New York charities win big with the Charitable Gaming Act of 2017

Fundraising in New York through raffles has been extremely limited by a very antiquated set of gaming laws, but that is soon to change.

Like charitable organizations across the nation, charities in New York are constantly reaching out to find new sources of income. These efforts often include raffles and other gaming incentives.  

On Dec. 19, 2017, the state assembly passed – and Gov. Andrew Cuomo signed into law – the Charitable Gaming Act of 2017 (the “Act”) which modifies and loosens the restrictions on the sale of raffle tickets by charitable organizations, among other changes. The law takes effect on June 18 to allow the New York State Gaming Commission time to make adjustments.

Raffles are considered a game of chance and currently fall under rules established by the state’s Gaming Commission. Prior to the passing and signing of the Act, charities in New York could only conduct raffles on a cash basis, which was impractical and restrictive. With the Act, authorized charitable organizations can publicize raffles online and accept payment for raffle tickets through internet sales, checks and other non-cash payment options. Under the Act, charities will also be allowed to accept debit and credit cards as a legitimate form of payment for raffle tickets, which was previously prohibited.

The Act and other recent changes will also impact charities by:

• Permitting charitable organizations to conduct games of chance in additional locations beyond their own premise.
• Reducing the number of years that a charitable organization must be in existence in order to conduct games of chance from three years to one year.
• Modifying forms and publications to allow for easier registration
• Lessening restrictions on advertising sources.
• Increasing the prize limitations for bell jars from $500 to $1,000.
• Increasing the aggregate prize for a bell jar deal from $3,000 to $6,000.
• Retaining the reporting of raffle operations for all raffles with anticipated net proceeds of more than $5,000 for a single raffle. A verified statement of raffle operations (GCVS1) prior to the raffle will be required. Net proceeds of more than $30,000 for cumulative raffles within a calendar year will require a license and financial reporting.
• Eliminating reporting for all raffles with anticipated net proceeds under $5,000 for a single raffle or under $30,000 for cumulative raffles within a calendar year. These raffles will no longer require a license or financial reporting.

In addition:

• Authorized charitable organizations will no longer be required to seek specific permission from each municipality in order to sell raffle tickets in a municipality in a contiguous county when that municipality has already generally authorized games of chance.
• All raffle ticket sales, including online, may only be conducted in municipalities that have passed a games of chance local law, ordinance or resolution and are located within the same county in which the authorized organization is domiciled.
• Raffle Consent Forms must be filed with the state’s gaming commission which will then submit the forms to each municipality on your behalf to obtain the requisite authorizations.

Charities still need to be aware of certain tax filing rules when conducting raffles. Rules governing “regularly carried on” activities still apply and may have a negative impact, especially in the area of unrelated business income. Charities also need to be aware of employment tax implications. A tax-exempt organization conducting gaming activities may be required to withhold income tax and report on IRS Form W-2G. (See IRS Pub. 3079, Tax-Exempt Organizations and Gaming.)

As noted above, the Act takes effect on June 18. That means this summer there will be many additional possibilities for New York charitable organizations and their fundraisers.

Robert Lyons, CPA, MST, is a tax director in the Nonprofit, Government and Healthcare Group at Marks Paneth LLP. Frances McKenna, MBA, joined Marks Paneth LLP in 2017 as a tax director in its Nonprofit, Government and Healthcare Group. She spent the prior twenty-six years of her career with the Internal Revenue Service.