Charitable raffle laws differ by state. In Texas, the Charitable Raffle Enabling Act outlines the guidelines nonprofits must follow to legally hold a raffle. This article describes some provisions related to raffles in Texas.
What is a raffle?
Texas law 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 who have paid or promised a thing of value for a ticket that represents a chance to win a prize.”
Can any nonprofit hold a raffle?
No. Not all nonprofits can hold a raffle. The following types of nonprofit organizations are allowed:
- A nonprofit association organized primarily for religious purposes that has been in existence in Texas for at least 10 years;
- A nonprofit volunteer emergency medical service that does not pay its members other than nominal compensation;
- A nonprofit volunteer fire department that operates fire-fighting equipment, provides fire-fighting services, and does not pay its members other than nominal compensation; or
- A nonprofit organization that has existed for at least three preceding years and is exempt from federal income tax under Section 501(c), Internal Revenue Code; does not distribute any of its income to its members, officers or governing body; does not devote a substantial part of its activities to attempting to influence legislation; and does not participate in any political campaign.
Are nonprofits limited to what they can offer as prizes?
Yes. There are limitations.
No cash! The Raffle Act does not allow money as a prize (or anything that can readily be converted to cash).
No CDs! A certificate of deposit is not allowed to be a prize. A savings bond, pre-paid credit card, or store-value gift card may be allowed as prizes.
Additionally, the law provides a few other guidelines:
- The value of a prize offered or awarded at a raffle that is purchased by the organization or for which the organization provides any consideration may not exceed $50,000.
- An exception exists for residential dwellings offered as prizes.
- The value of a residential dwelling offered or awarded as a prize at a raffle that is purchased by the organization or for which the organization provides any consideration may not exceed $250,000.
- A raffle prize may consist of one or more tickets in the state lottery with a face value of $50,000 or less, without regard to whether a prize in the lottery game to which the ticket or tickets relate exceeds $50,000.
- No limits exist for donated prizes.
Tip: save any receipts for purchases of prizes.
Should the nonprofit have possession or ownership of the prize before the raffle begins?
Yes, a raffle will not be authorized unless the prize to be offered is in the organization’s possession or ownership. If the organization must post bond with the county clerk of the county in which the raffle is to be held for the full amount of the money value of the prize.
What advertising or promotion limitations exist?
State law does not allow advertising a raffle statewide. This limitation also applies to internet promotion of a raffle.
Nonprofits are also not allow to pay to advertise a raffle through a medium of mass communication. However, donated advertising is allowed.
Any advertising should be limited to a specific geographic area to avoid infringing on the law prohibiting statewide promotion of a raffle.
What information should be printed on each raffle ticket?
Organizations should ensure that these five details are on each ticket:
- the name of the organization conducting the raffle;
- the address of the organization or of a named officer of the organization;
- the ticket price;
- a general description of each prize having a value of more than $10 to be awarded in the raffle; and
- the date on which the raffle prize or prizes will be awarded.
Does the law restrict how proceeds can be used?
All proceeds from the sale of tickets for a raffle must be spent for the charitable purposes of the qualified organization.
What files or documentation should we keep in regards to the raffle?
Nonprofits should follow the conventional rules for recordkeeping. Keep receipts of any purchases for the raffle. Document donations and provide donors with a written acknowledgment of the donation.
What other nonprofit raffle rules or restrictions apply?
While organizations do not have to register with the state, they are subject to the following restrictions:
- A qualified organization may hold only two raffles per calendar year and only one raffle at a time.
- Raffle tickets may not be advertised statewide or through paid advertisements.
- No one may be compensated directly or indirectly for organizing or conducting a raffle or for selling raffle tickets.
If a raffle does not follow the law, it is considered an unauthorized raffle, which is considered gambling and in violation of the Texas Penal Code.
Does our nonprofit need to report anything to the IRS?
Yes. Since the prizes may be taxable to the winner, the nonprofit organization may need to report the winnings to the IRS. You may need to report this on the IRS Form W-2G and send a copy to the winner. This depends on the amount of the prize.
The nonprofit may have to withhold taxes of the winnings and report this to the IRS on Form W-2G.
And the nonprofit organization may need to file backup withholding. These rules are complex; we recommend you contact a specialist in your state.
Texas Attorney General website: Charities & Nonprofit: Charitable Raffles
Texas Attorney General website: Raffles in Texas: Know the Law
Texas Attorney General website: Raffles & Casino Poker Nights – Frequently Asked Questions