(Outline of Continuing Legal Education Course Taught November 1998)

Nonprofits operating within the Commonwealth of Virginia must comply with a variety of state requirements. Nonprofits can deal with several state agencies in the performance of their nonprofit functions, including: the Virginia Department of Taxation, the Virginia Department of Agriculture and Consumer Affairs, the Virginia Charitable Gaming Commission and the Virginia Board of Elections. Each of these agencies are discussed in greater detail below.

A. VIRGINIA DEPARTMENT OF TAXATION

Office of Customer Services, P.O. Box 1115, Richmond, VA 23218-1115

(804) 367-8037

By statute, corporations not conducted for profit, which are exempt from federal income tax, are exempt from filing a Virginia corporation income tax return as well as from paying state corporate income tax. (The statutory exemption, at Code of Virginia, § 58.1-401(5), explicitly states "corporations not organized or conducted for pecuniary profit which by reason of their purposes or activities are exempt from income tax under the laws of the United States.")

However, nonprofits (corporate or otherwise) operating within the Commonwealth may still be liable for the following taxes:

1. Employee withholding taxes;

2. Retail sales tax collected by the nonprofit, if involved in retail sales;

3. State corporate income tax if the nonprofit has unrelated business income that is subject to federal taxation; and

4. Litter tax (imposed on manufacturers, wholesalers, distributors, or retailers of certain products) or tire tax (for retailers of tires) if the nonprofit's activities are subject to such taxation.

Nonprofits (and for-profits) must register for payment of these taxes by filing Form R-1 to the Department of Taxation's Registration Unit in Richmond. Further detail regarding these taxes, and their application to nonprofits, is discussed below.

B. VIRGINIA DEPARTMENT OF AGRICULTURE AND CONSUMER SERVICES (OFFICE OF CONSUMER AFFAIRS)

SOLICITATION OF CONTRIBUTIONS ACT

Office of Consumer Affairs, P.O. Box 1163, Richmond, VA 23218

(800) 552-9963

Virginia nonprofits which intend to solicit contributions within the Commonwealth, or have funds solicited on their behalf, must register annually (using Form 102) with the Division of Consumer Affairs of the Virginia Department of Agriculture and Consumer Services.

There is an initial registration fee of $100, plus an annual fee (which varies from $30-$325 with the level of annual gross receipts from contributions). Additionally, nonprofits must file:

1. Form 102, with notarized signatures.

2. A copy of the signed and completed IRS Form 990/990-PF/990-EZ for the past fiscal year, with Schedule A and any attachments, or a certified annual audit. Nonprofits with an annual income of less than $25,000 may substitute a certified treasurer's report for the past fiscal year. Newly-formed nonprofits with no financial history file a budget for the current fiscal year.

3. A current list of the officers, directors, trustees, and the principal salaried staff officer (with names and addresses).

4. A signed copy of current contracts with any professional fund-raising counsel and/or any professional solicitors.

5. A current copy of the governing documents (e.g., articles of incorporation).

6. A current copy of the bylaws.

7. A copy of the IRS tax-exempt determination letter, if any, including subsequent notifications of modification. If exempt status is pending, a copy of the completed application form should be provided.

As noted above, the annual registration fee charged to nonprofits varies from $30-$325 with the level of annual gross receipts from contributions. Additionally, nonprofits must file with their annual registration:

1. Form 102, with notarized signatures.

2. A copy of the signed and completed IRS Form 990/990-PF/990-EZ for the past fiscal year, with Schedule A and any attachments, or a certified annual audit. Nonprofits with an annual income of less than $25,000 may substitute a certified treasurer's report for the past fiscal year. Newly-formed nonprofits with no financial history shall file a budget for the current fiscal year.

3. A current list of the officers, directors, trustees, and the principal salaried staff officer (with names and addresses).

4. A signed copy of current contracts with any professional fund-raising counsel and/or any professional solicitors.

5. A copy of the governing documents (e.g., articles of incorporation) or amendments to the governing documents not previously filed with the Commissioner.

6. A copy of the bylaws or amendments to the bylaws not previously filed with the Commissioner.

7. A copy of the IRS tax-exempt determination letter or subsequent notifications of modification or amendments to the governing documents not previously filed with the Commissioner, if any.

Certain nonprofits are eligible to seek an exemption from the registration requirements:

1. Certain accredited educational institutions, related foundations, and other educational institutions which confine their solicitation of contributions to the student body, alumni, faculty, and trustees (and their families) may file for an exemption using Form 100-A.

2. Certain persons soliciting donations for the relief of any individual specified by name at the time of the solicitation (where every cent of the contributions will be turned over to the named beneficiary for his use) may file for an exemption using Form 100-B.

3. Certain nonprofits which will not or have not raised or received more than $5,000 in public contributions for three consecutive years may file for an exemption using Form 100-C.

4. Certain nonprofits which only solicit within the membership by its members may file for an exemption using Form 100-D.

5. Certain foreign (i.e., out-of-state) nonprofits which lack an office within the Commonwealth, and solicit contributions from outside the Commonwealth, but have a chapter, branch, or affiliate within the Commonwealth which has registered with the Commissioner may file for an exemption using Form 100-E.

6. Certain nonprofits which only solicit within five or fewer contiguous cities and counties, meet local registration requirements, and meet certain geographical limitations on expenditures may file for an exemption using Form 100-F.

7. Certain civic organizations may file for an exemption using Form 100-G.

8. Health care institutions which are tax-exempt under IRC Section 501(c)(3) and certain supporting organizations may file for an exemption using Form 100-H.

9. Certain licensed nonprofit debt counseling agencies may file for an exemption using Form 100-I.

10. Trade associations which are tax-exempt under IRC Section 501(c)(6) may file for an exemption using Form 100-K.

11. Area agencies on aging would use Form 100-J to obtain an exemption.

12. Labor unions, associations, and organizations which are tax-exempt under IRC Section 501(c)(5) may file for an exemption using Form 100-L.

To obtain the exemption from registration, a copy of the appropriate Form 100 with notarized signatures must be accompanied by:

• An application fee of $10.00.
• A copy of the signed and completed IRS Form 990/990-PF/990-EZ for the past fiscal year, with Schedule A and any attachments, or a certified annual audit. Nonprofits with an annual income of less than $25,000 may substitute a certified treasurer's report for the past fiscal year. Newly-formed nonprofits with no financial history shall file a budget for the current fiscal year.
• A current list of the officers, directors, trustees, and the principal salaried staff officer (with names and addresses).
• A signed copy of current contracts with any professional fund-raising counsel and/or any professional solicitors.
• A current copy of the governing documents (e.g., articles of incorporation) including amendments to the governing documents.
• A current copy of the bylaws including amendments to the bylaws.
• A copy of the IRS tax-exempt determination letter or subsequent notifications of modification or amendments to the governing documents.

Additional documents specific to certain exemptions may also be required.

Information on registration in other states is available from, inter alia, "The Survey of State Laws Regulating Charitable Solicitation," published by Philanthropy Monthly, P.O. Box 989, Milford, CT 06776, (860)354-7132.

C. VIRGINIA CHARITABLE GAMING COMMISSION: FUNDRAISING

P.O. Box 756, 101 North 14^th Street, 17^th Floor, Richmond, VA 23218

(804) 786-0238

Bingo, instant bingo, electronic bingo, and raffles conducted by nonprofits is regulated by the Virginia Charitable Gaming Commission. The Commission was created, and charitable gaming was legalized, as a statutory exception to the prohibition on gambling in Virginia. It is funded by permit fees and an audit and administration fee (which may be as high as 1.25 percent of annual gross receipts, and is paid by nonprofits which engage in charitable gaming). Organizations with annual gross receipts under $25,000 are exempt from Commission regulations and financial reporting requirements.

The Commission states that "[t]he conduct of charitable gaming is a privilege which may be granted or denied by the Commission." No charitable gaming may be conducted without the possession of a permit. The permit application must include:

• An application fee of $200.00.
• A list of members participating in charitable gaming.
• A current copy of the governing documents (e.g., articles of incorporation) and bylaws.
• A copy of the IRS tax-exempt determination letter or letter from the national office of an organization stating that the applicant organization is in good standing and is covered by a group exemption.
• A copy of the organization's most recent financial statement and balance sheet.
• A copy of the current or proposed written lease where bingo is or will be conducted.
• Authorization allowing appropriate tax authorities to provide information regarding open or closed criminal investigations, civil examinations, or other enforcement activity regarding charitable gaming, as well as regarding revocation of tax-exempt status or other matters that may impact the issuance of a charitable gaming permit.

The charitable gaming permits, which are valid for up to one year, identify the date, time, and location of charitable gaming events. Changes to the permit must be made at least 30 days in advance. Temporary changes to the date and time of charitable gaming may be made at no charge -- when due to inclement weather or holidays. Permanent changes to the date, time, or location of charitable gaming require payment of a $50 fee.

Applications to renew a permit shall include any changes to the organization's governing documents, bylaws, and/or IRS determination letter. Any changes to the information regarding the nonprofit's officers, as well as the most recent financial statements must also be submitted.

Organizations may only purchase charitable gaming supplies from vendors registered with the Commission.

Gross receipts from charitable gaming may only be used for

1. reasonable and proper operating expenses;

2. publicizing the date and time of charitable gaming;

3. prizes;

4. the lawful religious/educational/charitable/community purposes for which the organization is chartered or organized; or

5. expenses relating to the acquisition, construction, maintenance, or repair of any interest in real property involved in the operation of the organization and used for lawful religious/educational/ charitable/community purposes.

The expenditures described in paragraphs 4 and 5 are known as "use of proceeds." The nonprofit is required to expend a minimum percentage of gross proceeds from charitable gaming on qualifying use of proceeds items. Failure to expend the minimum percentage may result in suspension or revocation of its charitable gaming permit. The minimum percentage varies (between 4 and 12 percent) by government fiscal year and annual gross gaming receipts of the nonprofit. Qualified use of proceeds include:

• mortgage and real estate tax payments;
• equipment repairs and maintenance expenses;
• building repair and maintenance expenses;

• remodeling and site improvement expenses;
• fire insurance expenses;
• contributions to a restricted fund for real estate purchases; and
• corporate expenses for a real estate holding entity.

Charitable gaming receipts must be placed in a separate bank account. Bingo proceeds shall be deposited within two business days; pull tab and raffle proceeds shall be deposited each week.

There are limitations on when minors can engage in charitable gaming, as well as volunteer activity by minors at charitable gaming events.

Volunteers are required to have a photo ID on their person. Volunteers may not receive payment (unless assisting organizations for the deaf and blind) directly or indirectly. They may receive up to $5.00 in complimentary food and non-alcoholic drinks.

According to the rules and regulations governing charitable gaming, the Commission is required at Code of Virginia, § 18.2-340.25 to conduct an extensive background examination of applicants for charitable gaming permits.

D. STATE BOARD OF ELECTIONS; POLITICAL ACTIVITIES:

CAMPAIGN CONTRIBUTIONS; PACS

200 North Ninth Street, Suite 101, Richmond, VA 23219-3497

(800) 552-9745 (in Virginia); (804) 786-6551 (out-of-state)

Participation in statewide elections by nonprofits is regulated by the Virginia Board of Elections. Participation in federal elections is regulated by the Federal Election Commission.⁽¹⁾

Virginia has no limits or prohibitions on campaign contributions by nonprofits, whether or not they are incorporated, or by Political Action Committees ("PACs") established by nonprofits.

PACs must maintain records of funds received and disbursed, and report receipts and disbursements to the Virginia Board of Elections (twice a year for non-election year activities, and eight times a year for election year activities; additional reports may be necessary for large contributions). Contributions to PACs must not be obtained by physical force, job discrimination, financial reprisal, threat of force, or as a condition of employment. When contributions to the PAC are solicited, prospective contributors must be informed regarding the political purposes of the PAC, and of their right to refuse to contribute without reprisal.

Other organizations need only document and report to the Virginia Board of Elections either independent expenditures (if they total more than $500.00 for a statewide election or $200.00 for any other election) or expenditures in any amount promoting or opposing referenda.

E. OTHER VIRGINIA LAWS APPLICABLE TO NONPROFITS

There are several other statewide regulatory requirements which apply to nonprofits. (The unemployment compensation tax is discussed elsewhere in the outline.)

Nonprofits with three or more employees must either purchase workers' compensation insurance, or be self-insured. This requirement is enforced by the Virginia Workers' Compensation Commission, 1000 DMV Drive, Richmond, VA 23220 (804) 367-8600.

Additionally, Virginia may require a nonprofit to display the following posters:

"Job Safety and Health Protection" available from Virginia Department of Labor and Industry, Power-Taylor Building, 13 South Thirteenth Street, Richmond, VA 23129, (804) 371-2327;

"Unemployment Insurance" (VEC-B-29A) available from Virginia Employment Commission, Customer Service Department, P.O. Box 1358, Richmond, VA 23218, (804) 786-4359; and

"Workers Compensation and Instructions to Employers and Employees" (Form 1) available from Virginia Workers' Compensation Commission, 1000 DMV Drive, Richmond, VA 23220.