By: Ellis S.B. No. 1214 A BILL TO BE ENTITLED AN ACT 1-1 relating to the registration of and reporting by charitable 1-2 organizations; providing penalties. 1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-4 SECTION 1. Chapter 20, Title 132, Revised Statutes, is 1-5 amended by adding Article 9023d to read as follows: 1-6 Art. 9023d. REGISTRATION AND REPORTING BY CHARITABLE 1-7 ORGANIZATIONS 1-8 Sec. 1. SCOPE OF ACT; SHORT TITLE. (a) Except as provided 1-9 by this Act, this Act applies to all charitable organizations doing 1-10 business in this state. In addition to other acts that may 1-11 constitute doing business in this state, the solicitation of 1-12 contributions from persons in this state shall be considered to be 1-13 doing business in Texas, regardless of where the solicitation 1-14 originates. 1-15 (b) This article may be cited as the Charities Registration 1-16 and Reporting Act. 1-17 (c) This Act does not apply to organizations subject to 1-18 Article 9023b, Revised Statutes, or Chapter 920, Acts of the 73rd 1-19 Legislature, 1993 (Article 9023c, Vernon's Texas Civil Statutes). 1-20 Sec. 2. CONSTRUCTION AND APPLICATION. (a) This Act shall 1-21 be applied to promote its underlying purposes, which are to 1-22 encourage contributions to legitimate charitable organizations 1-23 through public awareness and donor education and to prevent persons 2-1 from posing as charitable organizations and from using misleading 2-2 fund-raising practices, because those activities are harmful to 2-3 legitimate charitable organizations and to the citizens of this 2-4 state. 2-5 (b) This Act may not be construed to unreasonably burden 2-6 legitimate charitable organizations. 2-7 Sec. 3. DEFINITIONS. (a) In this Act: 2-8 (1) "Charitable organization" means: 2-9 (A) a person who is exempt or has applied for 2-10 exemption from federal income tax under Section 501(c)(3), Internal 2-11 Revenue Code of 1986 (26 U.S.C. Section 501(c)); 2-12 (B) a person who solicits contributions and is 2-13 exempt or has applied for exemption from federal income tax under 2-14 Section 501(c)(4) or 501(c)(10), Internal Revenue Code of 1986 (26 2-15 U.S.C. Section 501(c)); or 2-16 (C) a person who solicits contributions and is 2-17 or holds himself, herself, or itself out to be established or 2-18 operating for a charitable purpose, except for commercial 2-19 coventurers and volunteers that have been authorized to solicit on 2-20 behalf of a charitable organization that is registered or exempt 2-21 from registration under this Act. Authorization of volunteers to 2-22 solicit is not required to be in writing and may be in the form of 2-23 a blanket authorization for a group of volunteers. 2-24 (2) "Charitable purpose" means: 2-25 (A) a purpose described by Section 501(c)(3), 3-1 Internal Revenue Code of 1986 (26 U.S.C. 501(c)); or 3-2 (B) the provision of assistance to needy 3-3 individuals. 3-4 (3) "Charitable sales promotion" means any advertising 3-5 or sale conducted by a person who represents that the purchase or 3-6 use of goods or services offered by the person will benefit, in 3-7 whole or in part, any charitable organization or charitable 3-8 purpose. The provision of advertising services to a charitable 3-9 organization, either for compensation or as a donation, does not of 3-10 itself constitute a charitable sales promotion. 3-11 (4) "Commercial coventurer" means a person who: 3-12 (A) for profit regularly and primarily is 3-13 engaged in trade or commerce other than in connection with 3-14 soliciting for charitable organizations or charitable purposes; and 3-15 (B) conducts a charitable sales promotion. 3-16 (5) "Commercial solicitor" means a person who is 3-17 retained by a charitable organization to solicit contributions, 3-18 whether done individually or through another person under the 3-19 direction of the commercial solicitor. The term does not include a 3-20 fund-raising counsel or a bona fide employee, officer, director, or 3-21 volunteer of a charitable organization. A person who advises 3-22 another person to make a charitable contribution is not considered, 3-23 solely as the result of that advice, to be a commercial solicitor. 3-24 (6) "Contribution" means the promise to give or the 3-25 gift of money, credit, property, financial assistance, or other 4-1 thing of any kind or value, except volunteer services. The term 4-2 does not include bona fide fees, dues, or assessments paid by 4-3 members if membership is not conferred solely as consideration for 4-4 making a contribution in response to a solicitation. 4-5 (7) "Fund-raising counsel" means any person who for 4-6 compensation consults with a charitable organization or who plans, 4-7 manages, advises, or assists with respect to the solicitation of 4-8 contributions for or on behalf of a charitable organization, but 4-9 who does not have custody and control over contributions or other 4-10 receipts from a solicitation or authority to pay expenses 4-11 associated with a solicitation and who does not solicit, employ, 4-12 procure, or engage any compensated person to solicit contributions. 4-13 The term does not include a bona fide officer, volunteer, or 4-14 employee of a charitable organization. 4-15 (8) "Knowingly" means with actual awareness, but 4-16 actual awareness may be inferred if objective manifestations 4-17 indicate that a person acted with actual awareness. 4-18 (9) "Person" means an individual, partnership, 4-19 corporation, association, or other legal entity. 4-20 (b) For the purposes of this Act, a person has custody and 4-21 control of funds of a charitable organization if the person has the 4-22 authority to direct the use of the funds, expend the funds, 4-23 withdraw the funds, or sign on an account of the charitable 4-24 organization. A person does not have custody and control of funds 4-25 of a charitable organization if the person simply has possession of 5-1 the funds and the person's only authority from the charitable 5-2 organization with respect to the funds is to forward the funds for 5-3 deposit by the charitable organization. 5-4 (c) In this Act, a solicitation is the direct or indirect 5-5 request for a contribution on the plea or representation that the 5-6 contribution, or any portion of the contribution, will be used for 5-7 a charitable purpose or to benefit a charitable organization. A 5-8 solicitation is considered to have occurred regardless of whether 5-9 the person making the solicitation receives any contribution. 5-10 Without limiting the scope of this subsection, the following are 5-11 methods of requesting contributions: 5-12 (1) an oral or written request; 5-13 (2) publicizing a request in newspapers, on the radio 5-14 or television, or by any telecommunications device or other manner 5-15 of transmitting information to the public; 5-16 (3) the distribution, circulation, posting, or 5-17 publishing of a handbill, written advertisement, or other 5-18 publication; 5-19 (4) offering for sale an advertisement, book, card, 5-20 coupon, ticket, membership, merchandise, subscription, flower, 5-21 candy, or other tangible item if any appeal is made for a 5-22 charitable organization or charitable purpose, if the name of a 5-23 charitable organization is used or referred to in the appeal as an 5-24 inducement or reason for making the sale, or if a statement is made 5-25 that the whole or any part of the proceeds from the sale will be 6-1 used for any charitable purpose or to benefit any charitable 6-2 organization; or 6-3 (5) the use or employment of a canister, card, 6-4 receptacle, or similar device for the collection of money or other 6-5 things of value in connection with which an appeal is made for any 6-6 charitable organization or charitable purpose. 6-7 (d) A request for a contribution by a charitable 6-8 organization made solely to its current and former trustees, 6-9 officers, directors, members, employees, students, advisory boards, 6-10 or volunteers is not a solicitation for the purpose of this Act. 6-11 (e) A request that a contribution to a named charitable 6-12 organization be made in lieu of flowers in an obituary is not a 6-13 solicitation for the purposes of this Act. 6-14 Sec. 4. EXEMPTION FROM REGISTRATION. (a) Except as 6-15 provided by Subsection (b) of this section, the following persons 6-16 are not required to register under Section 6 of this Act: 6-17 (1) a charitable organization that is exempt from 6-18 federal income tax under Section 501(c)(3), 501(c)(4), or 6-19 501(c)(10), Internal Revenue Code of 1986 (26 U.S.C. Section 6-20 501(c)) and exempt from filing annual information returns with the 6-21 Internal Revenue Service under Section 6033, Internal Revenue Code 6-22 of 1986 (26 U.S.C. Section 6033) and the treasury regulations 6-23 issued under that section; 6-24 (2) an institution of higher education that has 6-25 current accreditation from a regional accrediting association and a 7-1 charitable organization controlled by or affiliated with and 7-2 designated by such an institution; 7-3 (3) a nonprofit hospital that is required by law to 7-4 file a financial report at least annually with a state and a 7-5 charitable organization controlled by or affiliated with and 7-6 designated by such a hospital; and 7-7 (4) a private foundation, as defined by Section 7-8 509(a), Internal Revenue Code of 1986 (26 U.S.C. Section 509(a)), 7-9 that does not solicit. 7-10 (b) In any year in which a person described by Subsection 7-11 (a) of this section engages the services of a commercial solicitor, 7-12 the person shall register, by filing a registration statement and 7-13 filing fee in accordance with Section 6 of this Act, before the 7-14 10th working day preceding the effective date of the contract with 7-15 the commercial solicitor. 7-16 Sec. 5. REGISTER TO BE MAINTAINED. (a) The attorney 7-17 general shall establish and maintain a register of charitable 7-18 organizations subject to this Act. 7-19 (b) All documents required to be filed with the attorney 7-20 general under this Act are public information and shall be 7-21 available to the public under the open records law, Chapter 552, 7-22 Government Code, except those documents that identify the donors of 7-23 a charitable organization, which information is confidential and is 7-24 not subject to disclosure. 7-25 Sec. 6. REGISTRATION. (a) The attorney general shall 8-1 maintain a registry of charitable organizations that submit to the 8-2 attorney general completed registration statements that contain: 8-3 (1) the legal name and each assumed name, the mailing 8-4 address and street address, and each telephone number and facsimile 8-5 number of each office, chapter, local unit, branch, and affiliate 8-6 of the charitable organization; 8-7 (2) the employer identification number of the 8-8 charitable organization; 8-9 (3) the name, title, address, and telephone number of 8-10 each officer, director, and executive director or other chief 8-11 operating officer of the charitable organization; 8-12 (4) the name of each officer, director, or employee 8-13 who is compensated by the charitable organization or who has 8-14 custody and control of funds of the charitable organization and who 8-15 has been convicted of or pleaded nolo contendere to a misdemeanor 8-16 involving fraud or the theft, misappropriation, misapplication, or 8-17 misuse of property of another or any felony, including the offense 8-18 and the state, court, and date of each conviction or plea of nolo 8-19 contendere; 8-20 (5) the date the charitable organization was 8-21 incorporated and the state of incorporation or, if not 8-22 incorporated, the type of organization and the date established, 8-23 the day and month on which the organization's fiscal year ends, and 8-24 whether the organization is eligible to receive tax-deductible 8-25 contributions under Section 170, Internal Revenue Code of 1986 (26 9-1 U.S.C. Section 170); 9-2 (6) a statement as to whether the organization has 9-3 applied for or been granted tax exempt status by the Internal 9-4 Revenue Service and, if so, the date of the application, the date 9-5 the exemption was granted or denied, the Internal Revenue Code 9-6 section under which the application was based, and a statement as 9-7 to whether or when the tax exemption has ever been denied, revoked, 9-8 or modified; 9-9 (7) the date the organization began doing business in 9-10 this state and the name and address of the organization's 9-11 registered agent in this state; 9-12 (8) a statement of the charitable organization's 9-13 charitable purposes and, if the organization solicits 9-14 contributions, a list of the programs for which funds are 9-15 solicited; 9-16 (9) a list of all governmental entities from which the 9-17 charitable organization received funds in the preceding 12 months 9-18 and a statement of the percentage of the total funds received in 9-19 the preceding 12 months received from individual and corporate 9-20 donors, private foundations, combined campaigns, governmental 9-21 entities, and persons who are exempt from federal income taxation 9-22 under Section 501(c)(3), 501(c)(4), or 501(c)(10), Internal Revenue 9-23 Code of 1986 (26 U.S.C. Section 501(c)); 9-24 (10) for charitable organizations that solicit 9-25 contributions from persons other than prior donors or persons who 10-1 have used the services of the charitable organization or the direct 10-2 beneficiaries or families of direct beneficiaries of the charitable 10-3 organization, a statement that includes: 10-4 (A) whether the charitable organization or any 10-5 of its directors, officers, agents, or employees who are 10-6 compensated by the charitable organization or who have custody and 10-7 control of the funds of the charitable organization, has been 10-8 enjoined by a government agency or court from soliciting, has had a 10-9 registration denied or revoked, has been the subject of any court 10-10 or administrative proceeding regarding any solicitation or 10-11 registration, or has entered into a voluntary agreement of 10-12 compliance; 10-13 (B) a list of all states in which the charitable 10-14 organization is registered or has been registered, including dates 10-15 of registration, registration numbers, any other names under which 10-16 the charitable organization was or is registered, and the dates, or 10-17 a notation that the solicitation is of a continuing nature, and 10-18 types of solicitation conducted in each state; 10-19 (C) the name and address of each individual in 10-20 the charitable organization who is responsible for custody and 10-21 control of funds, distribution of funds, fund-raising, or custody 10-22 of records or who is authorized to sign checks or make withdrawals; 10-23 information required by this paragraph is confidential and is not 10-24 subject to disclosure under the open records law, Chapter 552, 10-25 Government Code; 11-1 (D) the names, addresses, and telephone numbers 11-2 of the organization's accountants and auditors and the method of 11-3 accounting used; 11-4 (E) a statement that the charitable organization 11-5 has attempted in good faith to comply with all Texas county and 11-6 municipal ordinances regarding solicitation that have been filed 11-7 with the attorney general or, if none apply, a statement to that 11-8 effect; 11-9 (F) for charitable organizations that engage the 11-10 services of commercial solicitors, the name and address of each 11-11 commercial solicitor engaged in the preceding 12 months, as well as 11-12 written confirmation from the commercial solicitor that it has 11-13 complied with all state and local registration laws; 11-14 (G) the amount paid to commercial solicitors 11-15 during the preceding 12 months; 11-16 (H) the total contributions received during the 11-17 preceding 12 months; and 11-18 (I) the total fund-raising costs during the 11-19 preceding 12 months, calculated pursuant to generally accepted 11-20 accounting principles; 11-21 (11) a copy of the charitable organization's most 11-22 recently filed Internal Revenue Service Form 990 and other federal 11-23 tax returns, including all supplements, amendments, and attachments 11-24 to those returns and requests for extensions to file those returns 11-25 or, if the charitable organization does not file federal tax 12-1 returns: 12-2 (A) a statement as to the reason none is filed; 12-3 and 12-4 (B) the charitable organization's most recent 12-5 financial statements, including audited financial statements, if 12-6 any have been prepared; and 12-7 (12) a sworn statement verifying that the information 12-8 contained in the registration statement and all attachments to the 12-9 statement are true, correct, and complete to the best of the 12-10 affiant's knowledge. 12-11 (b) A charitable organization shall file its initial 12-12 registration statement before the 10th working day preceding the 12-13 date on which the organization begins doing business in this state. 12-14 (c) Registration expires on the 15th day of the fifth month 12-15 following the close of a charitable organization's fiscal year. 12-16 Renewal registration statements shall be filed on the same forms 12-17 required for initial registration statements and must include the 12-18 name and employer identification number of the charitable 12-19 organization and any changes to the information previously 12-20 submitted to the attorney general. For items on which there is no 12-21 change from the previous year's registration statement, "no change" 12-22 may be indicated. 12-23 (d) A filing fee not to exceed $75 shall accompany the 12-24 initial registration statement. A $75 filing fee shall accompany 12-25 all renewal registration statements. 13-1 (e) The registration statements shall be submitted on forms 13-2 prescribed or approved by the attorney general. 13-3 Sec. 7. NOTIFICATION OF NONCOMPLIANCE. (a) A charitable 13-4 organization that is not in compliance with this Act shall be 13-5 notified of noncompliance by the attorney general by first class 13-6 mail at the organization's last reported address. Noncompliance 13-7 includes failure to file any documents required by this Act or the 13-8 filing of incomplete or inaccurate documents. 13-9 (b) A charitable organization violates this Act if it fails 13-10 to file complete documents within 30 days of the date the notice 13-11 required by Subsection (a) of this section has been mailed or if it 13-12 knowingly files materially inaccurate documents. 13-13 Sec. 8. RECORD KEEPING; AUDIT POWERS OF ATTORNEY GENERAL. 13-14 (a) Each charitable organization required to file a registration 13-15 statement shall keep true books and records of its activities 13-16 within this state in a form to enable it to accurately provide the 13-17 information required by this Act. The books and records shall be 13-18 retained for a period of at least three years after the end of the 13-19 period to which the registration statement relates. All books and 13-20 records of a charitable organization shall be made available for 13-21 inspection and copying by authorized personnel of the attorney 13-22 general on written request by authorized personnel of the attorney 13-23 general. 13-24 (b) A charitable organization shall make available the 13-25 information requested by authorized personnel of the attorney 14-1 general at the organization's principal place of business within 10 14-2 working days of the date of the request or at a time and place as 14-3 may be agreed. 14-4 (c) The authority established by this section is in addition 14-5 to other statutory or common law audit or investigative authority 14-6 of the attorney general. 14-7 Sec. 9. USE OF FEES. (a) All fees collected by the 14-8 attorney general under this Act are dedicated for use by the 14-9 attorney general during the biennium of receipt to administer this 14-10 Act, to enforce this Act, and to educate the public about this Act 14-11 and charitable organizations and solicitations generally. 14-12 (b) At the end of each biennium, the attorney general shall 14-13 file with the Legislative Budget Board a report that shows the 14-14 amounts of fees collected by the attorney general under this Act 14-15 and the uses for which the collected fees were expended. 14-16 Sec. 10. TOLL-FREE TELEPHONE LINE. The attorney general 14-17 shall establish and operate a toll-free telephone line. The public 14-18 may use the toll-free number to: 14-19 (1) obtain information concerning a charitable 14-20 organization that has registered under this Act; or 14-21 (2) report an alleged violation of this Act. 14-22 Sec. 11. REGISTRATION DOES NOT IMPLY ENDORSEMENT. 14-23 Registration under this Act does not imply endorsement by this 14-24 state or the attorney general, and charitable organizations are 14-25 prohibited from stating or implying the contrary. 15-1 Sec. 12. REMEDIES. (a) The attorney general may institute 15-2 an action for failure to fully and accurately comply with any 15-3 provision of this Act and may obtain injunctive relief to restrain 15-4 a person from continuing a violation, cancellation or suspension of 15-5 the registration, an order restraining the person from doing 15-6 business in this state while violating this Act, a civil penalty of 15-7 not more than $25,000 per violation, or injunctive relief and a 15-8 civil penalty. A person who violates an injunction issued under 15-9 this section is liable to the state for a civil penalty of not less 15-10 than $100,000. 15-11 (b) The remedies authorized by this Act are not exclusive 15-12 but are in addition to any other procedure or remedy provided for 15-13 by other statutory or common law. 15-14 (c) In any proceeding successfully prosecuted by the 15-15 attorney general under this Act, the court may allow the attorney 15-16 general to recover civil penalties and the reasonable costs, 15-17 expenses, and attorney's fees incurred in bringing the suit. 15-18 Sec. 13. SERVICE ON SECRETARY OF STATE. (a) The secretary 15-19 of state is an agent for service of process or complaint on a 15-20 charitable organization that: 15-21 (1) is required by this state to designate or maintain 15-22 a resident agent but has not designated or maintained a resident 15-23 agent for service of process; 15-24 (2) has one or more resident agents for service of 15-25 process, but two unsuccessful attempts have been made on different 16-1 business days to serve each agent; or 16-2 (3) is not required to designate an agent for service 16-3 in this state. 16-4 (b) Service on the secretary of state may be made by 16-5 certified mail, return receipt requested, by the clerk of the court 16-6 in which the case is pending, by the party or representative of the 16-7 party, or by any other method authorized by statute or the Texas 16-8 Rules of Civil Procedure for service on the secretary of state. 16-9 (c) If the secretary of state is served with process for a 16-10 charitable organization, the secretary of state shall require a 16-11 statement of the name and last known address of the charitable 16-12 organization and shall immediately mail a copy of the process to 16-13 the charitable organization by registered mail or by certified 16-14 mail, return receipt requested. 16-15 Sec. 14. VENUE. An action under this Act shall be brought 16-16 in a court of competent jurisdiction in Travis County, in the 16-17 county in which the charitable organization has its principal 16-18 office, or in the county in which solicitation occurred. 16-19 Sec. 15. RULES; ADVISORY COMMITTEE. (a) The attorney 16-20 general may adopt rules, procedures, and forms that are consistent 16-21 with and necessary for the proper administration and enforcement of 16-22 this Act. 16-23 (b) The attorney general shall annually appoint an advisory 16-24 committee, consisting of representatives of charitable 16-25 organizations and including at least one representative from a 17-1 charitable organization in each of the following categories of 17-2 charitable organizations that are subject to the requirements of 17-3 this Act: religious charities, educational charities, the United 17-4 Way, health-related charities, and charitable organizations that 17-5 are exempt from federal income taxation under Section 501(c)(4) or 17-6 501(c)(10) of the Internal Revenue Code of 1986 (26 U.S.C. Section 17-7 501(c)). The advisory committee may assist the attorney general in 17-8 preparing rules, procedures, and forms authorized by this Act. The 17-9 advisory committee may also assist the attorney general in 17-10 developing a public education program. 17-11 SECTION 2. The changes in law made by this Act apply only to 17-12 a solicitation that takes place on or after the effective date of 17-13 this Act. A solicitation that takes place before the effective 17-14 date of this Act is governed by the law in effect on the date of 17-15 the solicitation, and the former law is continued in effect for 17-16 that purpose. 17-17 SECTION 3. A charitable organization doing business in this 17-18 state on the effective date of this Act that is required to 17-19 register under Section 6, Article 9023d, Revised Statutes, as added 17-20 by this Act, shall file the organization's initial registration 17-21 statement required under that section before January 1, 1996. 17-22 SECTION 4. This Act takes effect September 1, 1995. 17-23 SECTION 5. The importance of this legislation and the 17-24 crowded condition of the calendars in both houses create an 17-25 emergency and an imperative public necessity that the 18-1 constitutional rule requiring bills to be read on three several 18-2 days in each house be suspended, and this rule is hereby suspended.