Nonprofit Rules for a Raffle in New Jersey

Raffles are a favorite method of raising funds for nonprofit organizations. However, this is not without issues in the state of New Jersey, where conducting a raffle is considered a form of gambling, and is strictly controlled by statute.

New Jersey laws allow nonprofits to organize raffles, casino nights and similar gaming activities if they obtain a license from the municipality where the raffle is to be held. The Legalized Games of Chance Control Commission administers the operation of raffles by nonprofits in the state.

The state of New Jersey allows certain, limited types of gaming by qualified nonprofit organizations. They must follow detailed licensing procedures as well as special restrictions on how the proceeds derived from permitted games of chance may be used.

For years, New Jersey did not permit nonprofits to use raffle profits to support themselves, and this was carefully monitored. However, as of 2021, the state removed the restriction that nonprofits were prohibited from using raffle profits for their general operations. That made the raffle process easier.

Most gaming permitted by New Jersey for nonprofit organizations is conducted in the form of bingo and raffles. This is authorized under the Bingo Licensing Law and the Raffles Licensing Law, together called the "bingo and raffles licensing laws."

These licensing laws provide a dual licensing mechanism. The state agency Legalized Games of Chance Control Commission first determines eligibility and then issues an identification number. The municipality where the raffle is to be conducted issues the license to a qualified fund-raising organization. Some municipalities do not permit gaming.

Gambling is not prohibited by federal laws, so every state has their own rules and regulations about this type of gaming. Different states have gambling laws that vary considerably among them. What about the state of New Jersey?

Anyone who has lived in New Jersey knows that Atlantic City could be called a gambling mecca, with its wealth of casinos. So it's hard to believe that the state is tough on gambling. In fact, the state of New Jersey has relatively permissive gambling laws that permit both casinos and betting on horse races.

On the other hand, the state insists on retaining some control by mandating state permits, perhaps to be sure it gets its share of revenues. A common gambling-based offense in New Jersey is operating a casino or other gambling institution without a state permit.

In New Jersey, gambling is defined as the risking of something of value on the outcome of a contest of chance or on a future event that is not under the person's control, with the understanding that the person will receive something of value in the event of a certain outcome. All gambling that is not permitted by state law is forbidden.

Raffles and bingo are considered gambling in the state if played for money. This is generally illegal, but explicit exceptions are made for charitable organizations and nonprofits. The right to put together gambling events called raffles is regulated by the Legalized Games of Chance Control Commission.

The Legalized Games of Chance Control Commission (LGCCC) is an agency in New Jersey charged with administering and monitoring the operation of games conducted under the Bingo and Raffles Licensing Laws. Some 12,000 nonprofit organizations and associations are registered in the state to conduct bingo games and raffles. They are of many types, including:

• Charitable.
  
• Educational.
  
• Religious.
  
• Patriotic.
  
• Public-spirited organizations.
  
• Senior citizen associations and organizations.

The Commission determines whether an organization is eligible to conduct legalized games of chance. It also registers qualified organizations and provides them with identification numbers and certificates of eligibility. It enforces the state's laws on charitable gaming, which is an $85-million-dollar-a-year industry in New Jersey.

Although the LGCCC is important in administering state laws, it doesn't license particular raffles; nonprofits with state identification numbers must still obtain licenses to hold a particular raffle from the municipality where the drawing will take place. Once a nonprofit has an identification number, it is eligible to apply to the municipality for a gaming license.

In order to get a raffle license in New Jersey, a nonprofit organization must apply for a license from the municipality where the raffle will be held or operated. The application form requires a description of the raffle and its rules, as well as designating a member who will be in charge.

The designated member is responsible for making sure that the laws are followed. They cannot have any criminal convictions and must, in general, be of good character. The time to complete the licensing varies among cities – it can take between several weeks and several months.

State raffle licensing laws impose limits on what can be won in a raffle. They limit the total value of the prizes that can be awarded in any one game. For example, no nonprofit organization may award a prize that has a retail value of more than $100,000 in any one raffle, and total prizes over a 12-month period cannot have a retail value that exceeds $500,000.

These rules are monitored by the Legalized Games of Chance Control Commission (LGCCC). The nonprofit that conducts the raffle is required to file a report of operations with the Commission in the month following the raffle that details the gross receipts, the expenses and the net profits.

The nonprofit must also detail in the report of operations how the funds were used and provide a list of prizes awarded. The Commission can fine any nonprofit that violates the rules.

Municipalities can also impose their own rules and limits and impose fees. For example, the town of Morristown uses these rules, definitions and fees for raffles:

• ​On-Premise Raffle 50/50:​ Applies to raffles with tickets sold only on the date of the drawing where the winner gets half of the money raised from ticket sales. Licensing fee: $20 if the cash prize is over $400; no fee if the anticipated cash prize is less.
  

• ​On-Premise Merchandise Raffle:​ Applies to raffles where tickets are sold only on the date of the drawing and no money prizes are awarded. The winner must be present to win. Licensing fee: $20.

• ​Off-Premise Raffle 50/50:​ In this type of raffle, tickets are sold ahead of the date of the raffle drawing. Winner receives half of the money from ticket sales and need not be present to win. Licensing fee: $20.
  

• ​Off-Premise Merchandise Raffle:​ In this type of raffle, tickets are sold ahead of the date of the raffle drawing and prizes do not include cash, but rather restaurant dinners, gift certificates, cars and trips. The winner need not be present to win. Licensing fee: $20 for each $1,000 in prize value or part thereof.
  For example, for a raffle with a prize of $800, the fees would be $20 each to the state and the town. The application for a license must include a sample ticket.

To summarize how a raffle works in the state of New Jersey, here is the sequence of events. First, the nonprofit obtains an identification number from the New Jersey Legalized Games of Chance Control Commission. Next, they complete an application with the municipality to hold a raffle there, then submit it to the clerk’s office, including:

• Four copies of license application, each notarized with original signatures.
• Check made out to LGCCC for the appropriate amount.
• Check made out to municipality for the same amount.
• Two sample tickets if tickets will be sold ahead of time.
• Certificate from the state with the organization’s identification number on it.
  

The municipal council considers the application, and if approved, sends it to the state and the 14-day waiting period for issuance of the license begins. If the state has no issues with the application, the license is issued two weeks from the date it is submitted.

After the raffle is held, a Report of Operations is completed and sent to LGCCC by the 15th of the month immediately following the month in which the raffle was held. If the occasion was an Off-Premise Raffle, a Printer’s Certificate must be filled out by the printer of the raffle tickets and sent to the state with the Report of Operations.

Raffles have been around for many years, but the concept of online raffles is a relatively new phenomenon. In a raffle, people purchase tickets hoping to win prizes, and the organizers pick a ticket at random to determine the winner. For example, nonprofits might offer a raffle for a dinner at a noteworthy restaurant, and the holder of the ticket drawn in the raffle will win that dinner.

Although raffles don't usually offer enormous potential winnings, raffles in general are considered to be gambling by the Internal Revenue Service for tax purposes. In fact, the IRS has promulgated rules for raffles that include both restrictions and reporting requirements. The goal is to make sure that the person who won the raffle pays taxes on the value of the prizes.

With the advent of online raffles, where people do not have to be present to win, New Jersey has imposed additional restrictions, so nonprofits should look at both federal and state laws before jumping into conducting fundraisers via online raffles. For example, the IRS has imposed a variety of reporting requirements for nonprofit raffles, whether online or not:

• Nonprofits must report raffle prizes exceeding a retail value of $600 to the IRS whenever the value of the payout to the winner is at least 300 times the amount of the wager. The nonprofit prepares Form W-2G, submitting the original to the IRS with a copy to the winner.

• The winner must report the prize as income using IRS Form 5754. The nonprofit is required to do backup tax withholding of 25 percent before making a lottery payout if the prize is over $5,000 in cash. This also applies to a merchandise prize with a fair market value of the prize is over $5,000.
  

• If the winner does not give the nonprofit their tax information, the organization must withhold 28 percent of the prize income.
  

• Note that nonprofits are generally exempt from federal income tax, but they still must pay income tax on revenues gained from raffles, termed "unrelated business income" because raffles are not substantially related to the nonprofit's exempt purpose.