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Is a Raffle Legal in California

Everyone loves a raffle. It`s a quick way to fundraise, and it seems like a great way to support everything from the school`s APT to the local humane society. Raffles are among the most popular fundraisers for nonprofits nationwide. But in California, the rules for raffles are stricter than in most other states. If you don`t know the rules, it`s easy for your nonprofit to accidentally break the law. These rules still prohibit 50/50 sweepstakes for most organizations that are popular in many jurisdictions. But in California, only major sports organizations are allowed to hold 50/50 raffles. See California Code § 320.6 (2019). Prior to the 1980s, lawmakers left California gambling establishments largely unregulated. The legislature finally ruled in the Wild West of gambling with legislation in 1984 and the Gambling Control Act of 1997. Eventually, California voters agreed that the pendulum had swung too far, creating an exemption from gambling bans in 2000 that allowed raffles for charity. Selling tickets and saying that you give away a free ticket “on demand” does not meet these requirements and is truly a raffle.

In any case, prizes awarded in an occasional sweepstakes are treated the same in the eyes of the IRS as prizes won in a sweepstakes (more on that later). The sale of tickets is not a charitable donation as it represents the purchase of a chance to win and is considered a 100% consideration. You must indicate on the tickets that “the ticket price is not tax deductible”. If a not-for-profit organization is established after 1. September of each year, but wants to sell tickets before September 1 of this year, the organization must register for both years. An organization must submit the draw entry form (Form CT-NRP-1) and the registration fee at least 60 days prior to the scheduled draw date to give Registry staff sufficient time to process the form. The registry does not confirm receipt of contest entry forms. An organization that wants confirmation that the registry has received a form must submit the form to the registry by requesting a “certified receipt,” a service available at the U.S. Postal Service. In general, lotteries are prohibited in the United States unless they are organized by state governments.

However, some states make exceptions for raffles that follow carefully defined rules. Under California law, a “sweepstakes” means: Jane Triton buys a ticket for $1. She won a cash prize of $6,000. Since the proceeds of their participation are more than $5,000 ($6,000 minus $1), we must withhold $1,599 ($5,999 times 25%) of the profits. If you plan to draw 1) items over $600 in FMV or a cash prize over $600 and 2) if the prize is 300 times higher than the “bet” (the prize for a raffle ticket), the Foundation is responsible for reporting the prize winner, their Social Security number, and the value of the prize to the IRS. If we learn of the existence of a sweepstakes after it has taken place, we do not apologize for complying with state and federal regulations. If a tax return is required or if we were responsible for collecting the withholding tax, we cannot use ignorance of the law as justification for non-compliance. We have to comply with that, even if it is retrospective. This could create an embarrassing situation for the department to ask donors for Social Security numbers and inform donors that their prize winnings will be transferred to the IRS. First, we no longer recommend holding occasional draws on the advice of the Office of the President (“PO”), as most casual draws are in fact sweepstakes governed by the State CA Act (Section 320.5 and related regulations).

In addition, your sweepstakes must be registered with the UC San Diego Foundation in accordance with the OP Policy. Raffles cannot be registered in the name of The Regents (a campus foundation can register). You must therefore ensure that you use the UC San Foundation`s tax identification number from the application/invitation. Responsibility for the accurate and timely completion of the financial report rests with the department conducting the random draw and must be transferred to the Chief Financial Officer of the UC San Diego Foundation and certified by the Chief Financial Officer. In California, it is a crime to run a lottery. The only exception to this constitutional ban is a lottery that gives 90% of gross proceeds directly to charities in the state. No more than 10% of the product can carry out the draw, including the payment of winnings. Additional raffle requirements include: All raffles must comply with the “90/10 rule” whereby 90% of proceeds must be used for charitable purposes and only 10% of proceeds may be used for raffle winnings or expenses. Of course, this is very difficult to achieve, unless all or almost all of the prices are given in addition to the proceeds from ticket sales. You may remember the “50/50” raffles where you give 50% of the raffle prize to the winner? It is now illegal in California for a nonprofit to act under these new rules. They do not comply with the 90/10 rule.

So, if you plan to buy prizes or give money from the proceeds from the sale of raffle tickets, it is very likely that you will not be able to comply with the 90/10 rule. Under state law, all sweepstakes must be registered with the State of California at least 60 days prior to the contest. The UC San Diego Foundation (“Foundation”) will file an annual registration statement covering all sweepstakes for one year (the state`s fiscal year runs from September 1 to August 31). In addition to filing a registration statement, a financial report must be submitted to the state for each raffle. Download the report (PDF). The IRS has 1) reporting requirements and 2) withholding tax requirements for raffle prizes. As mentioned earlier, the Federal Taxation Act requires different tax rates for different types of prices. In addition, there are special tax forms that must be collected by the winners of the sweepstakes, as well as other forms that must be submitted to the IRS within a certain time frame. It`s always a good idea to consult with a lawyer before holding a nonprofit raffle in California to ensure compliance with the law.

Jane Triton buys 1 ticket for $20. Your ticket wins the draw and receives a prize valued at $1,000. We must comply with state and federal laws when conducting occasional sweepstakes or sweepstakes. If we have an actual draw (giving chances to win), we can avoid having to submit a financial report to the state.