Can a Texas charity raffle off a house or other prize worth more than $50,000?

Texas AG Opinion JC-0046: Charitable Raffle Prize Value and Use of Proceeds

Plain-English summary

The Comptroller asked the Attorney General three questions about the Charitable Raffle Enabling Act, prompted by St. Jude Children's Research Hospital's wish to raffle a finished house. The Act lets a qualified nonprofit, religious society, volunteer fire department, or volunteer EMS run a charitable raffle, but the Texas Constitution otherwise bans lotteries and gift enterprises, so the Act's limits are read strictly.

First, can a qualified organization raffle a prize worth more than $50,000? The opinion said yes, but only if the prize was donated. Section 3(g) caps at $50,000 the value of a prize "purchased by the organization or for which the organization provides any consideration." Reading the statute by its plain terms, the opinion concluded a donated prize for which the organization paid nothing has no value ceiling, while a purchased prize cannot exceed $50,000.

Second, does the cap apply when the organization buys a prize using money raised from other fundraising or outside donations? Yes. The opinion held the source of the money does not matter. A purchased prize is capped at $50,000 even if donated dollars paid for it; a contrary reading would let an exception swallow the rule.

Third, may raffle profits be spent on the ongoing raffle or on future raffles? The opinion drew a line. Borrowing the Texas courts' reading of the identical "all proceeds" language in the constitution's charitable bingo provision, it concluded "all proceeds" means net proceeds after the reasonable, incidental, and necessary expenses of conducting that raffle. So an organization may pay the costs of running a raffle out of that raffle's gross take. But the net proceeds must go to the organization's actual charitable purposes, and the opinion declined to treat fundraising itself as a charitable purpose for a hospital whose charitable purpose is treating sick children. It would not say raffle proceeds could be used to pay for future fundraising events.

Currency note

This opinion was issued in 1999. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. The Charitable Raffle Enabling Act has been recodified and amended since 1999, including changes to the prize-value cap.

Common questions

Could a Texas charity raffle a prize worth more than $50,000 at the time of this opinion?
Yes, but only a donated prize. The opinion read section 3(g) to cap purchased prizes (or prizes for which the organization gave any consideration) at $50,000, while leaving donated prizes uncapped.

Did it matter that the money used to buy a prize came from donations?
No. The opinion concluded a prize the organization purchased was subject to the $50,000 cap even if the funds used to buy it had been donated. The relevant fact was that the organization bought the prize, not where the money came from.

Could a charity pay the costs of running the raffle out of the ticket money?
Yes. Following the courts' reading of the same "all proceeds" phrase in the bingo provision, the opinion concluded an organization may use part of the gross proceeds to cover the reasonable, incidental, and necessary expenses of conducting that same raffle.

Could raffle proceeds be used to pay for the next raffle or other fundraising?
Ordinarily no. The opinion concluded the net proceeds had to be spent on the organization's direct charitable purposes, and it declined to treat fundraising as a charitable purpose for an organization whose charitable purpose was something else (here, medical treatment).

Did the Attorney General decide whether St. Jude itself qualified to run raffles?
No. The opinion expressly said it was not determining whether St. Jude was a qualified organization under the Act; it answered the legal questions to guide organizations that are qualified.

Background and statutory framework

The Texas Constitution requires the Legislature to prohibit lotteries and gift enterprises, with limited exceptions the constitution itself authorizes (TEX. CONST. art. III, § 47(a)). A 1989 constitutional amendment let the Legislature permit qualified religious societies, volunteer fire departments, volunteer emergency medical services, and qualified nonprofit organizations to conduct charitable raffles, with all ticket-sale proceeds spent for the organization's charitable purposes (TEX. CONST. art. III, § 47(d)). Before that amendment, even a charity raffle was a prohibited lottery. The Charitable Raffle Enabling Act, article 179f of the Revised Civil Statutes, is the general law authorizing and regulating these raffles.

Section 3(g) caps at $50,000 the value of a prize the organization purchases or gives consideration for. Section 3(d) requires that all ticket-sale proceeds be spent for the organization's charitable purposes, and section 2(a)(2) defines those purposes (benefiting needy or deserving persons, or fostering worthy public works). To read the constitutional phrase "all proceeds," the opinion relied on Aerospace Optimist Club of Fort Worth v. Texas Alcoholic Beverage Commission, where the Austin Court of Appeals construed the identical phrase in the charitable bingo provision (TEX. CONST. art. III, § 47(b)(1)) and the Bingo Enabling Act (TEX. REV. CIV. STAT. ANN. art. 179d, § 11(d)) to mean net proceeds after reasonable, incidental, and necessary expenses. The opinion applied that construction to the raffle provision, citing St. Luke's Episcopal Hosp. v. Agbor for plain-language construction and L & M-Surco Manufacturing for reading similar language in similar acts the same way. Earlier AG opinions JM-513 (1986) and O-6887 (1946) supplied the pre-amendment history, and JM-1180 (1990) the rule that whether a particular use of funds is charitable is generally a fact question.

Citations

Statutes and constitutional provisions:

• TEX. CONST. art. III, § 47(a), (b)(1), (d)
• TEX. REV. CIV. STAT. ANN. art. 179f, §§ 2(a)(2), 3(d), 3(g) (Vernon Supp. 1999)
• TEX. REV. CIV. STAT. ANN. art. 179d, § 11(d) (Vernon Supp. 1999)

Cases:

• St. Luke's Episcopal Hosp. v. Agbor, 952 S.W.2d 503, 505 (Tex. 1997)
• Aerospace Optimist Club of Fort Worth v. Texas Alcoholic Beverage Commission, 886 S.W.2d 556 (Tex. App.-Austin 1994, no writ)
• 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.)

Prior Attorney General opinions referenced: JM-513 (1986), O-6887 (1946), JM-1180 (1990).

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/john-cornyn/jc-0046
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1999/jc0046.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain — the linked PDF is authoritative.

OFFICE OF THE ATTORNEY GENERAL, STATE OF TEXAS
JOHN CORNYN

May 11, 1999

The Honorable Carole Keeton Rylander
Comptroller of Public Accounts
P.O. Box 219
Austin, Texas 78767-0219

Opinion No. JC-0046

Re: Authority of charitable organization to 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, § 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 of tickets 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. ALSAC/St. 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 addition, the hospital provides all its research and clinical care protocols nationwide, including to hospitals in Texas.

Letter from Honorable Carole Keeton Rylander, Comptroller of Public Accounts, to Honorable John Cornyn, Attorney General (Jan. 25, 1999) (on file with Opinion Committee) [hereinafter Rylander letter of 1/25/99]. 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: "[T]he 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, § 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 of more 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) ("[I]f 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 1/25/99, 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 of more than $50,000. See TEX. REV. CIV. STAT. ANN. art. 179f, § 3(g) (Vernon Supp. 1999). This is true even if the funds used to obtain the prize were donated to the organization.

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. § 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. § 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, § 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, fund-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 of benefitting 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 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 of conducting 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 of the sponsoring organization. TEX. CONST. art. III, § 47(b)(1). In Aerospace Optimist Club of Fort Worth v. Texas Alcoholic Beverage 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'S THIRD NEW INTERNATIONAL DICTIONARY 1807 (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: "[t]he 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, § 11(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 560-61. "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 of the court's analysis of the 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 of the Act that the legislature intended the cost of raffles 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.

SUMMARY

Under the Charitable Raffle 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.

JOHN CORNYN
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