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I have questions about an online raffle for a nonprofit

Customer Question
I have questions about...

I have questions about an online raffle for a nonprofit charity. I don’t know if it is legal.

Lawyer's Assistant: Can you tell me where the nonprofit is registered?

There are 2. One is Arizona and the other is California, I believe.

Lawyer's Assistant: Has anything been officially filed? If so, what?

No. Nothing has been filed. Can I tell you what the raffle is for? It’s pretty minimal. We just wanted to get a larger audience.

Lawyer's Assistant: Anything else you want the lawyer to know before I connect you?

I guess not.

Submitted: 2 months ago.Category: Business Law
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Customer reply replied 2 months ago
The raffle would be for 3 items. One would be for a room on a cruise called Cruise to the Edge. The normal cost would be maybe $2000. The other 2 items are meet and greet passes for 2 concerts in Philadelphia. Thats it.
Customer reply replied 2 months ago
The meet and greet passes are about $175/each.
Answered in 2 hours by:
5/26/2018
Business Lawyer: Attorney Wendy, Attorney replied 2 months ago
Attorney Wendy
Attorney Wendy, Attorney
Category: Business Law
Satisfied Customers: 1,383
Experience: Member at Keefer & Keefer LLC
Verified

Hello. My name is ***** ***** I am an attorney. The real tricky part of this is that the raffles are online, which I presume means anyone could enter them from any location. Thus, it is harder to ensure no laws are violated in the state in which the online raffle may be accessed. That being said, you could attempt to limit it to residents of certain states in order to ensure compliance. For example, California actually has an exception to its constitutional prohibition of such raffles for charities, as long as certain conditions are met (e.g., at least 90% of the proceeds must be used for the charitable purpose). You can learn more about the California exception for non-profits/charities here: https://oag.ca.gov/charities/raffles

In Arizona on the other hand, there is an exception for some non-profit small raffles (value less than $10,000) but is oddly applied only to some non-profits and not those that are traditional charities. You can read more about the odd Arizona exception - that likely does not cover your described raffle - here: http://charitylawyerblog.com/2010/08/01/arizona-law-change-new-small-raffle-exception/

I hope this information is helpful. If you need additional assistance, feel free to reply to this email. If I answered your question and provided excellent service, I would greatly appreciate your 5 star rating at this time.

Please note: This information is ​for educational purposes only and is not legal advice. No course of action is being proposed and no attorney-client relationship or privilege has been formed as a result of this conversation.

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Customer reply replied 2 months ago
Would the online raffle be legal if I only allow people to purchase tickets who are residents in states where such raffles are legal? If so, does a list like the one at https://chance2win.org/us-state-online-raffle-legal-rules/ work for me for reference?
Business Lawyer: Attorney Wendy, Attorney replied 2 months ago

It should be. I would take the time to do a search on each state you see there to whose residents you will offer the raffle to make sure the information on that site is up to date.

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Customer reply replied 2 months ago
What about the option of online bidding where no money is paid until the day of the event when a winner is announced? Is this less of an issue because no money is exchanged online?
Business Lawyer: Attorney Wendy, Attorney replied 2 months ago

Hmmm, that is an interesting question. If the person would have to pay in person at the event then you might be able to follow just the laws of the state where that event is being held. The key is likely where are the people who are "participating" in the raffle. In other words, if I can sit in my home in State X and participate but State X prohibits raffles that may be an issue; but if instead the online raffle clearly states that you must be present at the event to win or if it says you must be a resident of one of the following states to participate, you may be able to do that. Just know that each state is going to interpret laws and take slightly different views of the same conduct. One other option - depending on how large your event is - is simply to take donations online but announce the event and highlight that at the event there will be a raffle for these fabulous prizes. Since the goal is raising money, in other words, there may be ways to use the raffle to entice donations without actual participation in the raffle.

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Customer reply replied 2 months ago
Wouldn’t having people bid online be just like eBay? ... and I believe eBay is ok nationwide.
Business Lawyer: Attorney Wendy, Attorney replied 2 months ago

eBay is a auction sales platform not a raffle, which is treated more like gambling under state law. If the non-profit wants to sell items to raise money then you would have to ensure that retail sales are a permissible activity for that non-profit, which generally can be when conducted like an auction. Here the distinction is between a raffle - where people pay to enter and do not receive those payments back even if they do not win - and an auction. Auctions are used commonly by charities to raise funds, but as you indicate only the winner pays and that winner may be able to deduct part of that payment as a charitable deduction but often cannot because it is offset by the value of the goods or services received (the value of the item won) and typically in such scenarios the amount paid is less than the fair market value. That doesn't mean it is not a good way to raise funds, but an auction is legally different than a raffle because there is no "gambling" or risk - those participants pay nothing if they don't win the prize.

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