California Issues Proposed Regulations Governing Charitable Fundraising Platforms

The California Department of Justice and Office of the Attorney General proposed regulations on May 27, 2022, that will implement Assembly Bill No. 488 when it goes into effect on January 1, 2023. This law is the first of its kind in California explicitly regulating charitable fundraising platforms operating in California; currently some of these online giving platforms are caught up in other definitions (see commercial co-ventures or professional fundraisers) of regulated entities, but not always.  The new law gives the California Attorney General supervision over these entities and authorizes the agency to create regulations in connection with the registration and reporting obligations for these entities, as well as the recipient charities. The proposed regulations provide guidance on the mechanics of registration requirements, necessary disclosures, fees, forms to complete and other reporting standards. Companies who participate in charitable promotions or campaigns for charities online should pay close attention to these rules, as the statute and regulations cast a broad net, encompassing many companies that would not immediately think they might be included under this new law.

Key takeaways and unanswered questions include the following:

Definitions

 The term “charitable fundraising platform” is parsed into subcategories by the proposed regulations (see below), but otherwise remains exceedingly broad. Under the statute, a “charitable fundraising platform” means “any person, corporation, unincorporated association or other legal entity that uses the internet to provide an internet website, service, or other platform to persons in this state, and performs, permits, or otherwise enables acts of solicitation to occur. . .” 

• There are a number of companies that may be caught in this new bill unexpectedly.  For example, a company that organizes commercial co-ventures (“CCVs”) through online sales may not think of themselves as a charitable fundraising platform.  However, if the company raises funds for more than six (6) charities during a tax year, even if the funds are raised in completely separate CCVs promotions, the law provides a tie-breaker, such that the company is now subject to the charitable fundraising platform rules and regulations, and must comply with the registration terms, disclosure requirements, etc.

• It remains unclear in the regulations how these rules will apply across different platforms as well, as the term “platform” remains undefined.  Therefore, for companies with multiple platforms – such as a website and a mobile application – it is unclear if the limitation of six benefitting charities during a tax year combines the charities listed on the company’s website and the app or if the limitation counts the charities for the website and the app separately.  

Sub-Categories of Charitable Fundraising Platforms

 The proposed regulations break charitable fundraising platforms into five different sub-categories of charitable fundraising platforms.  The registration and reporting requirements differ for each of these sub-categories.

• “Commercial charitable fundraising platforms” means a charitable fundraising platform that “lists or references by name one or more recipient charitable organizations to receive donations or grants of recommended donations made by donors who use the platform.” 
• “Consulting charitable fundraising platform” means a charitable fundraising platform that “provides to charitable organizations a customizable internet-based website, software as a service, or other platform that allows charitable organizations to solicit or receive donations on or through the platform, including through peer-to-peer charitable fundraising.”
• “Marketing charitable fundraising platforms” means a charitable fundraising platform that “permits persons who use the platform to select one or more recipient charitable organizations to receive donations or grants or recommended donations made by a platform, platform charity, or other third party person, based on purchases made or other activity performed by persons who use the platform”  This would encompass websites that allow users to donate to a portion of the proceeds from their purchases to a charity of the users’ choosing.   
• “Coventuring charitable fundraising platform” means a charitable fundraising platform that lists of references by name one or more recipient charitable organizations to receive donations or grants of recommended donations made by the platform based on purchases made or other activity performed by persons who use the platform.”  This definition could encompass a commercial co-venture whether or not an actual purchase is required to make a donation to a charity. 
• “Peer-to-peer charitable fundraising platform” means a charitable fundraising platform that “permits persons who use the platform to solicit donations for or recommend donations to be granted to one or more recipient charitable organizations through peer-to-peer fundraising.” 

The breadth of the definition of “charitable fundraising platform” is illustrated by these sub-groups.  For instance, many websites whose primary purpose is not fundraising but may have a fundraising promotion may accidentally fall under this definition and have to comply with the charitable fundraising platform registration and reporting requirements.  

Good Standing

As we know from the assembly bill, all charities receiving funds from an online charitable fundraising platform must be in “good standing” with the Attorney General. As now defined in the proposed regulations, “good standing” seems to mean only that the charity is not on the Attorney General’s “May Not Operate or Solicit for Charitable Purposes List.” The proposed regulations confirm that the fundraising platform must verify good standing through a manual search of the Registry of Charitable Trusts database on the Attorney General’s website, implying that all recipient charities must be registered with the Attorney General.

• The list referenced above does not appear to be a separate list from the Attorney General’s charity verification website, but this remains unclear.
• The regulations also say nothing about the form of the list.  The statute requires that the list must be in “machine-readable structured data format” but the regulations do not provide more context.

Agreement  

The statute requires the charitable fundraising platform and the recipient charity to have an agreement in place; the terms to be included in these agreements are now outlined in the proposed regulations. Neither the statute nor the proposed regulations indicate that the agreement must be filed with the state.

Annual Registration

A charitable fundraising platform must register before soliciting, or permitting or otherwise enabling acts of solicitation (Form PL-1), and must submit an annual renewal registration form (Form PL-2) and a fee of $625 no later than Jan. 15 of each year it operates. If the platform itself is a charity, these forms and filing dates vary.

Disclosure of Fees

A charitable fundraising platform must clearly disclose any fees associated with the transactions. The proposed regulations broadly define “fees” to include amounts deducted from or added to donations or recommended donations. When donations are made, any amount not passed on to recipient charitable organizations or other charitable organizations constitutes a fee (for example, distribution, platform, service, technology or transaction fees; digital payment processing fees; and tips requested to cover expenses incurred by a charitable fundraising platform).

Conspicuous Disclosures

According to the statute, a charitable fundraising platform must make conspicuous disclosures not only of the fees (as defined above), but also if the donation is not going directly to the charity; the length of time it takes to send the donation to the charity; and that the charity may not receive the donation and the most pertinent reasons why.  The proposed regulations defines “conspicuous” as meaning:

• The information disclosed is located adjacent to the content that is being explained;
• The information disclosed is in the same or larger type than the content being explained, with optional formatting that clearly calls attention to the information, such as bold, italics, capitalization and using a more noticeable font or color;
• When hyperlinks are permitted, the hyperlink selected is adjacent to the content that is being explained in the same or larger type, with optional formatting that clearly calls attention to the hyperlink, and the information disclosed by hyperlink is immediately viewable.   

Deadlines to Send Donations to Recipient Charities

The specific deadline for a charitable fundraising platform to send to a recipient charity the funds collected or raised varies depending on the type of charitable fundraising platform and potentially the number of donors.  For instance, the length of time for commercial charitable fundraising platforms and peer to peer platforms may be as short as 15 days from the date of the donor’s contribution to the platform or the donor’s recommended donation on the platform.  In contrast, marketing charitable fundraising platforms and coventuring charitable fundraising platforms who are not subject to any minimum threshold amounts will send the recipient charitable organizations donations on at least a quarterly basis.  

Notification to Donors When Donation Sent

The proposed regulations also have notification requirements once the donation is sent to the charity for certain charitable fundraising platforms.  Commercial charitable fundraising platforms, peer-to-peer charitable fundraising platforms, and marketing charitable fundraising platforms, must notify donors in writing when a charitable fundraising platform sends the funds to the recipient charitable organizations—no later than 15 days after the funds are actually sent to the recipient charities. Donors may request not to be notified.

No Thresholds

Bill 488 specifically listed the certain types of organizations that do not fall under the definition of a “charitable fundraising platform” and do not need to comply with the charitable fundraising platform registration and reporting requirements.  The proposed regulations contain no thresholds or minimum donation amounts to further limit this definition.  Therefore, we must assume, then, that the intention of the Attorney General is that any organization meeting the bill’s definition of  “charitable fundraising platforms” will be subject to the statute and regulations come Jan. 1, 2023. 

The state invites interested parties to submit written comments on the proposed regulations no later than 5 p.m. PT on July 12, 2022. There will also be a public hearing on July 13, 2022, at 9 a.m. PT (to attend use the link found here).

If you have any questions, or if you are considering submitting written comments and would like assistance, please do not hesitate to reach out to anyone on our Exempt Organizations team.