Nonprofits that don't fundraise don't need to register

After HANO published a newsletter item about the new Act 174 that requires nonprofit organizations to register with the Attorney General's office, we received this question from a member: "If a nonprofit gets its income from grants, contracts, membership dues and does not solicit contributions from individuals or corporations  and does not put on special events to raise funds, does that organization need to register with the AG?"

Good question. Under the new law, is applying for and receiving a grant from a foundation "charitable solicitation?" Are foundation grants considered contributions?

We read through the legislation, SB3171, and found no definition of "contribution" that would clarify the issue. Knowing there are many nonprofits that receive foundation grants but don't solicit contributions or employ fundraisers, we asked Hugh Jones, the Supervising Deputy Attorney General who crafted the bill just signed into law: If a nonprofit receives grants from foundations but doesn't fundraise otherwise, does it have to register?

"The short answer is no," Jones said. "If the charity applies only for grants from government authorities or other 501(c)(3) entities and does not solicit the public in any manner whatsoever (oral, written, handbills, a "donate here" button on the charities website, etc.), they would not need to register

Jones said the bill was intended to apply to tax-exempt, 501(c)(3) organizations that solicit contributions in Hawaii, so the question comes down to how the terms "solicit" and "contributions" are defined – the definitions are in the existing charitable solicitation law, which says:

"Solicit" and "solicitation" mean a request directly or indirectly for money, credit, property, financial assistance or thing of value on the plea or representation that the money, credit, property, financial assistance, or thing of value, or any portion thereof, will be used for a charitable purpose or to benefit a charitable organization.  These terms shall include the following:

1. Any oral or written request.
2. The making of any announcement to any organization for the purpose of further dissemination, including announcements to the press, over the radio or television, or by telephone, telegraph, or facsimile, concerning an appeal or campaign by or for any charitable organization or purpose.
3. The distribution, circulation, posting, or publishing of any handbill, written advertisement, or other publication that directly or by implication seeks to obtain public support.
4. Where the sale or offer or attempted sale, of any advertisement, advertising space, book, card, tag, coupon, device, magazine, membership, merchandise, subscription, flower, ticket, candy, cookies, or other tangible item in connection with which any appeal is made for any charitable organization or purpose; or where the name of any charitable organization is used or referred to in any appeal as an inducement or reason for making any sale; or where in connection with any sale, any statement is made that the whole or any part of the proceeds from any sale will be used for any charitable purpose or to benefit any charitable organization.
5. A request made through the use of receptacles for contributions such as honor boxes, vending machines, wishing wells, contribution boxes, and novelty machines, where a charitable appeal is used or referred to or implied as an inducement or reason to contribute.

A solicitation occurs whether or not the person making the solicitation receives any contribution

"Contribution" means the promise or grant of any money or property of any kind or value, including the promise to pay, except payments by members of a charitable organization for membership fees, dues, fines, or assessments, or for services rendered to individual members, if membership in the charitable organization confers a bona fide right, privilege, professional standing, honor, or other direct benefit, other than the right to vote, elect officers, or hold offices, and except money or property received from any governmental authority, or a grant or subsidy from any organization exempt from taxation under section 501(c)(3) of the Internal Revenue Code.

Therefore, nonprofits that receive grants from foundations or other 501(c)(3) nonprofit organizations, such as the United Way, but don't ask for or receive contributions from the public, do not have to register, file financial reports or pay fees to the Attorney General.