Hawaii’s new law follows California’s 2023 enactment of a similar law regulating charitable fundraising platforms. Hawaii’s decision to enact similar legislation was motivated by concerns about the legitimacy of some online fundraising campaigns to support Maui wildfire relief efforts.  As of now, California and Hawaii are the only states that have enacted legislation specifically aimed at regulating the activities of online platforms that facilitate charitable fundraising.  

The new law defines a “charitable fundraising platform” as “any person that uses the Internet to provide an internet website, service, or other platform to persons in the State, and performs, permits, or otherwise enables acts of solicitation to occur.” This broad definition closely mirrors the one used in California’s law and applies to most websites that facilitate the receipt of online donations, with few exceptions.

It also applies to websites that run multiple promotions, advertising that a portion of the purchase price from the sale of goods or services will be donated to specified charities. It also applies to websites or platforms that voluntarily invite customers to add a donation during the checkout process, or that encourage individuals to take specific actions to trigger donations. 

The bill also regulates platform charities, which are charitable organizations that facilitate acts of solicitation on a charitable fundraising platform.

Key Components of the New Law
As amended, Hawaii’s new law includes the following key components. 

1. Registration & Reporting
Charitable fundraising platforms and platform charities must annually register and submit information to the Attorney General’s office to enable them to ascertain whether charitable funds have been properly solicited, received, held, controlled, or distributed. This includes information on the number of donations made, the amount raised, the length of time for distributing donations or grants of recommended donations, fees charged by or through a charitable fundraising platform or platform charity, and names of recipient charities that were sent or have not yet been sent donations or grants of recommended donations.

2. Required Disclosures
The new law will require charitable fundraising platforms to clearly disclose certain information, including: (1) a statement about who will receive the donations; (2) if applicable, a statement that a recipient charity may not receive donations or grants of recommended donations, with an explanation identifying the most pertinent reasons that a recipient charity may not receive the funds; (3) the maximum length of time it takes to send the donation or a grant of the recommended donation to a recipient charity, with an explanation of the time needed (unless the donation is sent contemporaneously to the recipient charity); (4) the fees or other amount, if any, deducted from or added to the donation or a grant of the recommended donation; and (5) a statement as to the tax deductibility of the donation. The new law permits some, but not all, of these disclosures to be provided through a conspicuous hyperlink, so long as the disclosure is conspicuous when the hyperlink is selected.

3. Written Consent of Charity Beneficiaries 
Charitable fundraising platforms must obtain affirmative written consent from a recipient charity before using its name in a solicitation.

4. Soliciting or Receiving Funds Only for Charities in Good Standing 
A charitable fundraising platform or platform charity may only facilitate solicitations or receive donations for charitable organizations in good standing.  “Good standing” means the platform charity or other recipient charity is not prohibited from soliciting or operating in the state.  

5. Segregation of Funds
Charitable fundraising platforms and platform charities must hold charitable funds raised in a separate account or accounts from other funds belonging to the platform or platform charity.

6. Prompt Distribution of Donations/Grants and Donation Tax Receipts 
Fundraising platforms and platform charities must promptly send donations to recipient charitable organizations with an accounting of any fees assessed for processing the funds, subject to any additional regulations that may be established by the Hawaii Attorney General (which would presumably define what time frame constitutes “promptly”).   Fundraising platforms and platform charities must also promptly provide a donation tax receipt to the donor.

Avoiding Duplicative Registration and Compliance Obligations  
Recognizing that some charitable fundraising platforms could meet the definition of professional solicitor and commercial co-venturer, the law provides the following clarifications to avoid such overlap. 

1. Professional Solicitor
If an entity meets the definition of both a professional solicitor and a charitable fundraising platform, it will only be a professional solicitor when the entity, for compensation, performs any of the following acts of solicitation. 

• Direct mail solicitation, excluding electronic mail or messages
• Estate gift or estate planning solicitation
• In-person solicitation through a fundraising event, door-to-door or other public spaces, or a vending machine or similar equipment that does not use a person to perform the solicitation
• Noncash solicitation
• Nonincidental acts of solicitation that are not internet-based, including solicitation through print, radio, or television
• Solicitation involving receiving something of value, or a chance to win something of value, in connection with a donation
• Telephone solicitation
  
  

2. Commercial Co-venturer
An entity that meets the definition of both a commercial co-venturer and a charitable fundraising platform will be only a commercial co-venturer when the acts of solicitation through an internet website, service, or other platform to persons in the state are for six (6) or fewer recipient charities per calendar year.   Entities that conduct online charitable sales promotions for seven (7) or more recipient charities per calendar year will be regulated as charitable fundraising platforms.

The Recent Amendments
The recent amendments made a few key changes, including (a) eliminating state or federal tax-exempt status from the definition of “good standing;” (b) eliminating the imposition of vicarious liability on a platform charity for any misuse of funds by its partnering charitable fundraising platform; (c) eliminating the extension of certain provisions applicable to professional fundraisers (e.g., filing of contracts with charitable organizations; deposit of funds into a charitable organization’s bank account within 5 days of receipt); and (d) clarifying which regulations an entity is subject to if it meets the definition of both a commercial co-venturer and charitable fundraising platform. 

Key Differences from California’s Fundraising Platform Law
While Hawaii’s charitable fundraising platform law is modeled after California’s law, it differs in a couple of notable ways that make it both less and more burdensome.

1. Definition of “Good Standing”
Whereas California defines “good standing” to mean the platform charity or other recipient charity’s tax-exempt status has not been revoked by the Internal Revenue Service or the California Franchise Tax Board, or is not prohibited from soliciting or operating in California by the Attorney General; Hawaii’s definition of “good standing” (as recently amended) only includes organizations that the Attorney General has not prohibited from soliciting or operating in the state.  

While it is still to be seen how broadly or narrowly Hawaii will implement its good standing definition (read about the harsh consequences of California’s regulatory approach), Hawaii’s simpler definition should minimize the number of organizations that fundraising platforms must block from receiving donations. 

2. Written Consent
Unlike California’s law, which provides a limited exception when written consent is not required from a recipient charity if specific procedures are followed, Hawaii mandates charitable fundraising platforms to obtain affirmative written consent from any recipient charitable organization before including it on their platform. This difference in the approach to written consent will particularly impact fundraising platforms that facilitate donations to an extensive list of organizations where the benefiting organization is chosen by the donor/purchaser/user/peer-to-peer fundraiser (e.g., “choose from any of 1+ million charitable organizations to support”). In these platform structures, donations are typically first received by a platform charity, which then makes a grant to the selected recipient charity.  

To better understand how Hawaii’s charitable fundraising platform law compares to California’s, please read California Enacts New Law to Regulate Charitable Fundraising Platforms, which summarizes the key components of California’s law.

The Hawaii Attorney General has yet to publish registration and reporting forms for charitable fundraising platforms and platform charities, or rules implementing the new law. Stay tuned for further updates.

The post Hawaii Amends New Law Governing Charitable Fundraising Platforms appeared first on Perlman & Perlman.

The California Department of Justice (“DOJ”) published a notice on December 23^rd stating that certain key provisions of the new law governing charitable fundraising platforms, known as California Assembly Bill 488, go into effect on January 1, 2023 (as is stated in the law), and noting that the registration and other requirements in the new law are delayed until January 1, 2024 while the California Attorney General finalizes the regulations necessary to administer the new law.

According to the December 23^rd notice, the key provisions of Assembly Bill 488 that become operative on January 1, 2023 are:

1. Soliciting or Receiving Funds Only for Charities in Good Standing

A charitable fundraising platform or platform charity may only facilitate solicitations or the receipt of donations for the benefit of charitable organizations in good standing.  “Good standing” means the platform charity or other recipient charity’s tax-exempt status has not been revoked by the Internal Revenue Service or the California Franchise Tax Board, or is not prohibited from soliciting or operating in California by the Attorney General. The notice includes links to the Attorney General’s list of charities that may not operate or solicit in California, as well as to the Internal Revenue Service’s list.

2. Segregation of Funds

Charitable fundraising platforms and platform charities must hold charitable funds raised in a separate account or accounts from other funds belonging to the platform or platform charity.

3. Required Disclosures

The new law requires charitable fundraising platforms to clearly disclose certain information, including: (1) a statement about who will receive the donations; (2) if applicable, a statement that a recipient charity may not receive donations or grants of recommended donations, with an explanation identifying the circumstances under which a recipient charity may not receive the funds; (3) the length of time it takes to send the donation or a grant of the recommended donation to a recipient charity; (4) the fees or other amounts (if any) deducted from or added to the donation or a grant of the recommended donation; and (5) whether the donation is tax-deductible or not.

The new law permits some, but not all, of these disclosures to be provided through a conspicuous hyperlink, so long as the disclosure is conspicuous when the hyperlink is selected.  The proposed regulations include additional details relating to these disclosure requirements.

4. Solicitations for Non-Consenting Charities

The law generally requires that a charitable fundraising platform or platform charity obtain the written consent of any recipient charity before using its name in a solicitation, but provides that such written consent is not needed if all of the following circumstances are met: (1) the platform only includes certain information about the recipient charities on the platform, as set forth in the new law or future regulations (e.g., the recipient charities’ name, address, telephone number, internet website, EIN, registration number with the California AG’s office, NTEE Code, and publicly available information from the recipient charity’s tax or information returns filed with the Internal Revenue Service or the California AG’s office); (2) the platform conspicuously discloses before persons can complete a donation that the recipient charity has not provided consent or permission for the solicitation, and has not reviewed or approved the content generated by individuals engaging in peer-to-peer charitable fundraising, when applicable; (3) the platform promptly removes any recipient charity from its list or any solicitation regarding the recipient charity upon written request by the recipient charity; and (4) the platform or platform charity does not require that a recipient charity consent to any solicitations as a condition for accepting a donation or grant of a recommended donation.

The notice states that the registration and other requirements in California Government Code section 12599.9 are being delayed to January 2024, given the pending nature of the proposed regulations.  The notice further states that “[p]roposed regulations do not carry the force of law.”

Status of the Proposed Regulations

Under Assembly Bill 488, the Attorney General is authorized to establish rules and regulations necessary to administer the new law. This includes regulations governing: (1) the additional acts of solicitation that meet the definition of a charitable fundraising platform or platform charity, as needed, in order to address changes in technology and charitable fundraising through platforms; (2) the content of the registration and annual reporting forms and other information to be provided to the Attorney General’s office; (3) the requirements for any written agreement between a consenting recipient charitable organization and a charitable fundraising platform or platform charity; and (4) the requirements for holding donations or distributing donations and grants of recommended donations (including the maximum length of time it takes to send the donated funds, taking into account various considerations; and the circumstances under which donors or persons may be contacted to provide alternate recipient charitable organizations or notified when the donated funds are sent).

On May 27, 2022, the California DOJ published a Notice of Proposed Rulemaking for Charitable Fundraising Platforms and Platform Charities regulations, including draft regulations to implement the law, and draft registration forms to implement the new registration requirement applicable to charitable fundraising platforms.  The California DOJ invited comments to be submitted by July 12^th, and held a public hearing on July 13^th.

On November 21, 2022, the California DOJ published a Notice of Modifications related to the Department of Justice Charitable Fundraising Platforms and Platform Charities proposed rulemaking initially noticed on May 27, 2022.  Comments to the Notice of Modifications were accepted through December 7^th. Final regulations have not yet been issued.

For a summary of the key provisions of California Assembly Bill 488, and additional context leading up to its enactment, read this earlier blog post.

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