1-1 By: Ellis S.B. No. 1214 1-2 (In the Senate - Filed March 10, 1995; March 16, 1995, read 1-3 first time and referred to Committee on Jurisprudence; May 9, 1995, 1-4 reported adversely, with favorable Committee Substitute by the 1-5 following vote: Yeas 6, Nays 0; May 9, 1995, sent to printer.) 1-6 COMMITTEE SUBSTITUTE FOR S.B. No. 1214 By: West 1-7 A BILL TO BE ENTITLED 1-8 AN ACT 1-9 relating to the registration of and reporting by charitable 1-10 organizations; providing penalties. 1-11 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-12 SECTION 1. Chapter 20, Title 132, Revised Statutes, is 1-13 amended by adding Article 9023d to read as follows: 1-14 Art. 9023d. REGISTRATION AND REPORTING BY CHARITABLE 1-15 ORGANIZATIONS 1-16 Sec. 1. SCOPE OF ACT; SHORT TITLE. (a) Except as provided 1-17 by this Act, this Act applies to all charitable organizations doing 1-18 business in this state. In addition to other acts that may 1-19 constitute doing business in this state, the solicitation of 1-20 contributions from persons in this state shall be considered to be 1-21 doing business in Texas, regardless of where the solicitation 1-22 originates. 1-23 (b) This article may be cited as the Charities Registration 1-24 and Reporting Act. 1-25 (c) This Act does not apply to organizations subject to 1-26 Article 9023b, Revised Statutes, or Chapter 920, Acts of the 73rd 1-27 Legislature, 1993 (Article 9023c, Vernon's Texas Civil Statutes). 1-28 Sec. 2. CONSTRUCTION AND APPLICATION. (a) This Act shall 1-29 be applied to promote its underlying purposes, which are to 1-30 encourage contributions to legitimate charitable organizations 1-31 through public awareness and donor education and to prevent persons 1-32 from posing as charitable organizations and from using misleading 1-33 fund-raising practices, because those activities are harmful to 1-34 legitimate charitable organizations and to the citizens of this 1-35 state. 1-36 (b) This Act may not be construed to unreasonably burden 1-37 legitimate charitable organizations. 1-38 Sec. 3. DEFINITIONS. (a) In this Act: 1-39 (1) "Charitable organization" means: 1-40 (A) a person who is exempt or has applied for 1-41 exemption from federal income tax under Section 501(c)(3), Internal 1-42 Revenue Code of 1986 (26 U.S.C. Section 501(c)); 1-43 (B) a person who solicits contributions and is 1-44 exempt or has applied for exemption from federal income tax under 1-45 Section 501(c)(4) or 501(c)(10), Internal Revenue Code of 1986 (26 1-46 U.S.C. Section 501(c)); or 1-47 (C) a person who solicits contributions and is 1-48 or holds himself, herself, or itself out to be established or 1-49 operating for a charitable purpose, except for commercial 1-50 coventurers and volunteers that have been authorized to solicit on 1-51 behalf of a charitable organization that is registered under this 1-52 Act. 1-53 (2) "Charitable purpose" means: 1-54 (A) a purpose described by Section 501(c)(3), 1-55 Internal Revenue Code of 1986 (26 U.S.C. 501(c)); or 1-56 (B) the provision of assistance to needy 1-57 individuals. 1-58 (3) "Charitable sales promotion" means any advertising 1-59 or sale conducted by a person who represents that the purchase or 1-60 use of goods or services offered by the person will benefit, in 1-61 whole or in part, any charitable organization or charitable 1-62 purpose. The provision of advertising services to a charitable 1-63 organization, either for compensation or as a donation, does not of 1-64 itself constitute a charitable sales promotion. 1-65 (4) "Commercial coventurer" means a person who: 1-66 (A) for profit regularly and primarily is 1-67 engaged in trade or commerce other than in connection with 1-68 soliciting for charitable organizations or charitable purposes; and 2-1 (B) conducts a charitable sales promotion. 2-2 (5) "Commercial solicitor" means a person who is 2-3 retained by a charitable organization to solicit contributions, 2-4 whether done individually or through another person under the 2-5 direction of the commercial solicitor. The term does not include a 2-6 fund-raising counsel or a bona fide employee, officer, director, or 2-7 volunteer of a charitable organization. A person who advises 2-8 another person to make a charitable contribution is not considered, 2-9 solely as the result of that advice, to be a commercial solicitor. 2-10 (6) "Contribution" means the promise to give or the 2-11 gift of money, credit, property, financial assistance, or other 2-12 thing of any kind or value, except volunteer services. The term 2-13 does not include bona fide fees, dues, or assessments paid by 2-14 members if membership is not conferred solely as consideration for 2-15 making a contribution in response to a solicitation. 2-16 (7) "Fund-raising counsel" means any person who for 2-17 compensation consults with a charitable organization or who plans, 2-18 manages, advises, or assists with respect to the solicitation of 2-19 contributions for or on behalf of a charitable organization, but 2-20 who does not have custody and control over contributions or other 2-21 receipts from a solicitation or authority to pay expenses 2-22 associated with a solicitation and who does not solicit, employ, 2-23 procure, or engage any compensated person to solicit contributions. 2-24 The term does not include a bona fide officer, volunteer, or 2-25 employee of a charitable organization. 2-26 (8) "Knowingly" means with actual awareness, but 2-27 actual awareness may be inferred if objective manifestations 2-28 indicate that a person acted with actual awareness. 2-29 (9) "Person" means an individual, partnership, 2-30 corporation, association, or other legal entity. 2-31 (b) For the purposes of this Act, a person has custody and 2-32 control of funds of a charitable organization if the person has the 2-33 authority to direct the use of the funds, expend the funds, 2-34 withdraw the funds, or sign on an account of the charitable 2-35 organization. A person does not have custody and control of funds 2-36 of a charitable organization if the person simply has possession of 2-37 the funds and the person's only authority from the charitable 2-38 organization with respect to the funds is to forward the funds for 2-39 deposit by the charitable organization. 2-40 (c) In this Act, a solicitation is the direct or indirect 2-41 request for a contribution on the plea or representation that the 2-42 contribution, or any portion of the contribution, will be used for 2-43 a charitable purpose or to benefit a charitable organization. A 2-44 solicitation is considered to have occurred regardless of whether 2-45 the person making the solicitation receives any contribution. 2-46 Without limiting the scope of this subsection, the following are 2-47 methods of requesting contributions: 2-48 (1) an oral or written request; 2-49 (2) publicizing a request in newspapers, on the radio 2-50 or television, or by any telecommunications device or other manner 2-51 of transmitting information to the public; 2-52 (3) the distribution, circulation, posting, or 2-53 publishing of a handbill, written advertisement, or other 2-54 publication; 2-55 (4) offering for sale an advertisement, book, card, 2-56 coupon, ticket, membership, merchandise, subscription, flower, 2-57 candy, or other tangible item if any appeal is made for a 2-58 charitable organization or charitable purpose, if the name of a 2-59 charitable organization is used or referred to in the appeal as an 2-60 inducement or reason for making the sale, or if a statement is made 2-61 that the whole or any part of the proceeds from the sale will be 2-62 used for any charitable purpose or to benefit any charitable 2-63 organization; or 2-64 (5) the use or employment of a canister, card, 2-65 receptacle, or similar device for the collection of money or other 2-66 things of value in connection with which an appeal is made for any 2-67 charitable organization or charitable purpose. 2-68 (d) A request for a contribution by a charitable 2-69 organization made solely to its current and former trustees, 2-70 officers, directors, members, employees, students, advisory boards, 3-1 or volunteers is not a solicitation for the purpose of this Act. 3-2 Sec. 4. EXEMPTION FROM REGISTRATION. (a) Except as 3-3 provided by Subsection (b) of this section, the following persons 3-4 are not required to register under Section 6 of this Act: 3-5 (1) a charitable organization that is exempt from 3-6 federal income tax under Section 501(c)(3), Internal Revenue Code 3-7 of 1986 (26 U.S.C. Section 501(c)) and exempt from filing annual 3-8 information returns with the Internal Revenue Service under Section 3-9 6033, Internal Revenue Code of 1986 (26 U.S.C. Section 6033) and 3-10 the treasury regulations issued under that section; 3-11 (2) an institution of higher education that has 3-12 current accreditation from a regional accrediting association and a 3-13 charitable organization controlled by or affiliated with and 3-14 designated by such an institution; 3-15 (3) a nonprofit hospital that is required by law to 3-16 file a financial report at least annually with a state and a 3-17 charitable organization controlled by or affiliated with and 3-18 designated by such a hospital; and 3-19 (4) a private foundation, as defined by Section 3-20 509(a), Internal Revenue Code of 1986 (26 U.S.C. Section 509(a)), 3-21 that does not solicit. 3-22 (b) In any year in which a person described by Subsection 3-23 (a) of this section engages the services of a commercial solicitor, 3-24 the person shall register, by filing a registration statement and 3-25 filing fee in accordance with Section 6 of this Act, before the 3-26 10th working day preceding the effective date of the contract with 3-27 the commercial solicitor. 3-28 Sec. 5. REGISTER TO BE MAINTAINED. (a) The attorney 3-29 general shall establish and maintain a register of charitable 3-30 organizations subject to this Act. 3-31 (b) All documents required to be filed with the attorney 3-32 general under this Act are public information and shall be 3-33 available to the public under the open records law, Chapter 552, 3-34 Government Code, except those documents that identify the donors of 3-35 a charitable organization, which information is confidential and is 3-36 not subject to disclosure. 3-37 Sec. 6. REGISTRATION. (a) The attorney general shall 3-38 maintain a registry of charitable organizations that submit to the 3-39 attorney general completed registration statements that contain: 3-40 (1) the legal name and each assumed name, the mailing 3-41 address and street address, and each telephone number and facsimile 3-42 number of each office, chapter, local unit, branch, and affiliate 3-43 of the charitable organization; 3-44 (2) the employer identification number of the 3-45 charitable organization; 3-46 (3) the name, title, address, and telephone number of 3-47 each officer, director, and executive director or other chief 3-48 operating officer of the charitable organization; 3-49 (4) the name of each officer, director, or employee 3-50 who is compensated by the charitable organization or who has 3-51 custody and control of funds of the charitable organization and who 3-52 has been convicted of or pleaded nolo contendere to a misdemeanor 3-53 involving fraud or the theft, misappropriation, misapplication, or 3-54 misuse of property of another or any felony, including the offense 3-55 and the state, court, and date of each conviction or plea of nolo 3-56 contendere; 3-57 (5) the date the charitable organization was 3-58 incorporated and the state of incorporation or, if not 3-59 incorporated, the type of organization and the date established, 3-60 the day and month on which the organization's fiscal year ends, and 3-61 whether the organization is eligible to receive tax-deductible 3-62 contributions under Section 170, Internal Revenue Code of 1986 (26 3-63 U.S.C. Section 170); 3-64 (6) a statement as to whether the organization has 3-65 applied for or been granted tax exempt status by the Internal 3-66 Revenue Service and, if so, the date of the application, the date 3-67 the exemption was granted or denied, the Internal Revenue Code 3-68 section under which the application was based, and a statement as 3-69 to whether or when the tax exemption has ever been denied, revoked, 3-70 or modified; 4-1 (7) the date the organization began doing business in 4-2 this state and the name and address of the organization's 4-3 registered agent in this state; 4-4 (8) a statement of the charitable organization's 4-5 charitable purposes and, if the organization solicits 4-6 contributions, a list of the programs for which funds are 4-7 solicited; 4-8 (9) a list of all governmental entities from which the 4-9 charitable organization received funds in the preceding 12 months 4-10 and a statement of the percentage of the total funds received in 4-11 the preceding 12 months received from individual and corporate 4-12 donors, private foundations, combined campaigns, governmental 4-13 entities, and persons who are exempt from federal income taxation 4-14 under Section 501(c)(3), 501(c)(4), or 501(c)(10), Internal Revenue 4-15 Code of 1986 (26 U.S.C. Section 501(c)); 4-16 (10) for charitable organizations that solicit 4-17 contributions from persons other than prior donors or persons who 4-18 have used the services of the charitable organization or the direct 4-19 beneficiaries or families of direct beneficiaries of the charitable 4-20 organization, a statement that includes: 4-21 (A) whether the charitable organization or any 4-22 of its directors, officers, agents, or employees who are 4-23 compensated by the charitable organization or who have custody and 4-24 control of the funds of the charitable organization, has been 4-25 enjoined by a government agency or court from soliciting, has had a 4-26 registration denied or revoked, has been the subject of any court 4-27 or administrative proceeding regarding any solicitation or 4-28 registration, or has entered into a voluntary agreement of 4-29 compliance; 4-30 (B) a list of all states in which the charitable 4-31 organization is registered or has been registered, including dates 4-32 of registration, registration numbers, any other names under which 4-33 the charitable organization was or is registered, and the dates and 4-34 types of solicitation conducted in each state; 4-35 (C) the name and address of each individual in 4-36 the charitable organization who is responsible for custody and 4-37 control of funds, distribution of funds, fund-raising, or custody 4-38 of records or who is authorized to sign checks or make withdrawals; 4-39 information required by this paragraph is confidential and is not 4-40 subject to disclosure under the open records law, Chapter 552, 4-41 Government Code; 4-42 (D) the names, addresses, and telephone numbers 4-43 of the organization's accountants and auditors and the method of 4-44 accounting used; 4-45 (E) a statement that the charitable organization 4-46 has attempted in good faith to comply with all Texas county and 4-47 municipal ordinances regarding solicitation that have been filed 4-48 with the attorney general or, if none apply, a statement to that 4-49 effect; 4-50 (F) for charitable organizations that engage the 4-51 services of commercial solicitors, the name and address of each 4-52 commercial solicitor engaged in the preceding 12 months, as well as 4-53 written confirmation from the commercial solicitor that it has 4-54 complied with all state and local registration laws; 4-55 (G) the amount paid to commercial solicitors 4-56 during the preceding 12 months; 4-57 (H) the total contributions received during the 4-58 preceding 12 months; and 4-59 (I) the total fund-raising costs during the 4-60 preceding 12 months, calculated pursuant to generally accepted 4-61 accounting principles; 4-62 (11) a copy of the charitable organization's most 4-63 recently filed Internal Revenue Service Form 990 and other federal 4-64 tax returns, including all supplements, amendments, and attachments 4-65 to those returns and requests for extensions to file those returns 4-66 or, if the charitable organization does not file federal tax 4-67 returns: 4-68 (A) a statement as to the reason none is filed; 4-69 and 4-70 (B) the charitable organization's most recent 5-1 financial statements, including audited financial statements, if 5-2 any have been prepared; and 5-3 (12) a sworn statement verifying that the information 5-4 contained in the registration statement and all attachments to the 5-5 statement are true, correct, and complete to the best of the 5-6 affiant's knowledge. 5-7 (b) A charitable organization shall file its initial 5-8 registration statement before the 10th working day preceding the 5-9 date on which the organization begins doing business in this state. 5-10 (c) Registration expires on the 15th day of the fifth month 5-11 following the close of a charitable organization's fiscal year. 5-12 Renewal registration statements shall be filed on the same forms 5-13 required for initial registration statements and must include the 5-14 name and employer identification number of the charitable 5-15 organization and any changes to the information previously 5-16 submitted to the attorney general. For items on which there is no 5-17 change from the previous year's registration statement, "no change" 5-18 may be indicated. 5-19 (d) A filing fee not to exceed $75 shall accompany the 5-20 initial registration statement. A $75 filing fee shall accompany 5-21 all renewal registration statements. 5-22 (e) The registration statements shall be submitted on forms 5-23 prescribed or approved by the attorney general. 5-24 Sec. 7. NOTIFICATION OF NONCOMPLIANCE. (a) A charitable 5-25 organization that is not in compliance with this Act shall be 5-26 notified of noncompliance by the attorney general by first class 5-27 mail at the organization's last reported address. Noncompliance 5-28 includes failure to file any documents required by this Act or the 5-29 filing of incomplete or inaccurate documents. 5-30 (b) A charitable organization violates this Act if it fails 5-31 to file complete documents within 30 days of the date the notice 5-32 required by Subsection (a) of this section has been mailed or if it 5-33 knowingly files materially inaccurate documents. 5-34 Sec. 8. RECORD KEEPING; AUDIT POWERS OF ATTORNEY GENERAL. 5-35 (a) Each charitable organization required to file a registration 5-36 statement shall keep true books and records of its activities 5-37 within this state in a form to enable it to accurately provide the 5-38 information required by this Act. The books and records shall be 5-39 retained for a period of at least three years after the end of the 5-40 period to which the registration statement relates. All books and 5-41 records of a charitable organization shall be made available for 5-42 inspection and copying by authorized personnel of the attorney 5-43 general on written request by authorized personnel of the attorney 5-44 general. 5-45 (b) A charitable organization shall make available the 5-46 information requested by authorized personnel of the attorney 5-47 general at the organization's principal place of business within 10 5-48 working days of the date of the request or at a time and place as 5-49 may be agreed. 5-50 (c) The authority established by this section is in addition 5-51 to other statutory or common law audit or investigative authority 5-52 of the attorney general. 5-53 Sec. 9. USE OF FEES. (a) All fees collected by the 5-54 attorney general under this Act are dedicated for use by the 5-55 attorney general during the biennium of receipt to administer this 5-56 Act, to enforce this Act, and to educate the public about this Act 5-57 and charitable organizations and solicitations generally. 5-58 (b) At the end of each biennium, the attorney general shall 5-59 file with the Legislative Budget Board a report that shows the 5-60 amounts of fees collected by the attorney general under this Act 5-61 and the uses for which the collected fees were expended. 5-62 Sec. 10. TOLL-FREE TELEPHONE LINE. The attorney general 5-63 shall establish and operate a toll-free telephone line. The public 5-64 may use the toll-free number to: 5-65 (1) obtain information concerning a charitable 5-66 organization that has registered under this Act; or 5-67 (2) report an alleged violation of this Act. 5-68 Sec. 11. REGISTRATION DOES NOT IMPLY ENDORSEMENT. 5-69 Registration under this Act does not imply endorsement by this 5-70 state or the attorney general, and charitable organizations are 6-1 prohibited from stating or implying the contrary. 6-2 Sec. 12. REMEDIES. (a) The attorney general may institute 6-3 an action for failure to fully and accurately comply with any 6-4 provision of this Act and may obtain injunctive relief to restrain 6-5 a person from continuing a violation, cancellation or suspension of 6-6 the registration, an order restraining the person from doing 6-7 business in this state while violating this Act, a civil penalty of 6-8 not more than $25,000 per violation, or injunctive relief and a 6-9 civil penalty. A person who violates an injunction issued under 6-10 this section is liable to the state for a civil penalty of not less 6-11 than $100,000. 6-12 (b) The remedies authorized by this Act are not exclusive 6-13 but are in addition to any other procedure or remedy provided for 6-14 by other statutory or common law. 6-15 (c) In any proceeding successfully prosecuted by the 6-16 attorney general under this Act, the court may allow the attorney 6-17 general to recover civil penalties and the reasonable costs, 6-18 expenses, and attorney's fees incurred in bringing the suit. 6-19 Sec. 13. DEDICATION OF FEES AND CIVIL PENALTIES. In 6-20 addition to other money, all fees assessed under this Act and all 6-21 recovered expenses incurred in obtaining injunctive relief and 6-22 administrative and civil penalties authorized by this Act are 6-23 dedicated for use by the attorney general. Recovered expenses 6-24 include, but are not limited to, investigative costs, witness fees, 6-25 attorney's fees, and deposition expenses. That money may be 6-26 expended only for purposes of enforcing and administering this Act 6-27 and may not be appropriated for any other purpose. 6-28 Sec. 14. SERVICE ON SECRETARY OF STATE. (a) The secretary 6-29 of state is an agent for service of process or complaint on a 6-30 charitable organization that: 6-31 (1) is required by this state to designate or maintain 6-32 a resident agent but has not designated or maintained a resident 6-33 agent for service of process; 6-34 (2) has one or more resident agents for service of 6-35 process, but two unsuccessful attempts have been made on different 6-36 business days to serve each agent; or 6-37 (3) is not required to designate an agent for service 6-38 in this state. 6-39 (b) Service on the secretary of state may be made by 6-40 certified mail, return receipt requested, by the clerk of the court 6-41 in which the case is pending, by the party or representative of the 6-42 party, or by any other method authorized by statute or the Texas 6-43 Rules of Civil Procedure for service on the secretary of state. 6-44 (c) If the secretary of state is served with process for a 6-45 charitable organization, the secretary of state shall require a 6-46 statement of the name and last known address of the charitable 6-47 organization and shall immediately mail a copy of the process to 6-48 the charitable organization by registered mail or by certified 6-49 mail, return receipt requested. 6-50 Sec. 15. VENUE. An action under this Act shall be brought 6-51 in a court of competent jurisdiction in Travis County, in the 6-52 county in which the charitable organization has its principal place 6-53 of business or has a fixed and established place of business at the 6-54 time the suit is brought, or in the county in which solicitation 6-55 occurred. 6-56 Sec. 16. RULES; ADVISORY COMMITTEE. (a) The attorney 6-57 general may adopt rules, procedures, and forms that are consistent 6-58 with and necessary for the proper administration and enforcement of 6-59 this Act. 6-60 (b) The attorney general shall annually appoint an advisory 6-61 committee, consisting of representatives of charitable 6-62 organizations and including at least one representative from a 6-63 charitable organization in each of the following categories of 6-64 charitable organizations that are subject to the requirements of 6-65 this Act: religious charities, educational charities, the United 6-66 Way, health-related charities, and charitable organizations that 6-67 are exempt from federal income taxation under Section 501(c)(4) or 6-68 501(c)(10) of the Internal Revenue Code of 1986 (26 U.S.C. Section 6-69 501(c)). The advisory committee may assist the attorney general in 6-70 preparing rules, procedures, and forms authorized by this Act. The 7-1 advisory committee may also assist the attorney general in 7-2 developing a public education program. 7-3 SECTION 2. The changes in law made by this Act apply only to 7-4 a solicitation that takes place on or after the effective date of 7-5 this Act. A solicitation that takes place before the effective 7-6 date of this Act is governed by the law in effect on the date of 7-7 the solicitation, and the former law is continued in effect for 7-8 that purpose. 7-9 SECTION 3. A charitable organization doing business in this 7-10 state on the effective date of this Act that is required to 7-11 register under Section 6, Article 9023d, Revised Statutes, as added 7-12 by this Act, shall file the organization's initial registration 7-13 statement required under that section before January 1, 1996. 7-14 SECTION 4. This Act takes effect September 1, 1995. 7-15 SECTION 5. The importance of this legislation and the 7-16 crowded condition of the calendars in both houses create an 7-17 emergency and an imperative public necessity that the 7-18 constitutional rule requiring bills to be read on three several 7-19 days in each house be suspended, and this rule is hereby suspended. 7-20 * * * * *