A disturbing new trend has been developing on Facebook: raffling off animals. For example, a well-bred registered Quarter Horse yearling was recently offered for sale through a raffle on a local North Carolina equestrian page. The seller offered 100 spots, each selling for $40. Bidders paid the seller directly through PayPal for a slot, and when all of the slots were filled and paid in full, the seller held a random drawing and a winner was announced. The winner got herself a yearling for $40 and the seller pocketed $4,000 for a horse she struggled to sell through traditional avenues at a lower price.
Does this new sales trend seem too good to be true? It is. In most instances, it violates Facebook and PayPal rules, as well as state gambling laws. It also implicates tax issues and raises animal health concerns.
A raffle is a form of gambling. Most states regulate raffles and online gambling. For example, in North Carolina, where I practice, a “raffle” is defined as “a game in which the prize is won by random drawing of the name or number of one or more persons purchasing chances.” N.C. Gen. Stat. § 14-309.15(b).
North Carolina permits only non-profit organizations and government agencies to hold raffles, and those raffles are subject to certain restrictions. N.C. Gen. Stat. § 14-309.15(a). Any person who conducts an impermissible raffle is guilty of a Class 2 misdemeanor. Id. Thus, unless you are a non-profit organization or a government entity, raffling off your animal online is most likely illegal in North Carolina.
Further, because the IRS considers a raffle to be a form of lottery or gambling, there may be reporting requirements and tax withholding requirements. See IRS, Tax-Exempt Organizations and Raffle Prizes – Reporting Requirements and Federal Income Tax Withholding, Notice 1340 (March 2005), available at https://www.irs.gov/pub/irs-tege/notice_1340.pdf.
Both Facebook and PayPal also have rules regarding raffles. Facebook’s guidelines state that “Pages, Groups, and Events must not facilitate or promote online gambling, online real money, games of skill, or online lotteries without our prior written permission.” See Facebook Policies available at https://www.facebook.com/policies/pages_groups_events/. Raffles are not permitted on personal Facebook timelines. Id. PayPal also requires pre-approval to accept payment for activities involving “gambling, gaming, and/or any other activity with an entry fee and a prize.” See PayPal’s Acceptable Use Policy, available at https://www.paypal.com/va/webapps/mpp/ua/acceptableuse-full. PayPal also prohibits the use of its services for activities that violate any law, statute, ordinance or regulation. Id.
Of course, there are also concerns about where your animal may end up when raffled off. Someone who bought a horse for $40 is far less likely to invest in maintaining its health and well-being than someone who bought the horse for $4,000. Thus, before you decide to list your horse for sale through a raffle drawing, ask yourself if that’s the best decision you can make for the animal. At the very least, check your local state gambling laws to make sure it’s even legal and be sure to comply with the online platform’s raffle requirements.
Contact us for questions relating to the sale of your animals, including help drafting sales and lease agreements.