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 * * * * *