Raffles are a popular and effective way to raise money for causes. Among other things, raffles can expand the potential pool of donors to an organization. Individuals may like the idea of giving tangible goods instead of cash. Local businesses love to foster good will by contributing products, tickets, and other items to the raffle. Before running a raffle, a nonprofit must comply with California’s rules governing how they operate.
Nonprofits need a license to run raffles
California law requires organizations to obtain a license from the Attorney General’s Registry of Charitable Trusts before the raffle can be held. There are a number of hoops to jump through to receive a license. First, the organization must be eligible for a license. Not every organization can run a raffle legally in California. To be eligible for a raffle license, an organization must meet these criteria:
- It has been qualified to do business in California for at least one year prior to conducting a raffle. This can be measured from the date of the nonprofit’s incorporation, but note that the organization must have maintained good standing with the state by filing required reports on time. An organization that has fallen out of good standing will have to restore its good standing and wait a year before it conducts a raffle.
- It is exempt from California income tax. Only organizations that are exempt from taxation under California law can hold raffle licenses. The organization must be exempt from California tax under Section 23701 of the California Revenue and Taxation Code to qualify. Note that this measure is not concerned with the organization’s federal tax status.
Applying for a permit and complying with reporting rules
The process of submitting an application for a raffle license is fairly straightforward. Applications are submitted by mail and can take a couple of months to be processed. There is no option to pay more for expedited service. It’s therefore important for organizations to get going on this process as soon as possible once the decision is made to hold a raffle.
A registration requires three components: (1) payment of a $20 fee, (2) a completed Application for Registration (Form CT-NRP-1), and (3) an entity status letter from the California Franchise Tax Board (FTB). The FTB provides status letters for free online. Once the application is approved the Registry will issue a confirmation letter along with a permit number.
After holding one or more raffles within the permit year (September 1 to August 31), a nonprofit must submit an additional report to the Registry of Charitable Trusts. The form (Form CT-NRP-2) requires disclosure of receipts, costs, charitable uses of funds, and so on. It also requires the signing officer to certify to a range of things, such as that the proceeds of the raffle did not benefit an individual.
The Church Law Center of California can help organize your next raffle
The Church Law Center of California provides nonprofit governance counsel to religious and secular nonprofits. If your organization is thinking about holding a raffle we can help ensure compliance with California law. Call us at (949) 689-0437 or reach out to us through our contact page.