Charities are an important backbone of a civil society that communities, and especially those in need, rely upon. Charities are regulated to help build accountability and trust in their processes, but too much regulation can impose compliance burdens on charities that make them more difficult and expensive to run. Organizations that must devote large amounts of personnel time, money, and resources toward complying with state mandates have fewer resources to meet their charitable missions.
The 50-State Index of Charity Regulations, developed by the Philanthropy Roundtable, evaluated states on the burdens of start-up regulations, annual reporting requirements, rules for paid solicitors, audit mandates, and oversight regulations on charities in 2023. Alaska ranked 21st overall and tied for the best oversight regulations nationally with six other states. Alaska’s worst category was for charity start-up regulations, in which the state ranked 36th nationally, while Alaska was average in the other categories. Overall, the index finds that states with overregulated charitable sectors have fewer charities.
Alaska’s worst category was start-up regulations, in which the state ranked 36th nationally. The category ranks states based on whether it requires registration by charitable organizations; the top registration and incorporation fees charged; and whether charities must apply for state corporate income tax exemption after receiving their federal exemption. 40 states impose registration requirements, which are often duplicative with federal registration requirements. Alaska does require charitable organizations to register with the state, with a top registration fee of $40. The state’s incorporation fee is $50. Charitable organizations exempt from federal income tax must also apply for exemption from the state corporate income tax in Alaska, which creates a duplicative requirement with the requirements already met for becoming exempt from federal income tax.
The Philanthropy Roundtable also ranked states on their annual reporting and filing regulations, which are recurring burdens each year. Alaska ranked 24th in annual reporting and filing regulations. The category includes the dollar value of the annual fees the state charges, whether charities must file an annual report, and whether there are additional annual filings required or additional fees. Annual reports are required in 47 states and Alaska has an unusually low burden in that it requires a biennial filing (every two years) rather than annually. Alaska has filing fees of $40 for annual reports, and an additional filing fee of $25 is required for “additional annual filings (e.g., a separate annual financial report, statement of information).”
Paid solicitors can be useful in helping charities raise money, yet states often impose excessive burdens on paid solicitors for charitable organizations. The index ranks states based on the dollar value of the registration fee and renewal fees for paid solicitors, and whether professional fundraisers are required to have surety bonds, provide notice before a solicitation campaign, and are required to register with the state and undergo annual financial reporting. The category also examines whether registration by fundraising counsel is required and whether charities must file copies of their contracts with commercial fundraisers.
Alaska requires an initial registration fee of $200 but does not impose renewal fees on paid solicitors. Commercial fundraisers are required to register with the state, hold $10,000 in surety bonds, and undergo annual financial reporting. Charities are also required to file contracts between themselves and commercial fundraisers. However, Alaska does not require notice before a solicitation campaign or registration by fundraising counsel.
Audit requirements are ranked for each state based on whether an independent audit by a certified public account (CPA) is required, whether there is a revenue threshold for the audit requirement to come into effect and whether there is a revenue threshold for an annual review (which is a lesser burden than a full audit). Alaska ranked 23rd nationwide. Alaska requires that nonprofits that receive state financial assistance and meet an expenditure threshold of $750,000 submit an annual single audit. Nonprofits that do not meet these requirements must submit an independent audit every two years.
States were also ranked on some measures of general oversight which do not fit neatly into other categories. Alaska tied for best general oversight regulations with six other states (Delaware, Kentucky, Montana, New Mexico, Texas, and Wyoming). Alaska allows charitable contributions to be fully tax deductible for residents. Not allowing charitable contributions to be fully tax deductible raises the costs for donors. Alaska does not require additional oversight of charitable organizations’ commercial co-ventures and only regulates charities through the attorney general’s (AG) office, both of which are good for reducing the complexity and cost of operating with multiple regulatory agencies having jurisdiction.
While some regulations on charitable organizations make sense to enhance transparency and accountability, excessive regulatory burden drives up the cost of charities operating in certain states. The Philanthropy Roundtable found in its index that there were fewer charitable organizations in states with heavier regulatory burdens and that makes sense: driving up operating costs means that more charities are unable to afford those costs and still work toward their mission. Fortunately, Alaska ranked slightly above average for its charitable regulations, but it could work toward a more vibrant charitable sector by reducing its start-up regulations to be less duplicative with federal regulatory requirements.
Appendix: Fifty-State Ranking of Charity Regulations