Texas Charitable Solicitation Laws - A Primer

Under Texas law, most charities and nonprofit organizations soliciting charitable donations from Texas donors are not required to register to solicit. However, registration is required either with the Office of the Attorney General (OAG) or the Texas Secretary of State for certain law enforcement related organizations that solicit by telephone, public safety organizations and their solicitors, and veterans organizations and their solicitors.1 Although these solicitation laws appear to get the most attention, there are other Texas laws which nonprofit organizations should know, particularly since Texas, on the basis on its less known laws, can be considered a nonprofit organization “friendly” state.

           Texas has three solicitation acts that require charitable solicitation registration and renewal filings and are most recognized:

• Law Enforcement Telephone Solicitation Act (LETSA)
• The Texas Law Enforcement Telephone Solicitation Act (LETSA) regulates certain law enforcement related organizations that engage in telephone solicitation in the State of Texas. These organizations are required to file a registration statement with the Office of the Attorney General and pay a $50 fee. If the organization retains a commercial telephone solicitor, the solicitor must file a $50,000 surety bond with the Secretary of State.2
• Registered organizations under the LETSA are shown below. Only four (4) of the registered organizations are exempt, tax-deductible organizations. Five (5) of the listed organizations are from outside the state of Texas.  The registration form for the LETSA, under the state police powers, does review the fundraising costs of the organization by asking to provide the following:
• 14. The total fund-raising costs during the preceding 12 months: $_________________________ 3
• Also, the State of Texas requires a bond as per the COMMERCIAL TELEPHONE SOLICITOR’S BOND Statute, Tex. Bus. & Comm. Code Ann. Ch. 303 (West 2009).
• The following organizations are registered under the Texas Law Enforcement Telephone Solicitation Act:

• Public Safety Solicitation Act (PSSA)
• The Public Safety Solicitation Act requires certain public safety organizations, public safety publications and their solicitors and/or independent promoters to register, pay a fee and post a bond with the Secretary of State.4  Note that the State of Texas requires that a PSSA organization and their solicitors and promoters obtain a bond.5
• Veterans Solicitation Act (VSA)
• The Veterans Solicitation Act requires certain veterans organizations to file a registration statement with the Secretary of State and pay a fee. If the veteran’s organization uses a solicitor, the organization must post a surety bond with the Secretary of State.6

IRS Form 990-PF Filing

In addition to the requirements of the solicitation acts described above, the Texas OAG maintains copies of IRS Forms 990-PF (Return of Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust Treated as a Private Foundation). In accordance with IRS rules, foundation or organization managers must furnish a copy of the annual return Form 990-PF (and Form 4720, if applicable) to the OAG of:

1. Each state required to be listed in Part VII-A, line 8a;
2. The state in which the foundation's principal office is located; and
3. The state in which the foundation was incorporated or created.

A copy of the annual return must be sent to the OAG at the same time the annual return is filed with the IRS.7 

Other Charitable Gift Solicitation Laws in Texas -Reporting and Disclosures

           In Texas, there are a few laws directly related to charitable gifts and fundraising. Some prominent fundraising laws are regarding bake sales, bingo, and raffles. Other laws, however, deal with charitable gifts. As with other states’ laws, Texas’ fundraising laws are meant to protect the public and the rights of other not-for-profit organizations.        

§ Texas Charitable Gift Annuity Registration

o  Charitable Gift Annuity laws are under Texas Statute Title 2 Subtitle B Section 102.001 et seq., administered by the Texas Department of Insurance.

o  Qualified organizations must have 3 years of continuous existence immediately preceding licensure and have a Minimum Unrestricted Cash or Cash Equivalent Requirement of $100,000.

o  Charities are required to meet prerequisites and follow regulations before using charitable annuities for fundraising.

o  Texas charities must provide notice on the day they first enter into a charitable gift annuity agreement. Notices must identify the organization, certify that the organization is a charity and that the annuities issued are qualified charitable gift annuities, and be signed by an officer or director.

§ Bingo Laws in Texas

o  Bingo games by qualified organizations are regulated by the Texas Lottery – Charitable Bingo Operations Division.

o  Only licensed authorized organizations can conduct bingo games in Texas. These organizations may include religious societies, nonprofit organizations, fraternal organizations, veteran’s organizations, volunteer fire departments and volunteer emergency medical services providers.8

o  There are two different types of licenses to conduct bingo for non-profit organizations, a Regular Annual Conductor License and a Non-Annual Temporary License.

o  A Regular Annual Conductor License may be issued for one year or two years, calculated from the date of issue. An authorized organization that holds a regular conductor license may conduct three bingo occasions per calendar week. Each bingo occasion may not exceed six hours. An authorized organization that holds a regular license may also conduct up to 24 temporary occasions during their annual license period.

o  A Non-Annual Temporary license is issued to an authorized organization for a single bingo occasion (up to six hours in length) on a specific day. An organization must submit an application and documentation 30 days prior to the occasion. An authorized organization without an annual license may not receive more than six temporary licenses in a calendar year. Non-Annual Temporary licenses are generally obtained by charitable organizations that want to play bingo a few times a year in conjunction with fundraising activities such as PTA Fall or Spring Festivals.9

o  An applicant must provide with its application, documentation demonstrating that it meets all qualifications and requirements for a license to conduct bingo. The qualifications, requirements, and necessary documentation for different types of organizations are referenced in the Application Guide and Figure 16 within Texas Administrative Code Section 402.420.

o  A Regular Annual License is for an organization looking to have more than six bingo occasions per year. The license may be issued for one or two years and allows an organization to hold up to three bingo occasion per week (max six hours per occasion). Those organizations holding a Regular Annual License may also conduct 24 temporary occasions during their annual license period.10

§ Texas Professional Fundraiser Registration

o  Professional Fundraiser licensure is not required on the State level in Texas. Texas does not have a broad registration requirement for professional fundraisers, although solicitors for veteran's organizations may be required to register.

·        Raffle Ticket Laws in Texas

o  Laws governing raffle tickets in Texas are outlined under Chapter 2002 of the Texas Occupations Code section titled "Charitable Raffles." This chapter also is known as the Charitable Raffle Enabling Act. The act defines what constitutes a raffle ticket and organizations qualified to sell them. The act also describes the lawful sale of raffle tickets in the state.

o  The Charitable Raffle Enabling Act in Texas, Section 2002.002, defines a raffle as “the award of one or more prizes by chance at a single occasion among a single pool or group of persons.” Participants in a raffle must expect a chance to receive a “promised a thing of value” in exchange for a ticket. The ticket serves as the claim to a prize. The law only permits “qualified organizations” to hold raffle drawings in the state.

o  Under the Charitable Raffle Enabling Act, Qualified Organizations that are permitted to hold raffle drawings in Texas include the following:

§ nonprofit volunteer emergency medical services that only give members "nominal" compensation and are structured to deliver emergency medical, ambulance or rescue services

§ churches, synagogues and other religious organizations that have been in operation for at least 10 years, and

§ a qualified volunteer fire department that only nominally compensate members who primarily provide firefighting assistance.

o  Qualified Nonprofit Organizations under the Charitable Raffle Enabling Act are organizations that are incorporated and hold a certificate of authority as required by the Texas Non-Profit Corporation Act. Further, a nonprofit organization must have been in operation for more than three years and have obtained an exemption from federal income tax under Section 501(c) of the Internal Revenue Service Code.

o  Regulation of Fundraising Proceeds - proceeds from the sale of raffle tickets in Texas by qualified organizations must be solely dedicated to further charitable purposes. Any form of paid advertising or promotion of a raffle through mediums that include newspaper, television and radio is prohibited. Raffle tickets must include the drawing's entry fee, name and address of the organization, a description of prizes and the date when prizes will be awarded on the raffle tickets. The award of money as a prize in raffle drawings is strictly prohibited.

o  Additional Compliance Requirements 

§ qualified organizations cannot hold more than two raffle drawings each year, and the drawings cannot be held at the same time,

§ participants in the organization and sale of raffle tickets cannot be compensated, and

§ any violation of the provisions of this act is considered gambling.

·        Texas Cottage Food Law (as of September 1, 2019)11

o  Prior to 2011, it was illegal to sell any food that a person prepared in a home kitchen. Now, the law allows people, including organizational fundraisers, to sell a few specific low-risk foods to consumers who could only purchase the foods by traveling to the producers’ homes. As the reader will learn, the Texas Cottage Food Law is a good fundraising tool for nonprofit organizations, particularly considering the use of the internet and advertising of a sale.

o  The Texas Cottage Food Law allows individuals to sell certain foods made in home kitchens, without having to get a food manufacturers’ license, use a commercial kitchen, or be subject to inspections by the state or local health departments.

o  In 2019, the Texas Cottage Food Law made a significant shift, from allowing only specifically listed foods to allowing any non- Time and Temperature Control for Safety (TTCS) food to be prepared at home and sold directly to consumers.

o  Basically, non-TTCS foods are those that you would not normally keep in the refrigerator. But not all shelf-stable foods are non-potentially hazardous.

·        Internet & Mail Order Sales of Texas Cottage Food

o  Internet sales are allowed under certain conditions, which are easier to understand if you first think about the basic concept of the cottage food law: The direct producer-to-consumer relationship creates transparency and accountability, so that the health departments don’t need to be involved in transactions between small-scale organizations and their customers. Long-distance internet or mail order transactions, where the consumer and producer have never met, do not fit that model, even if they are technically “direct-to-consumer.”

o  Cottage food operations can take orders and payment over the internet or by mail order if:

§ The cottage food operator personally delivers the food to the consumer (so that there is at least one portion of the interaction that is in person), and

§ Before accepting payment for the food, the operator provides the required labeling information to the consumer. This can be done by posting it on your website, publishing it in your mail order catalog, or “otherwise communicating” the information to the consumer.

§ You do not have to include your home address on your website or in your mail order catalog. Your address does still need to be on the product’s label, as required for all cottage food transactions.

§ The statute specifically provides that cottage food operators can deliver to their customers in general. Thus, if the transaction is made in person (rather than through the internet or by mail order), it is reasonable to use delivery options such as shipping or hiring a driver. But if the transaction is made remotely, the delivery must be in person, as discussed above.

o  Advertising - there is no restriction on your ability to advertise. You can advertise through a website or Facebook, putting business cards or flyers out at local retail outlets (with the retailer’s permission), or any other legal means.

Summary

           In general, Texas can be considered a nonprofit organization “friendly state.” There are fewer Charitable Solicitation laws affecting reporting and disclosure requirements of charitable gift solicitation than in other states. This does not mean that a nonprofit organization can be less concerned with complying with Texas charitable gift laws. Compliance is expected and penalties can be severe for the charitable organization that does not make the effort to know Texas laws (in addition to federal tax laws and penalties). 

           In Robertson, the U.S. Supreme Court characterized a gift as a transfer stimulated “out of affection, respect, admiration, charity, or like impulses.”12  A nonprofit organization will not find any reprise from the elusive legal definition of the word “gift” in Texas law. However, the characteristic terms used by the U.S. Supreme Court in its attempt to define a charitable gift are clearly demonstrated in the charitable gift solicitation laws Texas does have on the books. 

This article provides a brief and incomplete educational overview of a complex topic and is not intended to provide legal advice. Always consult experienced legal, tax, and accounting professionals in specific situations.

References

1.     Texas Attorney General Website, Registrations and Filings, https://www.texasattorneygeneral.gov/divisions/financial-litigation/charitable-trusts/registration-and-filings.

2.     Ibid. Registration with the Office of the Attorney General.

3.     OFFICE OF THE ATTORNEY GENERAL LAW ENFORCEMENT TELEPHONE SOLICITATION ACT, Tex. Bus. & Comm. Code Ann., Ch. 303 (West 2009) REGISTRATION FORM, which can be found here https://www.texasattorneygeneral.gov/sites/default/files/files/divisions/charitable-trusts/CharityRegistrationForm.pdf

4.     Ibid. Registration with the Secretary of State.

5.     Solicitation for Public Safety Organizations, Tex. Occupations Code § 1803.001 et seq, forms 3201 to 3206.

6.     Solicitation for Veterans Organizations, Tex. Occupations Code § 1804.001 et seq, forms 3501 to 3508.

7.     Ibid., Texas Attorney General Website

8.     For a review of Texas Bingo regulations visit https://www.txbingo.org/export/sites/bingo/Licensing/Conductor/conductor-first-time.html.

9.     Ibid.

10. Ibid.

11. The Texas Cottage Food Act can be viewed here: https://farmandranchfreedom.org/wp-content/uploads/2019/09/2019-Texas-Cottage-Foods-Fact-Sheet.pdf

12. Robertson v. United States, 343 U.S. 711, 714 (1952).