceeding an average of $1 million over the preceding three fiscal years will be required to submit financial information (such as the IRS Form 990) that has been “completed or reviewed by a third party who normally prepares or reviews the forms in the ordinary of course of their business.”
• Independent Audit Requirement for Organizations with More Than $3 Million in Annual Revenue. Washington’s Secretary of State in 2006 proposed controversial legislation that would have required organizations that receive more than $1 million in annual gross revenue to have an independent financial audit. The 2007 legislation instead authorizes the Secretary of State to adopt rules that will require organizations with annual gross revenue exceeding an average of $3 million over the preceding three fiscal years to submit an audited financial statement prepared by an independent CPA.

Charitable Registration and Filing Requirements

The legislation includes a number of new definitions and clarifies some pre-existing definitions. There is also a notable deletion. References to a Parent Organization have been removed and it will no longer be possible for parent organizations to file a charitable solicitation registration and reports jointly with their related chapters, branches or affiliates. The legislation also makes it clear that registration with the Secretary of State is not required when an appeal for funds is made on behalf of a specific individual and all of the proceeds of the solicitation directly benefit that individual.

• Commercial Fundraisers. Commercial fundraisers are required to register with the Secretary of State and report the fundraising activities that they conduct for charitable organizations. The law now requires that commercial fundraisers and charitable organizations file a registration form with the Secretary of State, including a copy of the contract between the charitable organization and commercial fundraiser, before engaging in any solicitations for charitable contributions (the law formerly required such a filing within five days of entering into the contract). The legislation also clarifies who is not a commercial fundraiser, and therefore not required to register. Specifically, Fundraising Counsel (a consultant who does not conduct fundraising campaigns) and a Commercial Coventurer (an individual or entity that sells goods or services for profit and makes a representation that part of the proceeds of a sale will go to a named charitable organization) are not considered commercial fundraisers.
• Religious Organizations: Not Exempt From Registration Requirements. While churches or integrated auxiliaries are exempt from registration and reporting requirements, all other “religious organizations” are not. A Religious Organization is broadly defined to include those entities that are not churches or integrated auxiliaries. Therefore, nondenominational ministries and other faith-based organizations generally must register and report to the Secretary of State.

Charitable Organization Education Program

The new legislation gives the Secretary of State the authority to develop and operate an education program for charitable organizations, boards of directors and the general public which will be funded by additional charitable solicitation registration fees.

Effective Date

This new legislation will take effect on July 22, 2007. However, many of the changes depend on the Secretary of State adopting new rules that will be promulgated at some later date.