California has approved final regulations (Final Regulations) to implement Assembly Bill 488 (AB 488), which was signed into law in October 2021. The law amended The Supervision of Trustees and Fundraisers for Charitable Purposes Act (Act). Among other changes, the Act now regulates any entity that uses the internet to provide a website, service, or other platform to persons in California and performs, permits, or otherwise enables acts of solicitation to occur online. With limited exceptions, the Act now regulates virtually all online fundraising efforts that solicit contributions from people in California—whether that giving is connected to social media efforts, shopping and e-commerce transactions, online gaming, prize promotions, or otherwise.
The state's new compliance regime for entities that qualify as "charitable fundraising platforms" is extensive and complex. This is due, in large part, to the myriad of compliance requirements that vary depending on the type of activity in which a charitable fundraising platform engages, coupled with differing effective dates affecting subsets of the new requirements.
Establishing new frameworks and processes for ensuring compliance with the Act's requirements will take time, resources, and patience for nonprofit organizations that support or benefit from online charitable fundraising efforts and their corporate partners. This article offers a high-level overview of who qualifies as a charitable fundraising platform, what obligations platforms must meet, and when various compliance obligations take effect.
1. Know Your Type: Who Qualifies as a Charitable Fundraising Platform?
Charitable fundraising platform status will not be limited to fundraising technology companies or entities considered "platforms" in the more colloquial sense. The state's definition is broad. A "charitable fundraising platform" is any entity that uses the internet to provide a website, service, or other platform to persons in California and performs, permits, or otherwise enables acts of solicitation to occur.
The Act provides examples of five types of activities that constitute "acts of solicitation" that, in turn, can give rise to charitable fundraising platform status. In addition, the Final Regulations break down the compliance requirements for charitable fundraising platforms according to these types. Therefore, an organization must first understand which subclass their activities will fall under to understand what compliance obligations a charitable fundraising platform may have.
- "Solicitation Type A" platforms include entities that solicit donations or recommend microdonations, round-up donations, or donations of any amount from donors who are platform users, by listing or referencing by name one or more recipient charitable organizations to be sent donated funds. This will include platforms that allow consumers to add a dollar amount to their transactions as a donation, keep-the-change campaigns, and similar donation structures.
- "Solicitation Type B" platforms are those that permit or enable crowdfunding campaigns that are created by platform users engaging in peer-to-peer charitable fundraising, or that otherwise permit or enable platform users to solicit donations or recommended donations made by other platform users for one or more recipient charitable organizations. This includes, for example, fundraising campaigns created by individual users through their social media accounts.
- "Solicitation Type C" platforms are those that raise funds through charitable sales promotions, co-venturing or cause marketing campaigns, or free action programs. In these solicitations, platform users can choose one or more organizations to which donated funds can be sent. The platform (or a third party) then makes donations based on the purchases or other actions platform users perform.
- "Solicitation Type D" platforms mirror Type C platforms, except that for this Type, the platform names one or more charities to be sent donated funds and makes donations based on purchases made or other activity performed by platform users (in other words, the consumer does not select the ultimate beneficiary). Importantly, if the platform engages only in campaigns during the calendar year that benefit six or fewer charitable organizations, the platform need only comply with the state's existing rules for commercial coventurers instead of the new charitable fundraising platform rules.
- "Solicitation Type E" platforms are those that provide to charitable organizations an internet-based website or software as a service that can be private-labeled or otherwise customized, that is subject to software as a service license agreement between the charitable fundraising platform and charitable organizations, and that allows charitable organizations to solicit donations made to them from donors. Various forms of online giving software integrated into a charitable organization's website or emails will qualify.
What Obligations Must Charitable Fundraising Platforms Meet and By When?
As mentioned, compliance obligations for a charitable fundraising platform will often depend on its specific subclassification—its Type. The following offers a general overview of the requirements and timeline that charitable fundraising platforms must meet.[1]
Currently Required
- Good Standing. All charitable fundraising platforms may only "solicit, permit, or otherwise enable solicitations, or receive, control, or distribute funds from donations for recipient charitable organizations or other charitable organizations in good standing." A platform must ensure, with respect to each recipient organization, that the charitable organization (1) has not had its federal tax-exempt status revoked by the Internal Revenue Service, (2) has not had its tax-exempt status in California revoked by the state's Franchise Tax Board, and (3) has not been prohibited from soliciting or operating in California by the state attorney general.
- Separate Accounts. All charitable fundraising platforms must maintain donations in an account separate from other funds belonging to the charitable fundraising platform.
- Disclosures. All charitable fundraising platforms are required to make certain disclosures that prevent the likelihood of donor deception or confusion. As to the form of the disclosures, these must be made in a conspicuous manner. This means the disclosures must be adjacent or as close as possible to the information being explained, and the information (or, where permitted, a hyperlink) is "difficult to miss." As to the substance of the disclosures, this varies widely, depending on the platform Solicitation Type. A summary of the details of these disclosures, addressed by Solicitation Type, is beyond the scope of this article. Platforms should closely review the requirements applicable to their Solicitation Type under Section 317 of the Final Regulations.
- Non-Consenting Charities. The default rule is that a charitable fundraising platform must obtain the written consent of each recipient charitable organization before permitting solicitation activities on the platform for the charities' benefit. However, written consent is not required for Solicitation Type A (e.g., round-up donations), Type B (e.g., crowdfunding and peer-to-peer fundraising), and Type C (e.g., user-selected cause marketing campaigns) platform activities, as long as all requirements of Section 12999.9(f)(2) of the Act are met.
Beginning June 12, 2024
- Registration and Reporting. Charitable fundraising platforms must register (Form PL-1) before beginning any regulated activities and submit reports (Form PL-4) annually by July 15 describing the platform's activities in the preceding calendar year. These and other platform-related forms must be submitted to the California Attorney General's Registry of Charities and Fundraisers through the agency's soon-to-be-launched Online Filing Service.
Beginning January 1, 2025
- Consent for Solicitations. As noted, by default, a charitable fundraising platform must obtain written consent from a recipient charitable organization before using the recipient organization's name in a solicitation. The agreement memorializing this consent must meet numerous requirements and include specified terms, such as stating the timing for sending donated funds and the total fees to be charged. The requirements for these agreements depend on the Solicitation Type of the platform's activities. Platforms should closely review the requirements applicable to their Solicitation Type under Section 318 of the Final Regulations.
- Tax Donation Receipts. Platforms engaged in Solicitation Type A and Type B activities (e.g., those that allow point-of-sale add-a-dollar and round-up donations, crowdfunding, and peer-to-peer campaigns, and the like) must send tax donation receipts to donors no more than five business days after donations are made. Receipts may be sent electronically. The platform must obtain consent from the recipient charitable organization to send a tax donation receipt on its behalf.
- Timing for Transmitting Donations. Charitable fundraising platforms must ensure that donations and grants of recommended donations are sent promptly to the recipient charitable organization. "Promptly" varies, depending on the Solicitation Type of a platform's activities. This may mean as little as five business days for platforms that engage in Solicitation Type E activity (e.g., for integrated platform technology) and up to quarterly transmission schedules for platforms that engage in certain Solicitation Type C and Type D activity (e.g., cause marketing activity). A written accounting of any fees imposed to process funds must also be included.
- Providing Accounting of Donations. Charitable fundraising platforms must provide recipient charitable organizations with extensive information about donations to the ultimate beneficiaries. This information may include the number of donations made, the time frame during which donations were made, and the total amount of fees imposed on donations. However, the details required vary significantly, depending on the Solicitation Type of a platform's activities. Platforms should closely review the requirements applicable to their Solicitation Type under Section 321 of the Final Regulations.
- Donation Transparency for Platforms Allowing Customer Donation Programs and Crowdfunding. Platforms engaged in Solicitation Type A and Type B activity must provide a mechanism for donors to confirm whether their donations (or recommended donations) were indeed sent to a recipient charitable organization. This information must be made available to donors no later than fifteen business days after the donated funds are sent to the eventual recipient.
- Donation Transparency for Platforms Engaged in Cause Marketing. Platforms engaged in Solicitation Type C and Type D activity must allow platform users who trigger donations based on their purchases or other online activity to find out the total amount of donated funds sent to a recipient charitable organization. This information must be made available to users no more than fifteen business days after the donated funds are sent.
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California's Act and Final Regulations institute a host of new and complicated compliance obligations. Many entities previously not subject to clear compliance requirements will have many new requirements to meet.
Please contact the authors if your charitable fundraising platform needs help understanding its obligations under the new regulations.
[1] This summary applies to obligations of charitable fundraising platforms, platform charities, recipient charitable organizations, and others (such as platform users who engage in peer-to-peer fundraising) that have obligations not addressed in this article.