Charleston Principles Explained Simply

SPEAKER_01: 0:00

Welcome to the Nonprofit Compliance Brief, where we explain charitable solicitation and multi-state fundraising requirements in clear, practical terms for nonprofit leaders and finance teams. This podcast is produced by Ironwood Registrations.

SPEAKER_00: 0:14

It is so great to be here. We’ve got a topic today that sits right at the intersection of law, technology, and honestly a fair bit of anxiety for nonprofit executives.

SPEAKER_01: 0:25

Aaron Powell That is the perfect way to frame it. Today we are doing a deep dive into the Charleston principles. And if you’ve been in the nonprofit sector for more than five minutes, you have absolutely heard this term. Oh, yeah. It’s whispered in development meetings, it’s cited in those panicked emails from the Finance Committee. But but in my experience, it is rarely fully understood.

SPEAKER_00: 0:44

Aaron Powell I mean, it sounds like a spy thriller, right? The Trollston principle. Exactly, like something involving a microchip in a chase scene through South Carolina. But in reality, it is perhaps the most important document regarding online fundraising compliance in the last 25 years.

SPEAKER_01: 1:00

Aaron Powell And yet, despite the dramatic name, it remains this massive source of confusion. We see this constantly. Leaders know it has something to do with the internet, but they aren’t sure if it’s a hard law, a suggestion, or just some outdated memo from the dial-up era.

SPEAKER_00: 1:15

Aaron Powell Well, that confusion is completely understandable because the landscape itself is inherently tricky. The internet doesn’t respect state lines, but the law definitely does.

SPEAKER_01: 1:25

Which brings us to the core conflict we really need to solve for you today. We live in a world where the moment you launch a website, you are visible everywhere. A donor in Alaska can see you, a donor in Florida can see you. So the mystery is does a simple donate button on your homepage mean you suddenly have to register to solicit in all 41 states that require it?

SPEAKER_00: 1:46

That is the 50 state question right there. And if the answer is yes, the administrative burden on small nonprofits would just be crushing. We are talking about thousands of dollars in fees, hundreds of hours of paperwork, all just for having a website.

SPEAKER_01: 2:00

Exactly. So what’s our mission for this deep dive?

SPEAKER_00: 2:03

We need to go beyond the surface level. We are going to unpack the history of these principles, why they were created, the specific regulatory gap they tried to fill. But um, more importantly, we want you to walk away with a sophisticated practical framework.

SPEAKER_01: 2:18

So you can actually use this stuff.

SPEAKER_00: 2:20

Right. We want to help you decide when your digital footprint actually triggers those legal obligations. So you aren’t registering unnecessarily, but you also aren’t exposing your organization to liability.

SPEAKER_01: 2:32

Let’s get right into it then. I feel like to really understand the Charleston principles, we have to hop in a time machine. Take us back to the before times.

SPEAKER_00: 2:41

The dark ages.

SPEAKER_01: 2:42

Pre-internet.

SPEAKER_00: 2:44

It sounds ancient now, I know. But compliance used to be defined purely by physical geography. It was very binary. If you were a nonprofit and you held a gala in a hotel ballroom in Chicago, you were clearly soliciting in Illinois.

SPEAKER_01: 2:57

Because you were physically there. You couldn’t accidentally hold a gala.

SPEAKER_00: 3:00

Right. You can’t trip and accidentally rent a ballroom and hire caterers.

SPEAKER_01: 3:03

Right.

SPEAKER_00: 3:04

Or, you know, if you bought a list of addresses and sent direct mail letters to residents of New York, you were soliciting in New York. The intent and the geography were obvious. You had to physically go there or send something tangible there to ask for money.

SPEAKER_01: 3:18

The borders were physical, so the regulation was physical?

SPEAKER_00: 3:21

Correct. But then the internet disrupted that model entirely.

SPEAKER_01: 3:24

The disruption, suddenly you have a small local charity in rural Ohio putting up a website, and that website has a donate button.

SPEAKER_00: 3:32

Aaron Powell And just like that, the geographical barriers vanished. That local charity is now accessible to a donor in California, someone in Texas, someone in Maine. The website is technically soliciting the entire world 24-7.

SPEAKER_01: 3:46

Aaron Powell I can imagine this caused a bit of panic for regulators.

SPEAKER_00: 3:49

Aaron Powell Panic is definitely the right word. You have to remember, state regulators, usually the Attorney General’s office or the Secretary of State, they are charged with protecting their specific residents from fraud. Right. But suddenly they had to answer this philosophical and legal question: does a digital presence equal a physical presence?

SPEAKER_01: 4:07

It’s a jurisdiction nightmare. If a resident of my state can see your website, are you soliciting them, even if you never meant for them to see it?

SPEAKER_00: 4:15

Exactly. And if the answer had been yes across the board, that mere visibility equals solicitation, that would have been a disaster for the sector. Every tiny PTA with a web page would theoretically need to register in 41 distinct jurisdictions.

SPEAKER_01: 4:31

It would have paralyzed philanthropy. The cost of compliance would outweigh the revenue for thousands of organizations.

SPEAKER_00: 4:38

So the National Association of State Charity Officials, or NASCO, came together with other stakeholders in Charleston, South Carolina. This was back in 2001. They needed to bridge this gap between 20th century laws and 21st century technology. And that is where the Charleston principles emerged.

SPEAKER_01: 4:54

Okay, let’s clarify exactly what came out of that meeting because people treat this like it’s the penal code. Is this a federal statute? Like, did Congress pass the Charleston Act?

SPEAKER_00: 5:03

No. And this is the most crucial distinction that gets missed all the time. The Charleston principles are not federal law. They aren’t even state law, technically speaking.

SPEAKER_01: 5:11

Wait, so if they aren’t law, why are we stressing about them? What are they? Aaron Ross Powell, Jr.

SPEAKER_00: 5:15

They are advisory guidelines. Think of them as a handbook for the referees. They were written by the state charity regulators for the state charity regulators. They provide a framework for interpreting existing solicitation laws in the context of the internet.

SPEAKER_01: 5:30

Aaron Powell So it’s the regulators agreeing on a standard for when they will and won’t enforce the law.

SPEAKER_00: 5:37

Exactly. It’s almost an administrative truce. They basically said, look, we aren’t going to go after everyone with a website. We’re only going to go after the ones who are trying to solicit our residents.

SPEAKER_01: 5:48

That distinction is so helpful. It’s about distinguishing between just existing online and actually asking for money.

SPEAKER_00: 5:54

Correct. The core function of the Charleston principles is to draw a line between a passive online presence and active or targeted fundraising.

SPEAKER_01: 6:03

Let’s drill down into those two terms because that seems to be the main mechanism here. Passive versus active. What actually counts as passive?

SPEAKER_00: 6:10

Passive activity is what most organizations start with. It is maintaining a general informational website. You tell the world who you are, what you do, and you make it possible for people to support you.

SPEAKER_01: 6:21

And what about the donate button?

SPEAKER_00: 6:23

Even the donate button, if it’s just sitting there quietly on the page, is generally considered passive. You are allowing donations to happen, but you aren’t actively pushing that request toward a specific person in a specific state. You aren’t poking the bear.

SPEAKER_01: 6:39

Okay, so a donate button alone isn’t the trigger. That is going to be a huge relief for a lot of you listening, but I assume there is a catch.

SPEAKER_00: 6:47

There is always a nuance. The passive defense works if you are just sitting there waiting for people to find you. But the moment you start trying to drive traffic, you cross the line into active solicitation.

SPEAKER_01: 6:57

So what moves the needle? What does active look like in practice?

SPEAKER_00: 7:01

Active solicitation is all about intent. It’s when you stop waiting for people to find you and start reaching out to find them. The most obvious example is email. If you send an emiss blast that says, Dear California supporters, or even just a general blast to a list that you know includes residents of specific states, that is solicitation.

SPEAKER_01: 7:21

Because you are pushing the message into their inbox, it’s the digital equivalent of direct mail.

SPEAKER_00: 7:26

Exactly. But it gets more complex with modern marketing. Think about paid advertising. If you buy Google Ads or Facebook ads and you geofence those ads to target people in New York or Florida, you are actively soliciting in those states.

SPEAKER_01: 7:40

You can’t exactly argue that your presence is accidental when you specifically paid for impressions in a certain zip code.

SPEAKER_00: 7:47

Right. So the takeaway here is that the more intentional the outreach becomes, the higher the risk of needing to register. It includes things like crowdfunding campaigns, where you specifically ask people to share the link with friends in their network, knowing full well that network crosses state lines.

SPEAKER_01: 8:02

There is another layer to this that I found really interesting in our source material. It’s not just about the outreach, right? It’s about the response.

SPEAKER_00: 8:09

Yes. This is where it gets fascinating. And honestly, where a lot of finance directors get tripped up. The principles introduce a concept you can basically think of as follow the money. It looks at the ongoing behavior and the relationship.

SPEAKER_01: 8:23

Meaning recurring donations.

SPEAKER_00: 8:24

Yes. The guidance suggests that even if you didn’t actively target a state, if you start receiving a substantial number of contributions from that state on a repeated basis, you can no longer claim it’s incidental.

SPEAKER_01: 8:37

So if I have one random donor from Oregon who stumbled upon my site, that’s one thing.

SPEAKER_00: 8:42

That is likely de minimis. Regulators generally aren’t interested in that. It’s a fluke.

SPEAKER_01: 8:46

But if I have 50 donors from Oregon and they are giving every single month, then you have a donor base.

SPEAKER_00: 8:52

And presumably you are stewarding them. You are sending them tax receipts, thank you notes, maybe a monthly newsletter. You’re actively engaging with them.

SPEAKER_01: 9:00

So even if I never bought a single ad in Oregon, the sheer fact that I am maintaining relationships with 50 Oregonians creates a nexus.

SPEAKER_00: 9:09

Exactly. At that point, you are effectively conducting business in the state. The logic reflects the idea that fundraising is defined by relationships, not just the technology used to process the transaction. You just can’t claim it’s accidental if you’re stewarding those donors month after month.

SPEAKER_01: 9:25

That brings up a point that I know frustrates the learner personality type in our audience. We love clear rules. We love a good checklist, but the Charleston principles don’t seem to give us a hard number.

SPEAKER_00: 9:37

You’ve hit on the no bright line frustration. This is the part that drives compliance officers crazy.

SPEAKER_01: 9:42

Right. I want the source material to just say 10 donors means you register, or$500 means you register. Why is it so vague?

SPEAKER_00: 9:48

It is frustrating, I’ll admit that. But look at it from the regulator’s perspective. If they created a bright line rule like saying exactly 100 donors triggers registration, what happens?

SPEAKER_01: 9:59

Everyone just stops at 99.

SPEAKER_00: 10:01

Exactly. Bad actors would game the system immediately. They would stop at 99 donors and claim total immunity. So the ambiguity is actually a feature, not a bug.

SPEAKER_01: 10:11

I see. It preserves their power to enforce the spirit of the law.

SPEAKER_00: 10:15

It allows for a facts and circumstances evaluation. It gives regulators the flexibility to look at the intent and the pattern of activity. If you have five donors giving a million dollars each, a regulator might care quite a bit. If you have a hundred donors giving a dollar each, maybe they care less. They need the discretion to decide.

SPEAKER_01: 10:33

But the trade-off is that nonprofits have to use their own judgment.

SPEAKER_00: 10:36

Correct. You cannot just rely on some software setting that says compliance, yes or no. Compliance under the Charleston principles is a spectrum. It evolves.

SPEAKER_01: 10:44

Let’s bust some myths. Because this area is so gray, I feel like urban legends start to pop up. The source material lists three big ones that we really need to dismantle. Let’s tackle myth number one, the button myth.

SPEAKER_00: 10:56

We touched on this, but it’s bears repeating because it is absolutely the number one fear we hear. The belief is that simply having a donate button on your website automatically requires nationwide registration immediately.

SPEAKER_01: 11:09

And the verdict is false.

SPEAKER_00: 11:11

Categorically false. A passive button does not equal active solicitation in 41 states. You need something more. That active targeting or that substantial ongoing relationship we just discussed. If you are a small local charity, do not panic just because you added a PayPal link.

SPEAKER_01: 11:27

Okay. Myth number two, the Wild West myth.

SPEAKER_00: 11:29

This is the opposite extreme. Some people, usually folks on the tech side, assume that because the internet is global, online fundraising is totally exempt from state regulation. They think it’s just a free-for-all.

SPEAKER_01: 11:40

The laws don’t apply to the cloud.

SPEAKER_00: 11:42

Exactly. And that is dangerous. The internet is not a law-free zone. The principles were created specifically to say, yes, the laws do apply here, and here is exactly how. If you solicit residents of New York online, the Attorney General of New York absolutely has jurisdiction over you.

SPEAKER_01: 11:57

And finally, myth number three: the law myth.

SPEAKER_00: 12:00

This is believing that the Charleston principles are binding statutes. As we said earlier, they are interpretive guidance. However, and this is a big however many states use them as their de facto standard.

SPEAKER_01: 12:13

So while they aren’t technically law, ignoring them is a bad strategy.

SPEAKER_00: 12:17

Terrible strategy.

SPEAKER_01: 12:18

So the reality lies somewhere in the middle. It’s not a hard statute, but it’s the rule book the recquary is using on the field.

SPEAKER_00: 12:25

Precisely. It is a tool to assess when fundraising becomes meaningfully multi-state.

SPEAKER_01: 12:29

I want to pivot to a theme that really stood out to me while reviewing these sources. It’s about the life cycle of a nonprofit.

SPEAKER_00: 12:36

The evolution of fundraising.

SPEAKER_01: 12:37

Right. Most nonprofits start small, they put up a website, it’s totally passive.

SPEAKER_00: 12:41

They are focused entirely on their local community. Maybe they share the link on their personal Facebook page. It’s low volume, low reach. At this stage, they are likely only registered in their home state.

SPEAKER_01: 12:51

But then, hopefully, they get good at what they do, they scale up.

SPEAKER_00: 12:54

And as you scale, your tactics change. You start building an email list. Then you segment that list. Maybe you get a grant to run some social media ads. You start targeting people interested in environmental conservation across the whole Pacific Northwest.

SPEAKER_01: 13:08

And suddenly you aren’t just local anymore, you’re regional.

SPEAKER_00: 13:11

You’re active. And then maybe you get a mention on a national news site or an influencer tweets about you. Now donations are pouring in from all 50 states.

SPEAKER_01: 13:21

This connects directly to our core theme for this deep dive. Compliance tends to expand alongside fundraising growth. And organizations that review requirements periodically avoid most problems.

SPEAKER_00: 13:33

That is the key insight right there. When success hits, compliance obligations usually follow. You just cannot grow your revenue and your reach without also growing your back office responsibility.

SPEAKER_01: 13:43

I really love the way you reframed this in our pre-show chat. Instead of viewing the Charleston principles as this scary rule book that is trying to catch you, you suggested viewing them as a growth indicator.

SPEAKER_00: 13:53

Yes. If you find yourself worrying about the Charleston principles, congratulations. It means you’re succeeding. It means your message is reaching people outside your immediate zip code. It means you are building relationships across state lines.

SPEAKER_01: 14:06

That is a much healthier way to look at it. It’s literally a symptom of your success.

SPEAKER_00: 14:10

Exactly. Organizations that treat compliance as a partner to growth rather than an obstacle do so much better. It protects the reputation you are working so hard to build.

SPEAKER_01: 14:21

So speaking of reviewing requirements, let’s get practical for a minute. For the listener who is thinking, okay, I buy the theory, I understand the history, but what do I actually do today?

SPEAKER_00: 14:31

Let’s look at the checklist. The source provides a great self-assessment. It’s really all about knowing your own data.

SPEAKER_01: 14:37

Actionable advice. I love it. What are the three questions every nonprofit leader should be asking themselves?

SPEAKER_00: 14:43

Question one Are we intentionally reaching donors in new states? You need to look at your marketing plan. Are you geotargeting? Are you buying lists?

SPEAKER_01: 14:53

Which requires the finance team to actually talk to the marketing team.

SPEAKER_00: 14:57

Which is often the biggest hurdle. Well, yes. If marketing is launching a huge campaign in Florida, finance needs to know about it so they can register in Florida before the campaign launches.

SPEAKER_01: 15:05

Okay, question two.

SPEAKER_00: 15:06

Are contributions becoming recurring from certain locations? Look at your donor data. Run a report by state. Do you have a cluster of 50 donors in Texas who give every month? That is a huge signal.

SPEAKER_01: 15:21

It stops being accidental at that point.

SPEAKER_00: 15:23

Exactly. And question three, are our outreach efforts becoming more targeted? This goes back to the difference between a generic newsletter and a specific appeal. If you are tailoring your message to specific demographics that you know are located in specific areas, you are crossing that line into active solicitation. And if the answers to these are yes, then it is likely time to look at registration requirements in those specific states. You don’t have to panic. You don’t necessarily have to register in all 41 states tomorrow morning, but you do need to register in the states where your activity is triggering that nexus.

SPEAKER_01: 15:55

Before we wrap up, I have to play devil’s advocate one last time. The Charleston principles were written in 2001. That is an absolute lifetime ago in tech years. We live in the era of TikTok, Venmo, crypto philanthropy, the metaverse. Does this old guidance even matter anymore?

SPEAKER_00: 16:13

It matters more than ever.

SPEAKER_01: 16:14

Why?

SPEAKER_00: 16:15

Because the underlying issue hasn’t changed. The technology changes. Today it’s TikTok. Tomorrow it’ll be something else entirely.

SPEAKER_01: 16:21

Yeah.

SPEAKER_00: 16:21

But the mandate of the state regulator is constant. Protect the resident.

SPEAKER_01: 16:25

The medium changes, but the consumer protection laws don’t.

SPEAKER_00: 16:28

Exactly. States still regulate fundraising directed at their people. Whether you are directing that fundraising via a letter, an email, or a 15-second video clip, the principle is the exact same.

SPEAKER_01: 16:39

So until the actual laws change, this is the map we have.

SPEAKER_00: 16:43

It is the primary framework. If you understand the spirit of the Charleston principles, distinguishing between passive presence and active targeting, you can apply that logic to any platform. If you go on TikTok and say, hey, everyone in California, help us out, you’re soliciting in California. The tool doesn’t matter, the intent matters.

SPEAKER_01: 16:59

Aaron Powell It’s about the who and the how, not just the where.

SPEAKER_00: 17:02

Precisely.

SPEAKER_01: 17:03

This has been incredibly helpful. It turns a genuinely scary legal concept into something actually manageable. But before we close out, I want to leave you with a final thought to mull over. Something that wasn’t in the primary sources, but builds right on top of this.

SPEAKER_00: 17:19

Oh, I like where this is going.

SPEAKER_01: 17:21

Think about the tension we are heading toward. On one hand, the Charleston principles require you to track where your online donors live so you know when to register. But on the other hand, we are seeing a massive wave of new data privacy laws like California’s CCPA restricting how you collect and store that exact geographic data.

SPEAKER_00: 17:42

That is a fascinating collision.

SPEAKER_01: 17:43

Right. What happens when donor privacy laws collide with multi-state fundraising compliance? How do you follow the money when the law tells you to stop tracking the donor? That is something every growing nonprofit is going to have to navigate very soon. It really is. Know your donor, know your obligation while respecting their privacy. If you found this discussion helpful, you can find additional compliance guides and visual resources at ironwoodregistrations.com. Thanks for listening.