Bill not drafted by TLC or Senate E&E. Line and page numbers may not match official copy. By Coleman H.B. No. 2771 A BILL TO BE ENTITLED 1-1 AN ACT 1-2 relating to the registration of and reporting by charitable 1-3 organizations; providing penalties. 1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-5 SECTION 1. Chapter 20, Title 132, Revised Statutes, is 1-6 amended by adding Article 9023d to read as follows: 1-7 Art. 9023d. REGISTRATION AND REPORTING BY CHARITABLE 1-8 ORGANIZATIONS 1-9 Sec. 1. SCOPE OF ACT; SHORT TITLE. (a) Except as provided 1-10 by this Act, this Act applies to all charitable organizations doing 1-11 business in this state. In addition to other acts that may 1-12 constitute doing business in this state, the solicitation of 1-13 contributions from persons in this state shall be considered to be 1-14 doing business in Texas, regardless of where the solicitation 1-15 originates. 1-16 (b) This article may be cited as the Charities Registration 1-17 and Reporting Act. 1-18 (c) This Act does not apply to organizations subject to 1-19 Article 9023b, Revised Statutes, or Chapter 920, Acts of the 73rd 1-20 Legislature, Regular Session, 1993 (Article 9023c, Vernon's Texas 1-21 Civil Statutes). 1-22 Sec. 2. CONSTRUCTION AND APPLICATION. (a) This Act shall 1-23 be applied to promote its underlying purposes, which are to 1-24 encourage contributions to legitimate charitable organizations 2-1 through public awareness and donor education and to prevent persons 2-2 from posing as charitable organizations and from using misleading 2-3 fund-raising practices, because those activities are harmful to 2-4 legitimate charitable organizations and to the citizens of this 2-5 state. 2-6 (b) This Act may not be construed to unreasonably burden 2-7 legitimate charitable organizations. 2-8 Sec. 3. DEFINITIONS. (a) In this Act: 2-9 (1) "Charitable organization" means: 2-10 (A) a person who is exempt or has applied for 2-11 exemption from federal income tax under Section 501(c)(3) of the 2-12 Internal Revenue Code of 1986; 2-13 (B) a person who solicits contributions and is 2-14 exempt or has applied for exemption from federal income tax under 2-15 Section 501(c)(4) or 501(c)(10) of the Internal Revenue Code of 2-16 1986; or 2-17 (C) a person who solicits contributions and is 2-18 or holds himself, herself, or itself out to be established or 2-19 operating for a charitable purpose, except for commercial 2-20 coventurers and volunteers that have been authorized to solicit on 2-21 behalf of a charitable organization that is registered under this 2-22 Act. 2-23 (2) "Charitable purpose" means: 2-24 (A) a purpose described by Section 501(c)(3) of 2-25 the Internal Revenue Code of 1986; or 2-26 (B) the provision of assistance to needy 2-27 individuals. 2-28 (3) "Charitable sales promotion" means any advertising 2-29 or sale conducted by a person who represents that the purchase or 2-30 use of goods or services offered by the person will benefit, in 3-1 whole or in part, any charitable organization or charitable 3-2 purpose. The provision of advertising services to a charitable 3-3 organization, either for compensation or as a donation, does not of 3-4 itself constitute a charitable sales promotion. 3-5 (4) "Commercial coventurer" means a person who: 3-6 (A) for profit regularly and primarily is 3-7 engaged in trade or commerce other than in connection with 3-8 soliciting for charitable organizations or charitable purposes; and 3-9 (B) conducts a charitable sales promotion. 3-10 (5) "Commercial solicitor" means a person who is 3-11 retained by a charitable organization to solicit contributions, 3-12 whether done individually or through another person under the 3-13 direction of the commercial solicitor. The term does not include a 3-14 fund-raising counsel or a bona fide employee, officer, director, or 3-15 volunteer of a charitable organization. A person who advises 3-16 another person to make a charitable contribution is not considered, 3-17 solely as the result of that advice, to be a commercial solicitor. 3-18 (6) "Contribution" means the promise to give or gift 3-19 of money, credit, property, financial assistance, or other thing of 3-20 any kind or value, except volunteer services. The term does not 3-21 include bona fide fees, dues, or assessments paid by members if 3-22 membership is not conferred solely as consideration for making a 3-23 contribution in response to a solicitation. 3-24 (7) "Fund-raising counsel" means any person who for 3-25 compensation consults with a charitable organization or who plans, 3-26 manages, advises, or assists with respect to the solicitation of 3-27 contributions for or on behalf of a charitable organization, but 3-28 who does not have custody and control over contributions or other 3-29 receipts from a solicitation or authority to pay expenses 3-30 associated with a solicitation and who does not solicit, employ, 4-1 procure, or engage any compensated person to solicit contributions. 4-2 The term does not include a bona fide officer, volunteer, or 4-3 employee of a charitable organization. 4-4 (8) "Knowingly" means with actual awareness, but 4-5 actual awareness may be inferred if objective manifestations 4-6 indicate that a person acted with actual awareness. 4-7 (9) "Person" means an individual, partnership, 4-8 corporation, association, or other legal entity. 4-9 (b) For the purposes of this Act, a person has custody and 4-10 control of funds of a charitable organization if the person has the 4-11 authority to direct the use of the funds, expend the funds, 4-12 withdraw the funds, or sign on an account of the charitable 4-13 organization. A person does not have custody and control of funds 4-14 of a charitable organization if the person simply has possession of 4-15 the funds and the person's only authority from the charitable 4-16 organization with respect to the funds is to forward the funds for 4-17 deposit by the charitable organization. 4-18 (c) In this Act, a solicitation is the direct or indirect 4-19 request for a contribution on the plea or representation that the 4-20 contribution, or any portion of the contribution, will be used for 4-21 a charitable purpose or to benefit a charitable organization. A 4-22 solicitation is considered to have occurred regardless of whether 4-23 the person making the solicitation receives any contribution. 4-24 Without limiting the scope of this subsection, the following are 4-25 methods of requesting contributions: 4-26 (1) an oral or written request; 4-27 (2) publicizing a request in newspapers, on the radio 4-28 or television, or by any telecommunications device or other manner 4-29 of transmitting information to the public; 4-30 (3) the distribution, circulation, posting, or 5-1 publishing of a handbill, written advertisement, or other 5-2 publication; 5-3 (4) offering for sale an advertisement, book, card, 5-4 coupon, ticket, membership, merchandise, subscription, flower, 5-5 candy, or other tangible item if any appeal is made for a 5-6 charitable organization or charitable purpose, if the name of a 5-7 charitable organization is used or referred to in the appeal as an 5-8 inducement or reason for making the sale, or if a statement is made 5-9 that the whole or any part of the proceeds from the sale will be 5-10 used for any charitable purpose or to benefit any charitable 5-11 organization; or 5-12 (5) the use or employment of a canister, card, 5-13 receptacle, or similar device for the collection of money or other 5-14 things of value in connection with which an appeal is made for any 5-15 charitable organization or charitable purpose. 5-16 (d) A request for a contribution by a charitable 5-17 organization made solely to its current and former trustees, 5-18 officers, directors, members, employees, students, advisory boards, 5-19 or volunteers is not a solicitation for the purpose of this Act. 5-20 Sec. 4. EXEMPTION FROM REGISTRATION. (a) Except as 5-21 provided by Subsection (b) of this section, the following persons 5-22 are not required to register under Section 6 of this Act: 5-23 (1) a charitable organization that is exempt from 5-24 federal income tax under Section 501(c)(3) of the Internal Revenue 5-25 Code of 1986 and exempt from filing annual information returns with 5-26 the Internal Revenue Service under Section 6033 of the Internal 5-27 Revenue Code of 1986 and the treasury regulations issued under 5-28 Section 6033; 5-29 (2) an institution of higher education that has 5-30 current accreditation from a regional accrediting association and a 6-1 charitable organization controlled by or affiliated with and 6-2 designated by such an institution; 6-3 (3) a nonprofit hospital that is required by law to 6-4 file a financial report at least annually with a state and a 6-5 charitable organization controlled by or affiliated with and 6-6 designated by such a hospital; and 6-7 (4) a private foundation, as defined by Section 509(a) 6-8 of the Internal Revenue Code of 1986, that does not solicit. 6-9 (b) In any year in which a person described by Subsection 6-10 (a) of this section engages the services of a commercial solicitor, 6-11 the person shall register, by filing a registration statement and 6-12 filing fee in accordance with Section 6 of this Act, before the 6-13 10th working day preceding the effective date of the contract with 6-14 the commercial solicitor. 6-15 Sec. 5. REGISTER TO BE MAINTAINED. (a) The attorney 6-16 general shall establish and maintain a register of charitable 6-17 organizations subject to this Act. 6-18 (b) All documents required to be filed with the attorney 6-19 general under this Act are public information and shall be 6-20 available to the public under the open records law, Chapter 552, 6-21 Government Code, except those documents that identify the donors of 6-22 a charitable organization, which information is confidential and is 6-23 not subject to disclosure. 6-24 Sec. 6. REGISTRATION. (a) The attorney general shall 6-25 maintain a registry of charitable organizations that submit to the 6-26 attorney general completed registration statements that contain: 6-27 (1) the legal name and each assumed name, the mailing 6-28 address and street address, and each telephone number and facsimile 6-29 number of each office, chapter, local unit, branch, and affiliate 6-30 of the charitable organization; 7-1 (2) the employer identification number of the 7-2 charitable organization; 7-3 (3) the name, title, address, and telephone number of 7-4 each officer, director, and executive director or other chief 7-5 operating officer of the charitable organization; 7-6 (4) the name of each officer, director, or employee 7-7 who is compensated by the charitable organization or who has 7-8 custody and control of funds of the charitable organization and who 7-9 has been convicted of or pleaded nolo contendere to a misdemeanor 7-10 involving fraud or the theft, misappropriation, misapplication, or 7-11 misuse of property of another, or any felony, including the offense 7-12 and the state, court, and date of each conviction or plea of nolo 7-13 contendere; 7-14 (5) the date the charitable organization was 7-15 incorporated and the state of incorporation or, if not 7-16 incorporated, the type of organization and the date established; 7-17 the day and month on which the organization's fiscal year ends; and 7-18 whether the organization is eligible to receive tax-deductible 7-19 contributions under Section 170 of the Internal Revenue Code of 7-20 1986; 7-21 (6) a statement as to whether the organization has 7-22 applied for or been granted tax exempt status by the Internal 7-23 Revenue Service and, if so, the date of the application, the date 7-24 the exemption was granted or denied, the Internal Revenue Code 7-25 section under which the application was based, and a statement as 7-26 to whether or when the tax exemption has ever been denied, revoked, 7-27 or modified; 7-28 (7) the date the organization began doing business in 7-29 this state and the name and address of the organization's 7-30 registered agent in this state; 8-1 (8) a statement of the charitable organization's 8-2 charitable purposes and, if the organization solicits 8-3 contributions, a list of the programs for which funds are 8-4 solicited; 8-5 (9) a list of all governmental entities from which the 8-6 charitable organization received funds in the preceding 12 months 8-7 and a statement of the percentage of the total funds received in 8-8 the preceding 12 months received from individual and corporate 8-9 donors, private foundations, combined campaigns, governmental 8-10 entities, and persons who are exempt from federal income taxation 8-11 under Section 501(c)(3), 501(c)(4), or 501(c)(10) of the Internal 8-12 Revenue Code of 1986; 8-13 (10) for charitable organizations that solicit 8-14 contributions from persons other than prior donors or persons who 8-15 have used the services of the charitable organization or the direct 8-16 beneficiaries or families of direct beneficiaries of the charitable 8-17 organization, a statement that includes: 8-18 (A) whether the charitable organization or any 8-19 of its directors, officers, agents, or employees who are 8-20 compensated by the charitable organization or who have custody and 8-21 control of the funds of the charitable organization, has been 8-22 enjoined by a government agency or court from soliciting, has had a 8-23 registration denied or revoked, has been the subject of any court 8-24 or administrative proceeding regarding any solicitation or 8-25 registration, or has entered into a voluntary agreement of 8-26 compliance; 8-27 (B) a list of all states in which the charitable 8-28 organization is registered or has been registered, including dates 8-29 of registration, registration numbers, any other names under which 8-30 the charitable organization was or is registered, and the dates and 9-1 types of solicitation conducted in each state; 9-2 (C) the name and address of each individual in 9-3 the charitable organization who is responsible for custody and 9-4 control of funds, distribution of funds, fund-raising, or custody 9-5 of records or who is authorized to sign checks or make withdrawals; 9-6 information required by this paragraph is confidential and is not 9-7 subject to disclosure under the open records law, Chapter 552, 9-8 Government Code; 9-9 (D) the names, addresses, and telephone numbers 9-10 of the organization's accountants and auditors and the method of 9-11 accounting used; 9-12 (E) a statement that the charitable organization 9-13 has attempted in good faith to comply with all Texas county and 9-14 municipal ordinances regarding solicitation that have been filed 9-15 with the attorney general or, if none apply, a statement to that 9-16 effect; 9-17 (F) for charitable organizations that engage the 9-18 services of commercial solicitors, the name and address of each 9-19 commercial solicitor engaged in the preceding 12 months, as well as 9-20 written confirmation from the commercial solicitor that it has 9-21 complied with all state and local registration laws; 9-22 (G) the amount paid to commercial solicitors 9-23 during the preceding 12 months; 9-24 (H) the total contributions received during the 9-25 preceding 12 months; and 9-26 (I) the total fund-raising costs during the 9-27 preceding 12 months, calculated pursuant to generally accepted 9-28 accounting principles; 9-29 (11) a copy of the charitable organization's most 9-30 recently filed Internal Revenue Service Form 990 and other federal 10-1 tax returns, including all supplements, amendments, and attachments 10-2 to those returns and requests for extensions to file those returns 10-3 or, if the charitable organization does not file federal tax 10-4 returns: 10-5 (A) a statement as to the reason none is filed; 10-6 and 10-7 (B) the charitable organization's most recent 10-8 financial statements, including audited financial statements, if 10-9 any have been prepared; and 10-10 (12) a sworn statement verifying that the information 10-11 contained in the registration statement and all attachments to the 10-12 statement are true, correct, and complete to the best of the 10-13 affiant's knowledge. 10-14 (b) A charitable organization shall file its initial 10-15 registration statement before the 10th working day preceding the 10-16 date on which the organization begins doing business in this state. 10-17 (c) Registration expires on the 15th day of the fifth month 10-18 following the close of a charitable organization's fiscal year. 10-19 Renewal registration statements shall be filed on the same forms 10-20 required for initial registration statements and must include the 10-21 name and employer identification number of the charitable 10-22 organization and any changes to the information previously 10-23 submitted to the attorney general. For items on which there is no 10-24 change from the previous year's registration statement, "no change" 10-25 may be indicated. 10-26 (d) A filing fee not to exceed $75 shall accompany the 10-27 initial registration statement. A $75 filing fee shall accompany 10-28 all renewal registration statements. 10-29 (e) The registration statements shall be submitted on forms 10-30 prescribed or approved by the attorney general. 11-1 Sec. 7. NOTIFICATION OF NONCOMPLIANCE. (a) A charitable 11-2 organization that is not in compliance with this Act shall be 11-3 notified of noncompliance by the attorney general by first class 11-4 mail at the organization's last reported address. Noncompliance 11-5 includes failure to file any documents required by this Act or the 11-6 filing of incomplete or inaccurate documents. 11-7 (b) A charitable organization violates this Act if it fails 11-8 to file complete documents within 30 days of the date the notice 11-9 required by Subsection (a) of this section has been mailed or if it 11-10 knowingly files materially inaccurate documents. 11-11 Sec. 8. RECORD KEEPING; AUDIT POWERS OF ATTORNEY GENERAL. 11-12 (a) Each charitable organization required to file a registration 11-13 statement shall keep true books and records as to its activities 11-14 within this state in a form to enable it to accurately provide the 11-15 information required by this Act. The books and records shall be 11-16 retained for a period of at least three years after the end of the 11-17 period to which the registration statement relates. All books and 11-18 records of a charitable organization shall be made available for 11-19 inspection and copying by authorized personnel of the attorney 11-20 general on written request by authorized personnel of the attorney 11-21 general. 11-22 (b) A charitable organization shall make available the 11-23 information requested by authorized personnel of the attorney 11-24 general at the organization's principal place of business within 10 11-25 working days of the date of the request, or at a time and place as 11-26 may be agreed. 11-27 (c) The authority established by this section is in addition 11-28 to other statutory or common law audit or investigative authority 11-29 of the attorney general. 11-30 Sec. 9. USE OF FEES. (a) All fees collected by the 12-1 attorney general under this Act are dedicated for use by the 12-2 attorney general during the biennium of receipt to administer this 12-3 Act, to enforce this Act, and to educate the public about this Act 12-4 and charitable organizations and solicitations generally. 12-5 (b) At the end of each biennium, the attorney general shall 12-6 file with the Legislative Budget Board a report that shows the 12-7 amounts of fees collected by the attorney general under this Act 12-8 and the uses for which the collected fees were expended. 12-9 Sec. 10. TOLL-FREE TELEPHONE LINE. The attorney general 12-10 shall establish and operate a toll-free telephone line. The public 12-11 may use the toll-free number to: 12-12 (1) obtain information concerning a charitable 12-13 organization that has registered under this Act; or 12-14 (2) report an alleged violation of this Act. 12-15 Sec. 11. REGISTRATION DOES NOT IMPLY ENDORSEMENT. 12-16 Registration under this Act does not imply endorsement by this 12-17 state or the attorney general, and charitable organizations are 12-18 prohibited from stating or implying to the contrary. 12-19 Sec. 12. REMEDIES. (a) The attorney general may institute 12-20 an action for failure to fully and accurately comply with any 12-21 provision of this Act and may obtain injunctive relief to restrain 12-22 a person from continuing a violation, cancellation or suspension of 12-23 the registration, an order restraining the person from doing 12-24 business in this state while violating this Act, a civil penalty of 12-25 not more than $25,000 per violation, or injunctive relief and a 12-26 civil penalty. A person who violates an injunction issued under 12-27 this section is liable to the state for a civil penalty of not less 12-28 than $100,000. 12-29 (b) The remedies authorized by this Act are not exclusive 12-30 but are in addition to any other procedure or remedy provided for 13-1 by other statutory or common law. 13-2 (c) In any proceeding successfully prosecuted by the 13-3 attorney general under this Act, the court may allow the attorney 13-4 general to recover civil penalties and the reasonable costs, 13-5 expenses, and attorney's fees incurred in bringing the suit. 13-6 Sec. 13. DEDICATION OF FEES AND CIVIL PENALTIES. In 13-7 addition to other money, all fees assessed under this Act and all 13-8 recovered expenses incurred in obtaining injunctive relief and 13-9 administrative and civil penalties authorized by this Act are 13-10 dedicated for use by the attorney general. Recovered expenses 13-11 include, but are not limited to, investigative costs, witness fees, 13-12 attorney's fees, and deposition expenses. That money may be 13-13 expended only for purposes of enforcing and administering this Act 13-14 and may not be appropriated for any other purpose. 13-15 Sec. 14. SERVICE ON SECRETARY OF STATE. (a) The secretary 13-16 of state is an agent for service of process or complaint on a 13-17 charitable organization that: 13-18 (1) is required by this state to designate or maintain 13-19 a resident agent but has not designated or maintained a resident 13-20 agent for service of process; 13-21 (2) has one or more resident agents for service of 13-22 process, but two unsuccessful attempts have been made on different 13-23 business days to serve each agent; or 13-24 (3) is not required to designate an agent for service 13-25 in this state. 13-26 (b) Service on the secretary of state may be made by 13-27 certified mail, return receipt requested, by the clerk of the court 13-28 in which the case is pending, by the party or representative of the 13-29 party, or by any other method authorized by statute or the Texas 13-30 Rules of Civil Procedure for service on the secretary of state. 14-1 (c) If the secretary of state is served with process for a 14-2 charitable organization, the secretary of state shall require a 14-3 statement of the name and last known address of the charitable 14-4 organization and shall immediately mail a copy of the process to 14-5 the charitable organization by registered mail or by certified 14-6 mail, return receipt requested. 14-7 Sec. 15. VENUE. An action under this Act shall be brought 14-8 in a court of competent jurisdiction in Travis County, in the 14-9 county in which the charitable organization has its principal place 14-10 of business or has a fixed and established place of business at the 14-11 time the suit is brought, or in the county in which solicitation 14-12 occurred. 14-13 Sec. 16. RULES; ADVISORY COMMITTEE. (a) The attorney 14-14 general may adopt rules, procedures, and forms that are consistent 14-15 with and necessary for the proper administration and enforcement of 14-16 this Act. 14-17 (b) The attorney general shall annually appoint an advisory 14-18 committee, consisting of representatives of charitable 14-19 organizations and including at least one representative from a 14-20 charitable organization in each of the following categories of 14-21 charitable organizations that are subject to the requirements of 14-22 this chapter: religious charities, educational charities, the 14-23 United Way, health-related charities, and charitable organizations 14-24 that are exempt from federal income taxation under Section 14-25 501(c)(4) or 501(c)(10) of the Internal Revenue Code of 1986. The 14-26 advisory committee may assist the attorney general in preparing 14-27 rules, procedures, and forms authorized by this Act. The advisory 14-28 committee may also assist the attorney general in developing a 14-29 public education program. 14-30 SECTION 2. The changes in law made by this Act apply only to 15-1 a solicitation that takes place on or after the effective date of 15-2 this Act. A solicitation that takes place before the effective 15-3 date of this Act is governed by the law in effect on the date of 15-4 the solicitation, and the former law is continued for that purpose. 15-5 SECTION 3. A charitable organization doing business in this 15-6 state on the effective date of this Act that is required to 15-7 register under Section 6, Article 9023d, Revised Statutes, as added 15-8 by this Act, shall file the organization's initial registration 15-9 statement required under that section before January 1, 1998. 15-10 SECTION 4. This Act takes effect September 1, 1997. 15-11 SECTION 5. The importance of this legislation and the 15-12 crowded condition of the calendars in both houses create an 15-13 emergency and an imperative public necessity that the 15-14 constitutional rule requiring bills to be read on three several 15-15 days in each house be suspended, and this rule is hereby suspended.