You know how there are certain things that everyone does so frequently, even though they’re incorrect, that people start to think they’re fine? Maybe they use “literally” to mean figuratively, or use “ambivalent” to mean that they don’t care about something? Nonprofit fundraisers are kind of like that. Many of them are flatly illegal, but, “Everybody’s doing it!” and they have become widely accepted, such that many people don’t even realize that what they’re doing could lead to serious consequences.
Raffles, in which tickets are sold and randomly selected winners receive prizes, and 50/50 drawings, in which half of the ticket sales revenue is awarded to the winning ticket holder, are both state-regulated activities in most places. In Pennsylvania, the Local Option Small Games of Chance Act allows certain eligible nonprofits to run these types of activities if they are licensed.
Because it is such common practice to pick up a roll of raffle tickets at some store and run a drawing to raise money, many people never realize that these activities are regulated, and don’t even know that they are doing anything wrong. However, in Pennsylvania, a violation of the act could mean a $1,000 fine for the organization (along with a prohibition on conducting games for a set period) and criminal charges for an individual.
Most nonprofits fall into the category of “eligible organizations” permitted to apply for a games of chance license with your local authority, but there are a few issues that might stand in your way. Your nonprofit must have been in existence and fulfilling its purpose for at least one year, and you must have the necessary documentation to prove that. You will also need to provide articles of incorporation and an IRS tax exemption approval letter, which a well-organized nonprofit should keep copies of on hand in any case. If you are renting or leasing the space where the drawing will be held, you will need to provide that written agreement, as well. Local fees are fairly affordable, priced at $25 for a month-long license, and $125 for a year-long license.
Once you receive your license, you will have to document the money you make and how you spend it, as there are record-keeping requirements, reporting obligations, tax implications, and various stipulations as to how much of the money may be spent on operating expenses. A nice primer is available from the Pennsylvania Department of Revenue.
It may seem burdensome to comply with the licensing process and the requirements that accompany it, but it is always better to do things the right way than to try to fix problems after they’ve already arisen.
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Please note: This blog is intended as general educational information only, and should not be considered legal advice or a substitute for consulting a lawyer.