Supporting Non-Profits through Cause-Related Marketing

The start of 2017 has seen an outpouring of support from the business community for non-profit groups, including marketing campaigns that promise a certain percentage of sales or profits will be donated to particular charities.   Such practices are often referred to as “cause-related marketing.”   Here’s an example:  ABC Winery wants to support a national nonprofit organization, and decides to launch a marketing campaign saying that 50% of profits will be donated to that cause.

While ABC Winery should be applauded for their efforts, they will also need to comply with state laws and regulations aimed at protecting consumers, promote transparency, and ensuring that charities are indeed receiving the funds that are being promised in the cause-related marketing campaign.  These laws vary state by state, but typically include reporting, contracting, disclosure, and/or registration requirements for the commercial entity promising to donate a portion of sales (a “commercial co-venturer”).

In California, a commercial co-venturer must (a) have a written contract with a charity prior to making any cause marketing representation, (b) transfer any funds received as a result of the representations every 90 days, and (c) provide a written accounting to the charitable organization sufficient to determine that any cause-related representations made by the co-venturer have been “adhered to accurately and completely” and said accounting must also be sufficient for the charity to prepare its periodic charitable solicitations reports filed with the California Attorney General.   Alternatively, if the co-venturer decides not to follow these steps, it must register annually with the California Attorney General’s office, pay an annual fee, and submit annual reports.

In addition, cause-related marketing claims are considered “sales solicitations for charitable purposes” under California law, and are subject to the disclosure requirements under Cal. Bus & Prof. Code Sec. 17510 et. seq.  This law requires disclosure of the following information:

  1. Name and address of the combined campaign, each organization, or fund on behalf of which all or any part of the money collected will be utilized for charitable purposes;
  2. If there is no organization or fund, the manner in which the money collected will be utilized for charitable purposes;
  3. The non-tax-exempt status of the organization or fund, if the organization or fund for which the money or funds are being solicited does not have a charitable tax exemption under both federal and state law; and
  4. The percentage of the total gift or purchase price which may be deducted as a charitable contribution under both federal and state law.

If sales and marketing efforts are made outside of California, then those state laws and regulations regarding cause-based marketing may also apply.