Raffles, Drawings and AuctionsJune 6, 2013
Raffles are not allowable Baylor activities. The definition of a raffle is the award of one or more prizes by chance at a single occasion among a single pool or group of persons who have paid or promised a thing of value for a ticket that represents a chance to win a prize. Baylor is required to report all revenue as a matter of public record, and as a Baptist University, has chosen to not conduct raffles thereby eliminating the need to report raffles as a source of revenue.
Additionally, Texas law closely regulates certain fundraising activities involving raffles. These regulations limit the number of raffles that can be conducted in a calendar year by a charitable organization and place restrictions on how a raffle is to be conducted. Failure to fulfill these regulations is a Class A misdemeanor under the Texas Penal Code. Participating in an unauthorized raffle is a Class C misdemeanor.
Silent and live auctions can be conducted, but certain rules must be followed. Under federal tax rules, in order for the University to be able to receipt a portion of the winning bid as a charitable contribution, bid sheets presented to purchasers must list the fair market value (FMV) of the auction items so that purchasers are aware of the true value of the items and can make a conscious decision of whether or not to 'make a gift' by purchasing the items for more than the FMV. A buyer will receive a charitable donation receipt for the amount paid over the FMV listed for the item. Anyone holding an auction for Baylor University must coordinate with the Development Department and the Tax and Compliance Office prior to the auction.
Under Texas rules, sales tax is required to be collected on the final purchase price (winning bid) of most items. Sales tax can be backed out of the winning bid as long as the bid sheet communicates to the purchaser that the final purchase price includes sales tax. Auction organizers should contact the Tax and Compliance Office to determine the taxability and/or value of every item to be auctioned.
Door prize drawings are allowable in certain situations. All guests must be eligible for drawings equally without having purchased anything special or done anything special in order to be 'eligible' for the drawing. Attendance must be the sole requirement for a chance to win the prize.
Prizes/awards for drawings, tournaments, or competitions:
If total value of a prize/award received by a resident of the U.S. is $600 or more, then Baylor will be required to report the value of the prize/award on a Form 1099-MISC.
If the recipient of the prize/award is a nonresident alien, then the University will be required to report the prize/award to the IRS regardless of amount. In addition, the University may be required to withhold 30% of tax on the prize/award.
Due to these requirements, a Form W-9 or W-8BEN (nonresident alien) must be completed by each winning participant. The only exception is if the prize/award is a non-cash item that is low in value (less than $100) and such prize/award is provided on an infrequent basis.
In-kind donations: The donor of 'in-kind' donations (decorations, supplies, etc.) may receive an in-kind charitable donation receipt for items donated. Baylor University departments seeking donation of in-kind goods must coordinate with the Development Department prior to any solicitations if they anticipate providing donation receipts.
Please be sure to direct further questions to the Tax and Compliance Office or the Office of General Counsel. Thanks to the Tax and Compliance Office for its role in preparing this news article.