Wednesday, November 5, 2014

Cloth Diaper Raffles: are they Legal?

Raffles Are Not Illegal

Raffle: “A lottery in which the prize is won by one of numerous persons buying chances.” [1]

It seems that raffles have gotten a bad rep on Facebook and amongst cloth diapering forums online. A lot of people seem to be under the impression that raffles are illegal, or that all raffles are scams. Raffles are only illegal when conducted without proper authorization or not in accordance with state law. However raffles are legal in most states when they are conducted for charity, with 90% of the profits from the raffle going to a tax-exempt organization, that is, a nonprofit organization qualified under section 501(c) of the Internal Revenue Code.[2]

There are 29 different types of nonprofit organizations. This means the organization could be classified as a 501(c)(1) all the way through 501(c)(29) organization. 501(c)(3) being the most common, and encompassing “Religious, education, charitable, scientific, literary, testing for public safety, to foster national or International amateur sports competition, or prevention of cruelty to children or animals organizations.”[3] 501(c)(4) ‘association’ organizations are probably the second most well-known and common type of nonprofit. The Real Diaper Association is a 501(c)(4).

Of course, even when an organization does have this designation, and therefore does qualify to conduct a charitable raffle, there are certain rules that must be followed. And as with all things, there are pros and cons to choosing to conduct a raffle vs. a different kind of fundraiser. In this article I will attempt to shed some light on this matter, and perhaps lift the veil of uncertainty and confusion that has shrouded the subject of online raffles for too long.

Raffles are not inherently illegal, and in fact many Great Cloth Diaper Change hosts regularly conduct raffles at their individual GCDC locations annually.  Most states will allow you to raffle without a license, provided you are representing a nonprofit and comply with all other specifications of their law. Other states require raffle conductors to obtain a raffle license prior to conducting the raffle, to have on-site should any law enforcement like to stop by and check that such a license in on file. The tax-exempt organization that GCDC hosts are conducting their raffles for is the RDA, the Real Diaper Association, and applicable paperwork (the IRS designation letter) is required to be included in any license application.

Charitable Raffle Laws are Governed State-by-State

Every state in the entire United States has different laws regarding this, so it is necessary to check your own jurisdiction’s laws, and not go based off what your best friend says she does in the next state over.

Licensing and/or enforcing state raffle law is the responsibility of many various state agencies. In Georgia for example each county’s Sheriff’s Department grants licenses. In Michigan raffle law is enforced by the Charitable Gaming Division, in Texas the Attorney General’s Office, and in Oregon the Department of Justice.

To find out if you need and where to get a license application to fill out, and who to submit it to, call your state agency that is in charge of raffle law, or look at their website online. Many agencies now offer downloadable .pdf applications on their website that can be printed out and mailed or faxed to the office. If possible before you make that phone call and fill out that application, thoroughly read the statute pertaining to your state’s Charitable Raffle Law, and abide by all of its stipulations.

Alabama, Kansas, Hawaii, and South Carolina do not allow charitable raffles at all. NO ticket sales may be issued to buyers in those states.[7] Of those states that do allow raffles, all state Charitable Raffle Laws require that the organization conducting the raffle(s) is a 501(c) and some also require that said organization has been established and conducting its charitable purpose for 1-5 years. Texas wants you to have been in existence for at least 3 years.[8] Georgia requires that your nonprofit will have been in existence for at least 24 months.[9] Some states are more demanding than others.

Some of these applicable state statutes may only allow 2 or 3 raffles to be conducted by the organization per calendar year, and if a third is conducted it is conducted illegally. This means, unfortunately, that in some cases it’s not legal to conduct multiple raffles for single diapers and gift certificates over the course of several months, even though that makes a lot of sense from a fundraising standpoint. For example this is true of Texas’ Charitable Raffle law, which states that “a qualified organization may only hold two raffles per year.”[10] I called the Chatham County Sheriff’s department to verify that there is no limit on the number of raffles that may be held per year in Georgia, so long as an organization renews its license in order to continue conducting raffles in subsequent calendar years.[11] I called the Michigan Charitable Gaming Division to inquire if they also allow only a limited number of raffles to be conducted per year, and they do not. An organization may conduct an unlimited number of raffles so long as their license is granted and current.[12] I called the Oregon Department of Justice when I read that their application for a class B raffle license required a non-refundable $40 application fee! But found out that that is only for raffle conductors who expect their annual ticket sales will exceed $10,000. There is no limit to the number of raffles a nonprofit is permitted to conduct, so long as their gross ticket sales do not exceed $10,000. Once they do they would be in violation of the law if they did not obtain the class B license.[13] So far Texas is the only state I know of that places a limit on the number of raffles allowed per calendar year.

If an individual, business, or any organization that has not received a 501(c) status conducts a raffle online, a District Attorney could find them in violation of his/her jurisdiction’s local Charitable Raffle Law and then they could be found guilty of a misdemeanor, along will all of those helping to coordinate the raffle and possibly those participating in it too. However, this would take some skillful interpretation of a law that doesn’t specifically state anything about raffling online, not to mention that it would be highly unlikely for a D.A. to care about small fish in the first place.

So that covers real live local raffles, and those don’t seem to have a bad rep anyway, considering most GCDC hosts conduct them and most GCDC participants participate in them without a second thought or question.

The lines become blurred, however, once you venture into the world of online raffling. Why would you want to conduct an online raffle? Is it legal to conduct a raffle online? How do you obtain a raffle license if you are operating online in no particular jurisdiction? In what manner and using what programs (software or websites) is one permitted to conduct a raffle? How do people pay for tickets if they can’t hand you cash in person? Since only non-profit organizations may conduct raffles, would one ever have to charge sales tax on raffle ticket sales?

Why would you want to conduct an online raffle?

Raffles are a ‘better’ fundraising tool than auctions for some items, especially LE and OOAK items, because lots of people have the chance to ‘win’ the item by buying tickets for that chance. If you were auctioning off an LE diaper that is valued at $40, and no one is really willing to pay more than $45 for it even for charity, then you aren’t going to make more than $45. If you raffle that diaper, you could make well over $100. The same goes for gift certificates. No one is going to bid higher than 90% of a gift certificate’s value in an auction. Even that is unlikely. Usually bids on gift certificates get to about 75% and then stop. If you raffle that gift certificate, however, you could get double or triple its actual value.

From an organization’s internal standpoint, this is all about maximizing resources, and being resourceful with the resources they do have.

Is it legal to conduct a raffle online?

Yes, if you are an IRS-designated tax-exempt nonprofit organization! If you are, you are exempt from online gaming laws. You may conduct online raffles.

As with in-person raffles, states that require a license will still require you to fill out and submit a form in order to obtain a license in order to conduct a raffle online. Other states allowing raffles simply require that you abide by their applicable laws, and they won’t bother you unless you break them.

Since the advent of the Internet as a social marketing and fundraising tool is relatively recent, this subject has no specific law recorded governing raffling ONLINE, and absolutely ZERO precedent in any court of law.[4] I could not find a single source of information stating that raffling online is governed by any state or local law. The only slight connection to any actual law would be that the “Federal Wire Wager Act” has wording in it which would indicate that any regular inter-state wagering or betting for profit over ‘wire communications,’ in this case the Internet, is illegal.[5] Some courts have declared that this only applies to sports betting, and not any other type of online gaming, but it may be best not to engage in this activity on any ‘regular’ basis, just to be on the safe side.

How do you obtain a raffle license if you are operating in no particular jurisdiction?

If you are conducting a raffle for a local organization with its headquarters in one county and its operation in only one state, selling tickets to buyers living only in your state, figuring out the legality of what you are doing won’t be too hard.

If you are conducting an online raffle for a local site or chapter of a National organization, benefiting only that local site, then you should follow the raffle law for the state in which you, the raffle conductor, currently live.

If you are conducting an online raffle for a National organization with no clear headquarters and the funds raised will be benefiting multiple chapters of your organization in multiple states, then you should still follow the raffle law for the state in which you currently live.

Since Cloth for Everybum operates via local sites in many different states, and since different states have different regulations regarding the operation of online raffles, it was necessary for us to read all of the state statutes in which we have a presence, or “nexus.” [6] When conducting our National raffle, selling tickets online to buyers all over the country, we had to ensure that we were only selling tickets to buyers in states where charitable raffling is legal.

The safest route will be to open your raffle up only to ticket buyers within your state. If you want to open it up to ‘everyone,’ just be sure to exclude the states where raffling is illegal, or at least be sure not to accept payments for tickets from ticket buyers living in those states. This is why you may often see the statement “Void where prohibited” written ‘in the fine print’ at the end of sweepstakes’ rules.

In what manner and using what programs is one permitted to conduct a raffle?

Facebook seems to be where people are at these days, so wouldn’t it be most convenient, and generate the most profit, to be able to conduct a raffle on Facebook? Yes, and it’s perfectly okay to do so. Facebook only requires that you do 4 things.[14]
1.     Write and print publicly a disclaimer stating that Facebook is in no way responsible or liable for your raffle, raffle ticket sales, raffle item winners, or items that have been won.
2.     Use an app; do not post a raffle on Facebook directly
3.     Do not announce the winner of the raffle publicly on Facebook. Anywhere. Not even on your personal timeline or your friend’s mom’s dog’s personal timeline. Linking to a blog post that announces the winner is OK.
4.     Notify the winner of the raffle directly, via phone or email.

As long as you abide by these four rules, conducting a raffle on Facebook is okay with Facebook!

Cloth for Everybum has used the app Rafflecopter that can be linked up under the Giveaway tab on a Facebook Page. Rafflecopter is ironically not intended to be used for Raffles.[11] It is a misnomer. It is most commonly seen being used for giveaways on blogger sites and Facebook Pages, but technically it is legal to use Rafflecopter for fundraising raffles.

It is a little difficult to adapt the Rafflecopter Setup to an actual raffle vs. a giveaway. If you will be collecting ticket sales via PayPal, one of your entries will have to be asking for the ticket buyer’s PayPal address, so that they can be invoiced. If they want to buy more than one ticket, they will have to click additional entries in order to get their additional tickets. If buyers do not click for their own additional entries, they cannot be invoiced and given additional tickets because Rafflecopter will not “see” and count entries manually added by an admin at the time it is choosing a winner (powered by So you can see how Rafflecopter can become a problem. There are also several glitches that have not been worked out yet, regarding entries not being recorded in the Rafflecopter “snapshot” of entries, or only partial entries being recorded.

Rather than mess around with Rafflecopter, the Cloth for Everybum fundraising committee has found that simple Google Forms work much better, so I would recommend you use a Google Form to collect raffle ticket entries. You can get the embed link and embed it onto your website, and then you will have a simple url link to send people to, rather than a very long and cumbersome Google form link. Simply login to your Google account if you have one, or create one if you don’t. Then click on “create form” and type in all of the text or multiple choice questions that you need to ask your ticket buyers/entrants. There can be a question asking for their PayPal address, and another asking how many tickets they would like to buy, and then you can invoice them for that cumulative ticket amount.  No need to click on extra ‘entries’ individually! The answers will be populated into a spreadsheet for your ease of viewing.

There are also websites that offer raffling services for proven nonprofits, such as,, and These companies do, however, charge a fee and/or take a percentage of your ticket sales. So if you are a very small nonprofit, or can’t afford to lose that much of your profit, you will have to conduct your raffle using Google, Rafflecopter, or some other free program you can find.

How do people pay for tickets if they can’t hand you cash in person?

If they cannot hand you cash in-person, people will have to pay either via check sent in the mail, WePay, or PayPal invoice. PayPal invoice is the fastest, most convenient, and safest way to collect ticket sales.

If you are conducting an online raffle, you most likely already know how to create a PayPal invoice. If you have a PayPal business account and you are gifting or getting gifted money too often, PayPal will notice and either send you a warning if they are feeling nice today, or simply freeze your account. When your account is frozen you can’t touch your money – it is put on hold until you call PayPal and resolve whatever they perceive to be the issue. Sometimes no matter what documentation you give them or what hoops you jump through, your account will remain frozen for months. Avoid this by always invoicing for any type of sale! Invoicing also protects the buyer. Of course they trust you, but invoicing at least makes them feel protected in case of anything. If something should happen to an item you are selling to them, and you aren’t willing to reimburse them, they can file a claim. If they gifted you the money, they can’t.

When invoicing, be sure to calculate and include PayPal fees into the amount invoiced.[15] You don’t want to be charging even a minimal $2 raffle ticket at $2 even and then only actually be getting $1.65. That is not cool. A lot of little $2 tickets like that will add up to be quite a chunk of profit lost out of what you should be making. $2 raffle tickets should cost $2.37. 2 raffle tickets should cost $4.43. And so on.

Do you have to charge sales tax on raffle ticket sales?

Yes. Sometimes. If you have a nexus in a state that does not exempt non-profits from state sales and use tax (like Georgia…), you also want to make sure you are calculating and charging sales tax prior to clicking “send” on an invoice.

If you have a physical storefront or are operating your raffle from a physical location or at a specific event, then you will be charging everyone who comes in to buy a ticket the same tax rate for the county it is located in. If you are selling tickets online, then you will have to obtain each ticket buyer’s county of residence in order to charge them the appropriate sales tax rate.

Each county has its own sales and use tax rate.[16] In order to know which jurisdiction’s tax rate to charge, require entrants to record either the county and state or the zip code where they reside. So the entry data in your Google Form will include: Name, PayPal address, number of tickets they want to buy, and zip code. [17]

If you only have a Sales and Use Tax Account set up in one state, then you may only need to be charging and filing sales tax for that one state. If you have a presence in multiple states because you are a multi-state or National program, like we are at Cloth for Everybum, then you need to be charging and filing sales tax for all of the buyers living in states you have accounts in. If you do not have a nexus in a state, you do not need to be collecting sales tax from customers in that state. “This rule is based on a 1992 Supreme Court ruling in which the justices ruled that states cannot require mail-order businesses, and by extension, online retailers to collect sales tax unless they have a physical presence in the state.”[18]

You will want to familiarize yourself with your local tax laws. Some states do not even have a sales tax at all! These are Alaska, Delaware, Hawaii, Montana, New Hampshire, and Oregon. If you live in one of these states, you are in luck because you don’t have to worry about charging or filing sales tax at all.

It is said that “in this world, nothing can be said to be certain except death and taxes,” however I’ve been uncertain about taxes so many times, I’m quite certain that they are not even close to being certain!  

I hope that clears up the confusion surrounding online raffles. Perhaps now that this educational piece has been published, group admins can be less wary of and hostile towards nonprofits who are looking to advertise via admin-approved posts about their online raffles. Perhaps individuals who are potential ticket buyers can be less skeptical of legitimate nonprofits advertising online raffles, and realize that they are not all scams. Sometimes they really are just smart fundraisers that give everyone a chance to win some really cool stuff.

[4] Personal communication, Attorney General’s office, Kroviak, C. July 2, 2014
[11] Personal communication, Sheriff’s Department of Chatham County, Brown, D. October 21, 2014
[12] Personal communication, Michigan Charitable Gaming Division, October 21, 2014
[13] Personal communication, Oregon Department of Justice, October 21, 2014
[14] Personal communication, Rafflecopter Support, Josh, July 3, 2014

Authored by: Stacy Mojica is an accredited Real Diaper Association leader, founded the Low Country Real Diaper Circle, Sun City Real Diaper Circle, and Cloth for Everybum, Inc. She has two daughters; born in 2011 and 2012. Stacy has a degree in English and ran a small artisan cloth diaper shop via Etsy for one year, but has made her career in cloth diaper advocacy and education. Stacy has a tendency to hyper-focus.  Give her a coffee and a kid-free hour and she will do amazing things!

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