Can a for-profit retail business legally sell raffle tickets to customers, with merchandise as the prize and the proceeds going into the business — and is there a sales tax angle regardless?

Plain-English summary

A retail business asked whether it's permitted to sell raffle tickets to customers, with merchandise as the prize and the raffle proceeds going into the business itself. The Comptroller's response is unusual for a tax ruling: it leads with a legality warning, not a tax answer. It notes that raffles are understood not to be legal in Texas, except for certain nonprofit groups, and suggests the requester contact the Texas Attorney General's Office or a local District Attorney's office to check the legality of this kind of fundraising before proceeding.

On the tax question itself, the answer is short: sales tax is due on the business's COST of any prizes or merchandise it distributes through the raffle.

What this means for you

For-profit retail businesses considering a customer raffle

Check the legality of running a raffle BEFORE worrying about the tax treatment — Texas raffle law generally restricts raffles to certain nonprofit organizations, and a for-profit business running one for its own benefit may not be legally permitted to do so at all. Consult the Texas Attorney General's Office or a local District Attorney's office, and likely an attorney, before proceeding.

Nonprofit organizations running legal raffles

This letter doesn't address the tax treatment for a properly authorized nonprofit raffle — it specifically flags the for-profit scenario as a likely legality problem.

Accountants and tax professionals

If a client describes a "customer raffle" fundraising idea, flag the legality question first — this Comptroller letter itself declined to give a clean tax answer without raising the underlying legal-authority issue, and simply noted that if merchandise prizes ARE distributed, sales tax applies to the business's cost of those prizes.

Common questions

Q: Can a for-profit retail business legally run a raffle for customers in Texas?
A: This letter suggests likely not — raffles are understood not to be legal in Texas except for certain nonprofit groups, and the Comptroller recommended checking with the Attorney General's Office or a District Attorney's office.

Q: If a business does distribute raffle prizes, is there a sales tax obligation?
A: Yes — sales tax is due on the business's cost of any prizes or merchandise distributed through the raffle.

Q: Can I rely on this letter for my own raffle plans?
A: No — a Texas letter ruling can be the basis of a detrimental reliance claim only for the taxpayer it was issued to, and this letter itself points to a legal (not just tax) question that needs its own separate determination from other authorities.

Citations and references

• No specific Tax Code section or Comptroller rule number is cited in the body of this letter; it flags a general legality concern (Texas raffle law) and states the prize-cost tax result directly without naming a supporting statute or rule.

Subject

Raffles — Authority To Conduct/Sales Of Tickets/Prizes

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9710950L

Original ruling text

October 27, 1997

Dear Sir or Madam:

This is in response to your request for a ruling on whether retail business
are permitted to sell raffle tickets to customers with the prize being
merchandise and proceeds from the raffle going into the business?

Response: You may wish to look into the legality of a for-profit entity
raising funds in this manner. If you have not yet contacted the Attorney
General's Office or your local District Attorney's office regarding the
legality of this venture, we suggest that you do so. It is our understanding
that raffles are not legal in Texas (except for certain nonprofit groups).

Sales tax would be due on the businesses' cost of any prizes or merchandise
distributed in this manner.

This opinion is based on the facts presented. Other facts though similar may
provide a different result.

I hope this information answers your questions. If you need additional
information, please
call me toll-free at 1-800-531-5441, extension 3-4502. The direct line is
512/463-4502. You may also write to Tax Policy Division, Comptroller of Public
Accounts. You may also e-mail our tax help section at:

Sincerely,

Gilbert Zamora
Tax Policy Division