Q: We’d like to increase ticket sales for our raffle. To do this we are thinking about promoting it on our website. It certainly would make the sales process easier as well. Our one concern is if it’s legal.

 

A: That’s a good question, with no good – or at least no definitive – answer. There are several indicators that suggest you should go for it. There are others that raise some pretty big, bright red flags.

ON THE “GO FOR IT” SIDE

If you go net-surfing, you will find several companies such as RaffleSoft.com, Events.org, and TrueRaffles.com that exist to facilitate nonprofit raffles online. TrueRaffles.com is actually based in Florida. One would expect the site owners to have thoroughly vetted their business plans. [1] By extension, the individual nonprofit should be able to proceed either through one of these companies or on its own.

I also spoke to two different people in Florida’s Department of Consumer Affairs, the regulating body for nonprofits in the State. Both said conducting a raffle online was fine, as long as the organization was registered as a nonprofit with the State. When I raised the issue of such online fundraising reaching people from other states where the organization might not be registered, I was told the Internet could not be regulated so this should not be of concern. [2]

ON THE “MAYBE YOU SHOULD HOLD BACK” SIDE

RaffleSoft.com has a page on its website indicating those states that permit online raffles, those that do not and those for which no clear answer was available at this time. That page is updated as necessary.Florida and Illinois – for our readers there – fell into the category of no clear answer available.

Then there is the confusion at the Federal level. While traditionally, states have been free to set their own laws about gambling, the explosion of Internet gambling, which encourages activity across state lines, caused the Federal government to take back regulation in this arena. It has used the Wire Wager Act (1961) to successfully crack down on those engaged in online gaming, even though the law was designed for wire transmissions and passed prior to common use of the Internet. Typically, raffle participants have been given a pass because lawyers and legislators have successfully argued that the Wire Wager Act was drafted neither to catch the casual bettor nor to interfere in the placing of wagers in states where betting is legal. However, the official position of the Justice Department – at least during the Clinton Administration – and several state attorneys general is that the Wire Wager Act should be interpreted broadly and cover all forms of gambling.

Concerned about some of the loopholes found in the Wire Wager Act, the Internet Gambling Prohibition Act of 1999 was enacted to prohibit all Internet wagers. This includes contests or games of chance. Currently, on appeal, it is expected to come before the courts soon and engender heated debate. The safe “bet” might be to wait for the ruling on this case.

Finally, there is a question about whether income from games of chance is subject to the Unrelated Business Income Tax (UBIT).Here again, this may be of little real concern since UBIT generally does not apply to the occasional money-making activity. However, there is little doubt that a raffle conducted online is more likely to catch official attention than one promoted friend to friend.

This is clearly a case where each organization should make its own decision with the help of an attorney.

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[1] I must report that while these companies seem legitimate, when I called the phone number for TrueRaffles.com it was disconnected and when I emailed it and Events.org for information on the legality of what they were doing neither wrote me back.

[2] I raised the issue because historically Florida was in the forefront of surfing the net to find organizations outside the State seeking funds. If those organizations were not registered in Florida, the State would require that they become registered. The rationale: Florida residents could happen upon their sites and want to give money. It was the State’s responsibility to protect its citizens by ensuring the organizations were legitimate. This makes the response I received fascinating.