Maryland Nonprofit Formation: Avoid Costly Compliance Pitfalls
Thinking of starting a Maryland nonprofit? Proper formation and ongoing compliance help you protect tax-exempt status, maintain good standing, and avoid penalties. This guide highlights key steps from incorporation to annual filings, charitable solicitation registration, tax exemptions, and governance best practices.
1) Choose Your Maryland Nonprofit Structure and Name
Most charitable organizations in Maryland form as nonstock corporations under Maryland law. Select a distinguishable name on the records of the Maryland State Department of Assessments and Taxation (SDAT). A preliminary name search through SDAT can help avoid rejections and re-filings. See the SDAT Business Entity Search.
2) Draft Purpose and Governance With IRS-Ready Language
If you plan to seek federal 501(c)(3) status, include an appropriate charitable purpose clause and an asset dedication clause (for dissolution) in your articles. Align bylaws with Maryland corporate law and common IRS governance expectations (for example, conflict-of-interest policy, compensation approval process, and recordkeeping). See IRS guidance on applying for 501(c)(3) status.
3) File Articles of Incorporation With SDAT
File Articles of Incorporation for a nonstock corporation with SDAT and pay the required fee. Maryland accepts online filings via Maryland Business Express. List a Maryland resident agent with a physical Maryland address. Keep a stamped copy of accepted articles; many downstream registrations will request it.
4) Obtain an EIN and Prepare for IRS Recognition
Apply for an Employer Identification Number (EIN) from the IRS, even if you have no employees. Most charities then file Form 1023 or 1023-EZ to seek recognition under section 501(c)(3). A board-approved budget, activity narrative, and conflict-of-interest policy can streamline the application.
5) Register to Solicit Charitable Contributions in Maryland
Before soliciting contributions in Maryland, most charities must register with the Office of the Secretary of State, Charitable Organizations Division, unless a specific exemption applies. Initial registration generally requires organizational documents, key officer information, and financials. Renewals are ongoing and tied to financial reporting; missing them may result in late fees and an inability to solicit until reinstated. Public solicitations—websites, events, and mailings—can trigger registration requirements. See the Secretary of State’s Charitable Organizations guidance.
6) Maintain SDAT Good Standing: Annual Report and Related Filings
Maryland entities must keep SDAT status active through periodic reporting and fee payments. Failure to file can lead to loss of good standing or forfeiture, which can disrupt banking, grant eligibility, and contract execution. Review current requirements and deadlines at SDAT’s Annual Report Filing page and calendar due dates.
7) Maryland Sales and Use Tax and Property Tax Considerations
Some nonprofits may qualify for Maryland sales and use tax exemptions on purchases related to charitable activities; eligibility generally requires applying for an exemption certificate. See the Comptroller’s Sales and Use Tax Exemptions. Property tax exemptions are also application-based and depend on how property is used for charitable purposes; see SDAT’s Property Tax Credits and Exemptions.
8) Local Business Licenses and Zoning
Depending on activities, a nonprofit may need local licenses or zoning approvals (for example, operating a thrift store, childcare, or an event venue). Check county and municipal requirements early to avoid fines or delays.
9) Fundraising Compliance Beyond Maryland
Online giving, email campaigns, and social media can reach donors outside Maryland. Many states require charitable solicitation registration to fundraise from their residents. Map your fundraising footprint and plan for multi-state compliance to avoid notices and penalties.
10) Financial Controls and Board Oversight
Strong internal controls protect your organization and support compliance. Adopt written policies for conflicts, whistleblowing, document retention, and gift acceptance. Ensure the board regularly reviews financial statements, approves key contracts, and documents decisions in minutes.
11) Federal and Maryland Annual Filings
Most tax-exempt organizations file an annual IRS Form 990-series return; see IRS Annual Filing and Forms. In Maryland, annual obligations typically include SDAT reporting and charitable registration renewals when applicable. Requirements vary by revenue, assets, and activities—confirm which forms you must file and when, and build a compliance calendar.
12) Common Pitfalls That Can Trigger Penalties
- Soliciting donations before registering with the Secretary of State when required.
- Missing SDAT annual report deadlines, leading to loss of good standing or forfeiture.
- Using governance documents that lack IRS-friendly purpose and dissolution language.
- Overlooking multi-state registration when fundraising online.
- Commingling funds or maintaining weak financial controls.
- Assuming tax exemptions are automatic without filing required applications.
Practical Tips
- Calendar all state and IRS deadlines at formation; assign an owner for each filing.
- Adopt a board consent process for contracts over a set dollar threshold.
- Centralize governing documents, minutes, and policies in a shared repository.
- Review your website for language that may constitute a solicitation in other states.
Startup Compliance Checklist
- Maryland nonstock Articles filed and accepted by SDAT
- Resident agent appointed with Maryland street address
- EIN issued by IRS
- Bylaws adopted; initial board resolutions and minutes completed
- Conflict-of-interest, whistleblower, document retention, and gift acceptance policies approved
- IRS Form 1023 or 1023-EZ prepared and filed (if seeking 501(c)(3))
- Charitable solicitation registration filed with Maryland Secretary of State (or exemption documented)
- SDAT annual report calendared
- Maryland sales/use and local licenses assessed; tax exemption applications submitted if eligible
- Accounting system set up; segregation of duties implemented
FAQ
Do very small Maryland charities need to register before soliciting?
Some small organizations may qualify for exemptions, but most must register before soliciting in Maryland. Confirm the current thresholds with the Secretary of State.
When is the Maryland SDAT annual report due?
Deadlines can change; verify the current due date on SDAT’s Annual Report Filing page and file early to maintain good standing.
Can we fundraise online without registering in other states?
Online solicitations can trigger registration in other states depending on donor targeting and activity. Map your outreach and register where required.
Is sales tax exemption automatic for Maryland nonprofits?
No. Apply for an exemption certificate with the Comptroller; eligibility depends on use and organizational status.
How We Can Help
We assist Maryland nonprofits from formation through long-term compliance—drafting articles and bylaws, coordinating SDAT filings, charitable solicitations registration, tax exemption applications, and building practical compliance calendars. We can also review your fundraising footprint and policies to reduce risk.
Ready to move forward? Contact our team to schedule a consultation.
Maryland-specific note: Registration thresholds, forms, fees, and deadlines can change. Always verify the most current requirements with SDAT, the Maryland Secretary of State, and the Comptroller of Maryland using the linked resources above.
