Why You May Want to Reconsider Games of Chance at Your Fundraising Events

By Molly Schaffer, CPA and Riley Petersen, CPA

If your nonprofit is hosting a fundraising event this year, you’ll want to think carefully about the activities you’ll include on the agenda: The Minnesota Department of Revenue’s (MNDOR’s) nonprofit fundraising sales tax exemption does NOT apply when gambling takes place at an event. Unfortunately, MNDOR’s definition of gambling is quite broad, which means activities you might think are safe could be gambling in the eyes of the state.

What happens if your fundraising event doesn’t qualify for the sales tax exemption?

If you cannot apply the exemption to your nonprofit’s fundraising event, you’ll need to collect sales tax on event admission tickets as well as any income from gambling sales. Not only is this an administrative hassle—noncompliance, even if unintentional, could put your organization at risk for tax penalties and interest.

To avoid falling out of compliance with the MNDOR as you plan your nonprofit’s fundraising events, here are a few things to keep in mind.

“Games of chance” count as gambling.

Wine pulls, raffle drawings, heads and tails—we’ve all played these and other so-called “games of chance” at events. However, MNDOR counts these as gambling, which means including them in your nonprofit’s fundraising event would cause your organization to miss the exemption.

Doing it for fun and not fundraising? It doesn’t matter.

Even if the gambling at your event is meant to only entertain guests and not to raise money, it could still cause your organization to lose out on the exemption.

The gambling requirement overrides the 24-day limit.

All nonprofit organizations in Minnesota that have 24 days or less of fundraising events in one year qualify for the sales tax exemption on fundraising sales. Nevertheless, an event that includes gambling will not qualify for the exemption—even if your organization has fewer than 24 fundraising events a year.

Make sure your organization is on the right track.

When planning your nonprofit’s fundraising events this year, it’s important to understand how the sales tax exemption’s requirements apply to your organization. If you’re unsure if an activity counts as gambling, or if you’re concerned about events you’ve held in the past, we can help. Our nonprofit advisors can review your future and past event itineraries to make sure your organization is on the up and up. Contact us today.