Untitled Texas Attorney General Opinion ( 1999 )

OFFICE Of THE ATTORNEY GENERAL, STATE OF TEXAS
JOHN CORNYN
May 11,1999
The Honorable Carole Keeton Rylander Opinion No. JC-0046
Comptroller of Public Accounts
P.O. Box 219 Re: Authority of charitable organization to
Austin, Texas 78767-0219 conduct raffle that offers prize valued in excess of
$50,000, and related questions (RQ-0013)
Dear Comptroller Rylander:
In this opinion we construe portions of the Charitable Raffle Enabling Act, article 179f of
the Revised Civil Statutes. As you know, the constitution requires the legislature to prohibit
“lotteries and gift enterprises” in the state, except those expressly authorized by the constitution.
TEX. CONST. art. III, 5 47(a). Prior to voter approval of a constitutional amendment in 1989, any
raffle was a prohibited lottery, even a raffle for charity. See Tex. Att’y Gen. Op. Nos. JM-513
(1986) at 2; O-6887 (1946) at 3-4. The constitution now allows the legislature by general law to
permit a qualified religious society, qualified volunteer fire department, qualified volunteer
emergency medical service, or qualified nonprofit organization to conduct a charitable raffle subject
to the conditions imposed by law. TEX. CONST.art. III, § 47(d). All proceeds from the sale oftickets
for the raffle must be spent for the charitable purposes of the organization. Id. The Charitable Raffle
Enabling Act is the general law authorizing and regulating charitable raffles.
Your questions are asked with respect to a specific organization, St. Jude Children’s Research
Hospital. You inform us:
St. Jude Children’s Research Hospital, a national institution registered as a
Texas foreign non-profit, is a hospital which provides treatment for children
with cancer and other catastrophic childhood diseases. The hospital, located
in Tennessee, provides treatment to children without regard to race, religion,
creed or ability to pay. ALSAUSt. Jude, the hospital’s fund-raising arm,
pays all costs associated with treatment beyond those covered by insurance.
Families who have no insurance are never asked to pay. The hospital
conducts fundraising activities in Texas. More than 180 children from Texas
have been treated at St. Jude, including 57 who are current patients. In
The Honorable Carole Keeton Rylander - Page 2 (X-0046)
addition, the hospital provides all its research and clinical care protocols
nationwide, including to hospitals in Texas.
Letter from Honorable Carole Keeton Rylander, Comptroller ofPublic Accounts, to Honorable John
Comyn, Attorney General (Jan. 25, 1999) (on file with Opinion Committee) [hereinafter Rylandcr
letter of l/25/99]. We do not determine in this opinion whether St. Jude is an organization qualified
under the Act to conduct raffles. Rather, we answer your questions in order to guide those
organizations who are qualified to do so.
You first ask whether a qualified organization may raffle a prize valued in excess of $50,000.
You tell us that St. Jude wishes to offer a finished home as a raffle prize. Section 3(g) of the
Charitable Raffle Enabling Act provides, in relevant part: “[Tlhe value of a prize that is offered or
awarded at the raffle and that is purchased by the organization or for which the organization provides
any consideration may not exceed $50,000.” TEX. REV. CIV. STAT. ANN. art. 179f, 5 3(g) (Vernon
Supp. 1999). We construe section 3(g) in accordance with its plain language, which we think in this
case clearly indicates the intent of the legislature. See St. Luke’s Episcopal Hosp. v. Agbor, 952
S.W.2d 503, 505 (Tex. 1997). A prize that is purchased by the organization or for which the
organization provides any consideration may not have a value ofmore than $50,000. It follows that
if a prize is donated to the organization, and the organization gives no consideration for the prize,
its value may exceed $50,000. See Hearings on Tex. H.B. 240 & H.R.J. Res. 32 Before the House
Comm. on State Affairs, 71st Leg., R.S. (Apr. 3, 1989) (tape available from House Video/Audio
Services) (statement of Rep. T. Smith, bill sponsor) (“[IIf the prize to be awarded is purchased, it
cannot exceed $25,000 [now $50,000]; however, if it is donated there’s no limit on the value of the
prize.“). A qualified organization may raffle a prize valued in excess of $50,000, but only if the
prize was not purchased by the organization and the organization gave no consideration for the prize.
You next ask whether section 3(g) of the Act prohibits an organization from “helping fund
a raffle prize worth in excess of $50,000 through donations received from other fund raising efforts,
such as other raffles or donations from outside sources.” Rylander letter of l/25/99, at 2. Although
it is not clear what you mean by “helping fund” a prize, we understand you to ask whether the
$50,000 cap applies when an organization purchases a prize with raised funds. We believe that it
does. The Act was intended to benefit charitable organizations that receive most, if not all, of their
funds through donations. See Hearings on Tex. H.B. 240 & H.R.J. Res. 32 Before the House Comm.
on State Affairs, 71st Leg., R.S. (Mar. 13,1989) (tape available from House Video/Audio Services).
A construction of the Act that excludes prizes purchased with donated funds from the $50,000 cap
would allow an exception to swallow the rule. Such a construction would also be inconsistent with
the clear terms of the statute: a prize that is purchased by the organization or for which the
organization provides any consideration may not have a value ofmore than $50,000. See TEX. REV.
Crv. STAT.ANN. art. 179f, 3 3(g) (Vernon Supp. 1999). This is true even ifthe funds used to obtain
the prize were donated to the organization.
The Honorable Carole Keeton Rylander - Page 3 (X-0046)
Finally, you ask whether the profits received from a raffle may be used to fund the ongoing
raffle or future raffles. As required by the constitution, the Raffle Enabling Act provides: “All
proceeds from the sale of tickets for the raffle must be spent for the charitable purposes of the
organization.” Id. 5 3(d). “Charitable purposes” under the Act means:
(A) benefiting needy or deserving persons in this state, indefinite in
number, by enhancing their opportunity for religious or educational
advancement, relieving them from disease, suffering, or distress, contributing
to their physical well-being, assisting them in establishing themselves in life
as worthy and useful citizens, or increasing their comprehension of and
devotion to the principles on which this nation was founded and enhancing
their loyalty to their government; or
(B) initiating, performing, or fostering worthy public works in this
state or enabling or furthering the erection or maintenance of public
structures in this state.
Id. 5 2(a)(2). We have said that whether funds are used for a charitable purpose under the Act is a
question of fact. See Tex. Att’y Gen. Op. No. JM-1180 (1990) at 3. Accordingly, whether a
particular use of funds is for a charitable purpose is a question we generally cannot answer in an
opinion.
Your question suggests that you would have this office conclude as a matter of law that a
qualified nonprofit organization may use proceeds of a raffle for future fund-raising efforts. You
suggest that because fund-raising helps the organization further its charitable purposes, proceeds
used for fund-raising efforts are used for a charitable purpose under the Act. While we agree that
fund-raising is an inherent part of almost any charitable effort, in our view the Act requires raffle
proceeds to be used for the direct charitable purposes of the organization; that is, for the direct
benefit of needy or deserving persons in this state or for initiating, performing, or fostering worthy
public works. See TEX. REV. CIV. STAT. ANN. art. 179f, 5 2(a)(2) (Vernon Supp. 1999).
We cannot conclude that fund-raising itself is a charitable purpose. Nor are we prepared to
say that it may never be a charitable purpose. There may be certain organizations who do nothing
but raise funds for other charitable organizations. We are not prepared to say whether, in such
instances, mnd-raising is a charitable purpose under section 2 of the Act. When, as in the case of
St. Jude Children’s Research Hospital, a nonprofit organization has an identified charitable purpose
ofbenefitting needy or deserving persons other than fund-raising, we decline to expand the definition
of charitable purpose to include fund-raising. Such an analysis, we believe, would mistake the
means by which the charitable purpose is accomplished (fund-raising to support medical treatment)
with the charitable purpose of the organization (providing medical treatment). In these
The Honorable Carole Keeton Rylander - Page 4 (X-0046)
circumstances, a qualified nonprofit organization may not use raffle proceeds for the cost of future
fund-raising events.
We do not think, however, that the Act precludes an organization from using a portion of a
raffle’s gross proceeds to pay the expenses ofconducting the raffle generating those proceeds. Like
the constitutional provision permitting charitable raffles, the constitutional provision permitting
charitable bingo requires “all proceeds” of the bingo game to be spent for the charitable purposes
ofthe sponsoring organization. TEX. CONST.art. III, § 47(b)(l). In Aerospace Optimist Club ofFort
Worth v. Texas AlcoholicBeverage Commission, 886 S.W.2d 556 (Tex. App.-Austin 1994, no writ),
the court considered whether bingo proceeds could be used for expenses other than those directly
serving a charitable purpose. The court found the ordinary meaning of “proceeds” uncertain: it is
defined as both “the total amount brought in” and “the net amount received after deduction of any
discount or charges.” Id. at 559 (citing WEBSTER’STHIRDNEW INTERNATIONAL DICTIONARY1807
(1986)). Finding no clear evidence of the intent of the voters in adopting the provision, the court
looked to the legislative interpretation of the term. The Bingo Enabling Act equated the
constitutional phrase “all proceeds” with the term “net proceeds” by providing: “[tlhe net proceeds
of any game of bingo and of any rental of premises for bingo shall be exclusively devoted to
charitable purposes.” Id. at 560 (citing TEX.REV. CIV. STAT.ANN. art. 179d, 5 1 l(d) (Vernon Supp.
1999)). “Net proceeds” was defined to mean gross receipts “after deducting the reasonable sums
necessarily and actually expended for advertising, security, repairs to premises and equipment, bingo
supplies and equipment.” Id. Recognizing the value of legislative construction in constitutional
interpretation, the court held that “the phrase ‘all proceeds’ as used in the Bingo Amendment means
net proceeds after payment of reasonable, incidental, and necessary expenses.” Id at 560-6 1. “Any
other construction would be unreasonable. Nothing suggests that the drafters of the amendment or
the voters intended bingo operators to seek outside sources of revenue in order to conduct bingo
operations.” Id. at 561.
We believe a court would apply the same construction given to the phrase “all proceeds” in
the constitution’s bingo provision to the phrase “all proceeds” in the constitution’s charitable raffle
provision. See L & M-Surco Mfg., Inc. v. Winn Tile Co., 580 S.W.2d 920, 926 (Tex. Civ.
App.-Tyler 1979, writ dism’d w.o.j.) (“In construing a statutory word or phrase, the court may take
into consideration the meaning of the same or similar language used elsewhere in the act or in
another act of similar nature.“). Although the Charitable Raffle Enabling Act does not define “all
proceeds,” and thus does not construe the term, the remainder ofthe court’s analysis ofthe charitable
bingo provision in Aerospace applies to the charitable raffle provision. The meaning of the term
“proceeds” remains unclear, we find no evidence of the voters’ understanding of the phrase, and we
find no indication in the legislative history ofthe Act that the legislature intended the cost of rattles
to be funded from outside sources. We therefore conclude that the phrase “all proceeds” as used in
the constitution and the Charitable Raffle Enabling Act means net proceeds after payment of
reasonable, incidental, and necessary expenses. Accordingly, an organization may use raffle
proceeds to pay the reasonable, incidental, and necessary expenses of conducting the raffle from
which the proceeds were raised. The net proceeds of the raffle must be spent for the charitable
purposes of the organization.
The Honorable Carole Keeton Rylander - Page 5 (X-0046)
SUMMARY
Under the Charitable RaMe Enabling Act, a qualified organization may
raffle a prize valued in excess of $50,000 if the prize was not purchased by
the organization and the organization gave no consideration for the prize. If
an organization purchases a prize, the prize is subject to the $50,000 cap even
if the funds used for the purchase were donated. An organization may use a
portion of the gross raffle proceeds to pay the reasonable, incidental, and
necessary expenses of conducting the raffle from which the proceeds were
raised, but ordinarily no raffle proceeds may be used to fund subsequent
raffles. The net proceeds of the raffle must be spent for the charitable
purposes of the organization.
JOkN COYNYN
Attorney General of Texas
ANDY TAYLOR
First Assistant Attorney General
CLARK KENT ERVIN
Deputy Attorney General - General Counsel
ELIZABETH ROBINSON
Chair, Opinion Committee
Prepared by Barbara Griffin
Assistant Attorney General