When did the religious-institution exemption excuse a Texas nonprofit from opening its financial records to the public?

Texas AG Opinion JM-477: Nonprofit Financial Records

Plain-English summary

A Houston Post reporter requested financial records from Methodist Hospital under the Texas Non-Profit Corporation Act. The hospital relied on the exemption for religious institutions. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0477.pdf

JM-477 concluded that the exemption covered only nonprofit corporations whose "primary function is to provide, guide, or further religious worship services." Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0477.pdf

The opinion rejected an exemption based merely on organizational connection to a religious institution or the presence of a chapel. It declined to decide Methodist Hospital's status as a fact question, but said it was "highly unlikely that a hospital would be within the exemption." Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0477.pdf

Currency note

This opinion was issued in 1986. 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.

Common questions

Did every church-affiliated nonprofit qualify?

No. JM-477 said organizational connection alone was insufficient when the nonprofit's main function was something other than providing, guiding, or furthering worship. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0477.pdf

Did having a chapel create the exemption?

No. The opinion specifically said a chapel did not qualify a nonprofit whose main function was something else. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0477.pdf

Were a nonexempt nonprofit's financial records public?

Yes. JM-477 said a nonexempt corporation had to keep records of all financial transactions and make those records available for public inspection and copying. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0477.pdf

Did the opinion decide whether every requested hospital record had to be released?

No. It said whether portions of board minutes were financial records and whether charitable care generated accounting records were factual questions. It also did not resolve possible conflicts with confidentiality laws. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0477.pdf

Background and statutory framework

The act required nonprofit corporations to maintain accurate financial records, prepare annual reports, and make financial records and reports available at the registered or principal office for public inspection and copying. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0477.pdf

The religious exemption was limited to churches, ecclesiastical or denominational organizations, and established physical worship places where religious services were primary and regularly conducted. JM-477 read the categories together to preserve a narrow worship-focused exemption. Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0477.pdf

Citations and references

• Texas Non-Profit Corporation Act article 1396-2.23A, V.T.C.S.
• article 1396-2.23B(D), V.T.C.S.
• Tax Code section 11.20
• State v. Terrell, 588 S.W.2d 784, 786 (Tex. 1979)

Source: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0477.pdf

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/jim-mattox/jm-0477
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1986/jm0477.pdf

Original opinion text

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

The Attorney General of Texas

JIM MATTOX
Attorney General

April 16, 1986

Honorable John B. Holmes, Jr.
District Attorney
201 Fannin, Suite 200
Houston, Texas 77002

Opinion No. JM-477

Re: Construction of article 1396-2.23A(E)(4), V.T.C.S.

Dear Mr. Holmes:

In your letter you tell us that a reporter for the Houston Post requested access to certain financial records of the Methodist Hospital in Houston pursuant to article 1396-2.23A, V.T.C.S. The hospital refused the reporter's request, and the reporter asked your office to prosecute the hospital pursuant to article 1396-2.23B(D). You have asked our opinion about the construction of several different clauses in article 1396-2.23A.

The Texas Non-Profit Corporation Act provides:

C. All records, books, and annual reports of the financial activity of the corporation shall be kept at the registered office or principal office of the corporation in this state for at least three years after the closing of each fiscal year and shall be available to the public for inspection and copying there during normal business hours. The corporation may charge for the reasonable expense of preparing a copy of a record or report.

D. A corporation that fails to maintain financial records, prepare an annual report, or make a financial record or annual report available to the public in the manner prescribed by this article is guilty of a Class B misdemeanor.

Art. 1396-2.23B(C), (D). Certain types of nonprofit corporations, however, are excluded from the requirements of those provisions, including

religious institutions which shall be limited to churches, ecclesiastical or denominational organizations, or other established physical places for worship at which religious services are the primary activity and such activities are regularly conducted.

Art. 1396-2.23B(E)(4).

Methodist Hospital relied on the exemption for religious institutions in refusing to grant the reporter's request for access to financial records. In your opinion, Methodist Hospital is reading the exemption for religious institutions too broadly. Consequently, you ask what type of nonprofit corporations are exempt under that provision and whether Methodist Hospital is within the scope of the exemption.

The language of the exemption for religious institutions raises problems of statutory construction. Religious institutions exempted under article 1396-2.23B(E)(4) are limited to (1) churches; (2) ecclesiastical or denominational organizations; and (3) other established physical places for worship at which religious services are the primary activity and such activities are regularly conducted. The ordinary reading of the word "other" in the third category would require a construction of both "churches" and "ecclesiastical or denominational organizations" that would limit those categories to "established physical places for worship." That construction does not create a particular problem in regard to the category "churches." It does, however, put a troublesome limitation on the category "ecclesiastical or denominational organizations."

A brief submitted to us on behalf of Methodist Hospital points out that such a reading of "ecclesiastical or denominational organizations" would exclude the typical denominational organization. Webster's Ninth New Collegiate Dictionary defines "denomination" as a "religious organization uniting in a single legal and administrative body a number of local congregations." Such an organization is usually not itself an "established physical place for worship," but it usually guides and supports worship services at other places. We think that by using the category "ecclesiastical or denominational organizations" the legislature clearly intended such organizations to come within the scope of the exemption for religious institutions. The goal of statutory construction is to ascertain the intention of the legislature. State v. Terrell, 588 S.W.2d 784, 786 (Tex. 1979). To achieve the obvious legislative intent, the exemption for religious institutions must be given a construction somewhat broader than the one required by strict grammatical construction. See State v. Terrell.

The brief submitted to us on behalf of Methodist Hospital encourages a construction of the exemption for "ecclesiastical or denominational organizations" that would include any nonprofit corporation "relating to" a religious institution. We do not think that the legislature intended the exemption to be so broad.

All the words in a provision should be considered in attempting to ascertain legislative intent. State v. Terrell, 588 S.W.2d 784 (Tex. 1979). Although the phrase "ecclesiastical or denominational organizations" is vague, a reading of article 1396-2.23B(E)(4) in its entirety makes clear that the legislature intended the exemption for religious institutions to be a narrow one. The phrase "ecclesiastical or denominational organizations" appears after the instruction that the definition of religious institution "shall be limited to" certain things. The category "ecclesiastical or denominational organizations" is sandwiched between two other categories that are limited to nonprofit corporations whose primary function is to provide, guide, or further religious worship. In other words, those categories are limited to entities whose primary function is spiritual. The phrase "ecclesiastical or denominational organizations" must be read in that context. Cf. Tax Code § 11.20 (defining "religious organization" as one "organized and operated primarily for the purpose of engaging in religious worship or promoting the spiritual development or well-being of individuals").

Therefore, we think that the legislature intended the category "ecclesiastical or denominational organizations" to include only nonprofit corporations whose primary function is to provide, guide, or further religious worship services. The exemption was not intended for a nonprofit corporation that merely has an organizational connection with a religious institution, or that has a chapel on its premises if the main function of the nonprofit corporation is something other than providing, guiding, or furthering religious worship. Whether any particular nonprofit corporation comes within the exemption in article 1396-2.23B(E)(4) is a question of fact, which we are unable to decide, but it is highly unlikely that a hospital would be within the exemption.

Your second question is whether the records the reporter requested are available to the public under article 1396-2.23A. The reporter asked for access to information concerning bank certificates of deposit, land and equity transactions, expenses for work at private residences, conference-center expenses, loans and advances to physicians, board minutes concerning financial activity, and expenditures for charitable medical care.

The relevant sections of article 1396-2.23B provide that a corporation must maintain current true and accurate financial records with full and correct entries for all financial transactions, prepare or approve an annual financial report, and keep all records, books, and annual reports available to the public for inspection and copying during normal business hours.

These provisions make clear that a nonprofit corporation that is not exempt from the provisions of article 1396-2.23A must keep records of all its financial transactions and that it must make those records available to the public. Most of the records the reporter requested are clearly records of financial transactions. Whether particular portions of minutes constitute financial records is a fact question that we cannot answer. Also, the reporter's request for records of all expenditures made for charitable medical care might pose problems. A hospital presumably provides charitable medical care by providing treatment without expectation of payment. We cannot say whether generally accepted accounting principles would require a hospital to keep a financial record of any such transaction. That is a question of fact, which we cannot answer. Also, we do not address potential conflicts that might arise between this statute and laws making certain records confidential.

SUMMARY

The exemption for religious institutions in article 1396-2.23A(E)(4), V.T.C.S., applies only to nonprofit corporations whose primary purpose is to provide, guide, or further religious worship.

JIM MATTOX
Attorney General of Texas

JACK HIGHTOWER
First Assistant Attorney General

MARY KELLER
Executive Assistant Attorney General

ROBERT GRAY
Special Assistant Attorney General

RICK GILPIN
Chairman, Opinion Committee

Prepared by Sarah Woelk
Assistant Attorney General