Fundraiser Requirements in Texas

Texas permits nonprofit fundraising events including bingo and raffles, but they are strictly regulated to limit who can conduct these events and how much in prizes can be awarded. These types of games were deemed illegal gambling under Texas criminal statutes, but exceptions have been carved out for some nonprofit fundraising activities. Any nonprofit organization that operates out of Texas or solicits funds in Texas should get an overview of these laws to avoid violating rules.

In Texas, nonprofit status depends on the use of the income. In a nonprofit, no part of its income is, or may be distributed, to members, directors or officers. To create a nonprofit corporation in Texas, the company must file a certificate of formation with the Texas Secretary of State. The purpose for which the nonprofit is created must be stated in its certificate of formation – any purpose is okay as long as it is lawful.

Only nonprofits are permitted to hold raffles and undertake certain forms of fundraising. In addition, when it comes to soliciting donations, some nonprofits must register with the Texas Secretary of State Registrations Unit. This fundraising registration requirement only applies to public safety organizations, independent promoters, public safety publications, veterans organizations and telephone solicitors.

Raffles are permitted under Texas law, but there are significant rules. A raffle is defined as "the award of one or more prizes by chance at a single occasion among a single pool or group of persons who have paid or promised a thing of value for a ticket that represents a chance to win a prize." Raffles are closely regulated in Texas, and individuals and businesses may not hold them – only nonprofit organizations can hold raffles.

Under the Charitable Raffle Enabling Act, a nonprofit organization may hold up to two raffles in every calendar year. Though only nonprofit organizations can hold raffles, not every nonprofit organization qualifies. The law defines the term "qualified organizations" as one of:

• Nonprofits that are organized for religious purposes and in existence for at least 10 years.
• Qualified volunteer fire department that operates firefighting equipment, provides firefighting services and that pays its members nominal compensation.
  
• Qualified volunteer emergency medical service that pays its members nominal compensation.
  
• Qualified 501(c) tax-exempt, nonprofit organization that has been in existence for at least three years.
  

Texas does not require nonprofits to register their raffle events with a state agency. As long as they are among the nonprofits qualified to hold raffles, and they hold only one at a time, they are good to go.

An organization holding a raffle in Texas does not have the right to advertise the event statewide other than on their own website or through notices like newsletters, social media or email provided only to people who have previously expressed interest. Selling tickets throughout Texas to the general public, or offering to do so, is forbidden, and the organization cannot pay anyone for running the raffle.

All raffle tickets in Texas have to list the name and address of the charitable organization, the price of the ticket, a list of prizes valued at $10 or more and the date of the raffle. If these conditions are not met, or if the raffle is being held by an organization that is not qualified under state law, the raffle will be considered illegal gambling, a Class A misdemeanor for those running the raffle and a Class C misdemeanor for anyone participating in it.

What about prizes? Nonprofits can offer prizes but not cold, hard cash or money in any form. Prizes are subject to restrictions; they cannot be valued at more than $50,000, or $250,000 if the prize is real estate. However, there is no value limit for donated prizes.

For many years, bingo was considered an illegal gambling activity in Texas. However, in 1980, the Texas Bingo Games for Nonprofit Organizations Amendment, was put on the ballot as a legislatively referred constitutional amendment. It authorized charitable and nonprofit organizations to operate bingo games on a local option basis. The measure passed, making nonprofit bingo games legal.

That made bingo one of the few forms of legal gambling in Texas. Before bingo is allowed, however, the county or city must put the issue on the local ballot and approve it. Only nonprofit organizations can conduct fundraising bingo games, and the proceeds are to be used only for charitable purposes.

The Texas Lottery Commission regulates who can be granted a license to conduct bingo games. First, an organization must have existed in Texas for at least three years to qualify. This rule is said to prevent scammers and to make certain that only legitimate, community conscious organizations benefit from this fundraising opportunity.

The laws allow only six types of organizations to hold bingo fundraising:

1. Religious societies.
2. Nonprofit organizations.
3. Fraternal organizations.
4. Veterans organizations.
5. Volunteer fire departments.
6. Volunteer emergency medical services providers.
   

These organizations qualify to apply for a license from the Texas Lottery Commission. The application includes the name and address of the organization, the times when bingo games will be conducted, and the names and addresses of officers and directors so that they can conduct criminal background checks on these people.

The nonprofit organization cannot just offer any prizes it wants for its bingo games. First, no door prizes are allowed that have a value of more than $250. In addition, the winner award limit for a single game of bingo is $750. For a single bingo session at which a series of bingo games are conducted, the limit is a total of $2,500, excluding any individual bingo games where awards were $50 or less.

The organization is charged with collecting a fee of 5 percent of the value of every prize greater than $5. This must be reported and remitted to the Texas Lottery Commission quarterly every calendar quarter.

Though it is illegal for anyone to conduct bingo game fundraisers unless they comply with these rules, there are exceptions. Anyone can have a small bingo event in their home with friends or neighbors, and small events in senior citizens’ homes are also permitted.

However, hosting an unlicensed bingo game that does not fall under one of these exceptions is illegal. A person doing so can be arrested and charged with a third-degree felony. This can be punished by two to 10 years in prison and/or a fine of up to $10,000.

It is generally illegal to gamble in Texas. This law applies to both nonprofits and regular businesses. But exceptions were carved out of the law for nonprofit raffles and bingo games run by qualified organizations. However, falling into one of these qualified exceptions does not mean that the nonprofit can also do fundraising using other types of gambling.

What about poker games or casino night fundraising events? There is no exception to the gambling law in Texas for nonprofits to hold poker or casino night fundraising events. The general Texas gambling law, found at Chapter 47 of the Penal Code, applies to nonprofits to the same degree as to profit businesses.