Looming Registration and Reporting Deadlines for Nonprofit Raffles: September 1 and October 1
Many charities embrace raffles as a fun and lucrative way to raise money. A lot of them aren't aware that raffles constitute illegal gambling, unless the requirements of the Penal Code are met. If not, the charity is committing a crime by offering a raffle. And that would certainly take all the fun out of it. Two important deadlines for legal operation of a raffle are right around the corner: September 1 and October 1 are the important dates to remember if your charity plans to hold a raffle.
There is an important exception from raffle registration in Penal Code section 320.5, subdivision (m): Registration is not required if all tickets for a drawing are free, solicitations of voluntary donations to the organization are in no way connected to distribution of tickets, and this is made clear to all participants. But if a "donation" is required in return for a ticket, then the raffle is not exempt.
A nonprofit that wants to sell raffle tickets and does not want to give them away must meet the strict requirements of the Penal Code to avoid illegal gambling:
- Only eligible private, tax-exempt nonprofit organizations qualified to conduct business in California for at least one year prior to conducting the raffle may conduct raffles to raise funds for the organization and charitable or beneficial purposes in California. Eligible organizations are charities and religious or other organizations that have been granted tax-exempt status by the Franchise Tax Board under Revenue and Taxation Code sections 23701a (labor, agricultural, or horticultural organizations other than cooperative organizations), 23701b (fraternal orders); 23701d (corporations, community chests, or trusts operating exclusively for religious, charitable, or educational purposes), 23701e (business leagues, chambers of commerce); 23701f (civic leagues, social welfare organizations, or local employee organizations); 23701g (social organizations), 23701k (religious or apostolic corporations); 23701l (domestic fraternal societies); 23701t (homeowners' associations), or 23701w (veterans’ organizations).
- At least 90 percent of the gross receipts generated by the sale of raffle tickets for any given draw must be used by the eligible organization for charitable purposes. For example: An organization raised $100 in ticket sales. It would be required to spend $90 of that amount to further its charitable purposes, and only $10 could be used to help pay for expenses (including the raffle prize) or operating costs associated with conducting the raffle.
- The organization is not precluded from using funds from sources other than the sale of raffle tickets to pay for the administration or other costs of conducting the raffle. However, the organization shouldn't use restricted assets, or use unrestricted assets that might result in losses to the organization.
- 50/50 raffles, in which 50 percent of ticket-sale revenue is awarded as the prize and 50 percent of the revenue is retained by the organization conducting the raffle, are illegal because 90 percent of the gross ticket-sale revenue is not used for charitable purposes.
- There is no legal limit on the value of raffle prizes.
- The nonprofit must register its raffles with the Attorney General's office in advance, unless it is a religious organization, educational institution, or hospital.
- Although religious organizations, educational institutions and hospitals are exempt from the registration and reporting requirements, they must still comply with all other provisions of Penal Code section 320.5.
- Raffle registration is a separate requirement, additional to regular charity registration.
- A raffle registration is valid from the date registration is issued through August 31. Raffle registration must be renewed annually, on or before September 1 of each year in which the organization wishes to conduct raffles.
- The organization must receive written confirmation of registration before conducting any raffle activities, including the sale of tickets. Raffle registration forms are available on the Attorney General’s Website at Charities Forms, or may be requested by mail, fax, or telephone.
- Depending on volume of registration applications received, staff may not send confirmation of registration for up to 60 days after receipt of the registration application.
- The nonprofit must comply with reporting requirements with respect to raffles offered. A report for all raffles conducted during the reporting year (September 1 through August 31) must be filed by October 1.
- Record-keeping must be sufficiently detailed in order to complete the Nonprofit Raffle Report form (CT-NRP-2), which asks for the date and location of each raffle held, total funds received from each raffle, total expenses for conducting each raffle, the charitable or beneficial purpose for which raffle proceeds were used or the amount and organization to which proceeds were directed.
- An aggregate report is required for all raffles held by the organization during the reporting year. The report must be filed with the Registry of Charitable Trusts at any time after the conclusion of a raffle, but no later than October 1 of each year for activities in the current registration period.