You can legally raffle a car in most states, but only if a qualifying nonprofit runs it under a state-issued raffle permit, follows the state’s operating rules, and handles the federal tax withholding and reporting on the winner’s prize. Individuals and for-profit businesses generally cannot do this, even to benefit charity, and a handful of states do not allow raffles at all.
Who Can Actually Run a Car Raffle
A raffle combines payment, chance, and prize, which fits every state’s definition of gambling. States allow raffles as a narrow exception to their anti-gambling laws, and that exception almost always runs to nonprofit organizations only. For-profit companies and individuals are shut out in most jurisdictions, even when the plan is to hand the proceeds to a charity.
To qualify, the organization usually needs tax-exempt status under one of the IRS Section 501(c) categories, most commonly 501(c)(3) for charities, schools, churches, and educational groups.1Internal Revenue Service. Exemption Requirements – 501(c)(3) Organizations Many states also recognize 501(c)(4) civic leagues, 501(c)(7) social clubs, and 501(c)(8) fraternal organizations.2Internal Revenue Service. Publication 3079 – Tax-Exempt Organizations and Gaming
Beyond the tax-exempt letter, states typically require:
- A minimum operating history, ranging from one year to five years of continuous, active existence before applying.
- A charitable, educational, religious, or civic purpose in the group’s bylaws or articles, with raffle proceeds directed to that purpose.
- Good standing on state registrations, tax filings, and any prior gaming reports.
If your nonprofit is new, check the state’s minimum operating period before you spend time planning. Falling short of it is one of the most common reasons applications get denied.
Some states rule out a car raffle altogether. Alabama treats raffles as illegal lotteries with no nonprofit exception. Utah bans all forms of gambling. Hawaii permits entry only when participation is completely free, which is not workable for a paid ticket raffle. If your organization sits in one of those states, tax-exempt status won’t save the project.
Getting the Raffle Permit
Nearly every state that allows raffles requires a permit or license before a single ticket is sold. Depending on the state, applications go to the gaming commission, the attorney general’s office, the secretary of state, or a local municipal clerk.
Expect the application to ask for your organization’s tax-exempt status, event logistics, prize description, planned ticket count, ticket price, and how you’ll use the proceeds. Common attachments include the IRS determination letter, articles of incorporation, and sometimes financial statements from prior years.
Fees range from about $15 for a short-term license to several hundred dollars for a one-year permit. Processing runs anywhere from a couple of weeks to 30 or 60 days, and incomplete applications stretch that further.3Department of Inspections, Appeals, and Licensing. Charitable Gambling File early. A fixed event date with no permit in hand is a problem you don’t want.
Some states waive licensing below a gross-receipts threshold, but a car raffle will almost never fall under it. Confirm your state’s rules anyway, because other requirements sometimes shift at different prize levels.
Rules for Running the Raffle
Once the permit is in hand, the operational rules take over. The details vary, but the themes are consistent.
Tickets and Sellers
Tickets usually have to be sequentially numbered and sold at a single fixed price. Discounts, bundles, and variable pricing are prohibited in most jurisdictions. Many states restrict ticket selling to bona fide members of the organization, so paid or commission-based sellers are out. Online ticket sales are allowed in some states and prohibited in others, and the rules are changing quickly. Read your permit terms closely on this point.
The Prize
The car must generally be in the organization’s possession, or locked in through a binding purchase agreement, before ticket sales start. You cannot sell tickets on a prize you might not be able to deliver. Advertising and tickets must state the make, model, year, and fair market value of the vehicle. Some states also require the organization to state whether the winner receives the car itself or the option of a cash equivalent.
The Drawing
The winner must be selected by random drawing. Many states require the drawing to be conducted in public. Have an independent witness or a small panel oversee it, and document who drew the ticket, when, and where. Good documentation protects the organization if anyone challenges the result.
Advertising and Disclosures
Advertising must be truthful and carry the disclosures the state requires. Common ones include the odds of winning (or how they’ll be calculated from tickets sold), the ticket price, the drawing date, and the organization’s name and license number. Disclosing the tax consequences for the winner is good practice regardless of whether the state demands it.
Records
Keep detailed records of every ticket sold, all revenue, all expenses, and the prize distribution. Most states require a post-raffle financial report filed with the licensing agency. Even where it isn’t required, thorough records protect the organization during an audit and show that proceeds went where they were supposed to go.
Taxes the Organization Owes
Raffle income creates two tax concerns for the nonprofit.
Unrelated Business Income Tax
Gaming revenue can trigger unrelated business income tax when the activity isn’t substantially related to the organization’s exempt purpose. A church raffling a car to fund its food pantry is not running a car dealership, so on its face the income looks like UBIT territory. A key exception saves most raffles: if substantially all the work of running the raffle is done by unpaid volunteers, the income is excluded from UBIT.4Office of the Law Revision Counsel. 26 USC 513 – Unrelated Trade or Business The moment you start paying people to run the raffle or sell tickets, you put that exemption at risk.
Form 990 and Schedule G
Organizations that file Form 990 report gross receipts from gaming. If gaming revenue exceeds $15,000, the organization must also complete Schedule G, which itemizes the gaming income, expenses, and how the funds were used.5Internal Revenue Service. Instructions for Schedule G (Form 990) A car raffle will almost always clear that line, so plan on filing Schedule G.
Withholding and Reporting on the Winner
The vehicle’s full fair market value is taxable income to the winner on their federal return, and depending on the state, it may also trigger state income tax and sales or use tax at registration. Two federal duties fall on the organization.
Form W-2G
For 2026, the organization files Form W-2G when raffle winnings reach $2,000 and are at least 300 times the ticket price. Car prizes almost always beat 300 times a typical ticket price, so this filing will apply to virtually every car raffle. The $2,000 threshold is inflation-adjusted annually starting in 2026.6Internal Revenue Service. Instructions for Forms W-2G and 5754 (01/2026)
Federal Withholding at 24%
When winnings minus the ticket price exceed $5,000, the organization must withhold federal income tax at 24%. For a noncash prize like a car, the winner pays the organization 24% of the fair market value (minus the ticket cost) before taking the vehicle. If the organization chooses to cover the withholding on the winner’s behalf instead, the rate rises to 31.58% of the prize’s fair market value, because paying the tax becomes additional income to the winner.7Internal Revenue Service. Instructions for Forms W-2G and 5754 Decide in advance which approach you’ll offer and budget for it.
Tell winners plainly that the 24% is a prepayment, not the final tax. The prize’s fair market value gets added to their other income and taxed at their marginal rate, so a winner in a higher bracket will owe more at filing.
If a group bought the winning ticket together, the person receiving the prize completes IRS Form 5754 so the organization can issue separate W-2Gs to each person based on their share.8Internal Revenue Service. About Form 5754, Statement by Person(s) Receiving Gambling Winnings
Transferring the Car
After the drawing, the organization signs over the title as the seller, or has the dealer do so if the car came through a dealership. The winner takes the signed title, a bill of sale, and proof of insurance to the DMV to register the vehicle. Most states charge a title transfer fee and registration fee, and some collect sales or use tax at the counter.
Have the vehicle appraised or otherwise document its fair market value before the drawing. You need that figure for the W-2G, and the winner needs it for their return. For a new car, the dealer’s invoice or MSRP works. For a donated used car, use a reputable valuation guide and keep the documentation on file.
If You Have to Cancel
If ticket sales fall short or something else forces the raffle off the calendar, most states require the organization to refund every ticket buyer. When a buyer cannot be located after reasonable attempts, many states treat the unclaimed money as raffle gross receipts that must be reported. Some states allow postponement rather than cancellation when not enough tickets were sold to cover the prize cost, but the licensing agency typically has to approve the new date in advance.
Quietly canceling and keeping the money exposes the organization to complaints, regulatory action, and potential loss of its gaming license. If cancellation becomes necessary, contact the licensing agency right away, get written approval for the cancellation or postponement, and start the refund process.