To start a pull tab business, you need to operate through a qualifying nonprofit organization, obtain a charitable gaming license from your state, buy tickets only from state-licensed vendors, and stay on top of federal tax rules that treat pull tabs very differently from bingo. There is no path to running pull tabs as a for-profit venture. The entire legal framework — state and federal — assumes the money is flowing back to a charitable mission, and every requirement below exists to prove that it is.
Who Can Legally Run Pull Tabs
Pull tab operations are restricted to nonprofit organizations recognized under federal tax law. Eligible categories typically include 501(c)(3) charities, veterans’ organizations, fraternal clubs, religious institutions, and in some jurisdictions volunteer fire departments and civic leagues. For-profit businesses and individuals cannot obtain a charitable gaming license.
Most jurisdictions also require the organization to have existed continuously for a minimum period before it can apply. That minimum varies — some require just one year, others longer — and the purpose is to prevent someone from incorporating a sham nonprofit solely to run a gambling operation. You should expect to prove active status through meeting minutes, financial statements, or annual reports filed with the state during the qualifying period.
Officers and board members face scrutiny as well. Gaming regulators typically run background checks and require financial disclosure from anyone in leadership. Directors should be prepared to provide personal financial information, disclose prior involvement in any gambling ventures, and authorize the release of credit and employment records. Organizations whose key leaders have felony convictions or gambling-related violations will almost certainly be rejected.
Sellers and volunteers who handle cash or tickets must generally be at least 18, and most jurisdictions prohibit anyone under 18 from playing pull tabs as well.
What to Have Ready Before You Apply
Assembling paperwork before you start the application saves weeks of back-and-forth with regulators. Every jurisdiction uses its own forms, but the core documents are essentially universal:
- Articles of incorporation (or a constitution if unincorporated) and current bylaws, with certification of filing from the appropriate state agency.
- Your IRS determination letter confirming tax-exempt status. If your organization has never received one, address that first.
- A roster of officers and board members with names, titles, and contact information, plus anyone who will handle gaming operations.
- Recent bank statements, your most recent Form 990 (or 990-EZ or 990-N), and a general ledger showing income and charitable disbursements.
- A designated person in charge — a specific member or officer taking personal responsibility for day-to-day gaming compliance. Their Social Security number is typically required for the background check.
- A dedicated gaming bank account used exclusively for pull tab transactions.
Do not underestimate the dedicated account requirement. Commingling gaming revenue with general operating funds is one of the fastest ways to trigger an audit or lose your license. Set the account up before you apply and keep it completely separate from day one.
Getting the License
Applications go to your state’s gaming commission, lottery board, or department of revenue — the specific agency depends on where you are. Most states now accept applications through an online portal, though some still require paper submissions by certified mail. Processing fees generally range from $30 to $500 depending on the license type and projected sales volume.
After you submit, the agency runs background checks on all listed officers and the designated person in charge. This review commonly takes several weeks. Monitor your application status during that period and respond quickly to any requests for additional documentation, since slow responses are the most common reason applications stall. Once approved, the license must be prominently displayed anywhere pull tab games are conducted.
Licenses are not permanent. Most jurisdictions require annual renewal, which depends on demonstrating that you maintained proper records, filed all required reports, and directed proceeds toward charitable purposes during the prior year. If a license lapses, even accidentally, you cannot sell pull tabs until the renewal is processed, and some states treat sales during a lapse as unlicensed gambling.
Where to Buy Your Pull Tabs
You cannot buy pull tab tickets from just anyone. Every jurisdiction requires operators to purchase gaming materials exclusively from distributors and manufacturers licensed by the state regulatory board. These vendors meet production standards that make games fair, tamper-evident, and traceable. Using supplies from an unlicensed vendor is treated as operating an illegal game regardless of your organization’s license status.
Every deal of pull tabs must come with a flare card: a board or placard displaying the game name, prize structure, ticket count, cost per ticket, and serial number. The flare card is the primary disclosure to players and must be visible at all times during play. Each deal’s unique serial number matches its flare card, creating a chain of custody that prevents unauthorized or counterfeit tickets from entering your operation.
Keep purchase invoices from every transaction with your supplier. Those invoices are your proof of compliance during inspections and audits, and officials conduct both scheduled and unannounced visits to verify that equipment in use matches approved specifications and that serial numbers on deals match their flare cards.
Federal Tax Rules That Blindside New Operators
State licensing gets most of the attention, but federal tax compliance is where the real financial exposure lives. The IRS treats pull tab income differently from bingo, and misunderstanding that distinction can cost your organization thousands of dollars or even its tax-exempt status.
Unrelated Business Income Tax
The IRS classifies pull tabs as a gaming activity that produces unrelated business taxable income (UBTI) for tax-exempt organizations.1Internal Revenue Service. Exempt Organization Gaming and Unrelated Business Taxable Income Pull tabs do not qualify for the bingo exception, because bingo requires that wagers are placed, winners determined, and prizes distributed in the presence of all players, and pull tabs do not work that way.2Internal Revenue Service. Exclusion of Bingo From Unrelated Business Activity Your pull tab revenue is therefore potentially taxable at the corporate rate.
The single most important exception is the volunteer labor rule. If substantially all the work involved in running your pull tab operation is performed by unpaid volunteers, the income is not treated as coming from an unrelated trade or business and is not subject to UBIT.3Office of the Law Revision Counsel. 26 U.S. Code 513 – Unrelated Trade or Business “Substantially all” is not precisely defined in the statute, and the IRS interprets it strictly. Here is the part that trips people up: tips count as compensation. If your volunteers receive tips from players, those volunteers are no longer “without compensation” for purposes of this exception, and the entire volunteer labor shield can collapse.4Internal Revenue Service. Update on Gaming Activities
Any organization with $1,000 or more in gross income from pull tabs (after subtracting prizes paid but before other deductions) must file Form 990-T to report unrelated business income.5Internal Revenue Service. Unrelated Business Income Tax The tax is computed at corporate rates under IRC Section 11, currently a flat 21% on net unrelated business taxable income.6Office of the Law Revision Counsel. 26 U.S. Code 511 – Imposition of Tax on Unrelated Business Income Organizations that genuinely qualify under the volunteer labor exception do not owe the tax, but they should still be ready to demonstrate their volunteer structure if audited.
Reporting Winners to the IRS
Pull tab operators must report large payouts. For 2026, the threshold for filing Form W-2G is $2,000, a figure that now adjusts annually for inflation. When a player wins at or above that threshold, you collect their taxpayer identification number and file the form with the IRS. If the winner refuses to provide a TIN, you must withhold 24% of the payout as backup withholding.7Internal Revenue Service. Instructions for Forms W-2G and 5754 Missing W-2G filings carry escalating per-form penalties that increase the later you file, with the highest tier reserved for intentional disregard.8Internal Revenue Service. Information Return Penalties For an operation with dozens of large payouts per year, those penalties add up fast.
Federal Wagering Excise Tax
The federal government imposes an excise tax on wagers.9Office of the Law Revision Counsel. 26 U.S. Code 4401 – Imposition of Tax The tax code, however, excludes drawings conducted by organizations exempt under Sections 501 or 521 from the definition of a taxable “lottery,” provided none of the net proceeds benefit any private individual.10Office of the Law Revision Counsel. 26 U.S. Code 4421 – Definitions A properly run 501(c)(3) pull tab operation therefore does not need to file Form 730 (the monthly wagering tax return) or Form 11-C (the annual occupational tax return).11Internal Revenue Service. Charitable Gaming for Exempt Organizations Course – Video Transcript The moment any proceeds start flowing to insiders, this exemption disappears and both taxes apply.
Tracking Revenue and Spending It Correctly
For every gaming session, record gross receipts, total prizes paid, and the resulting net figure. These numbers are reported to the state through periodic tax returns, monthly or quarterly depending on jurisdiction, and most states impose a tax on gaming proceeds due with the filing.
The IRS expects gross gaming receipts reported on Form 990 without reduction for prizes or costs. A common mistake is reporting net figures instead.4Internal Revenue Service. Update on Gaming Activities Organizations with more than $15,000 in gross gaming revenue must complete Schedule G of Form 990, reporting pull tabs, bingo, and other gaming types separately.12Internal Revenue Service. Organizations Conducting Gaming Activities
Retain all financial records, winning tickets, and game remnants for the period required by your state gaming commission, and for at least as long as the IRS statute of limitations on your Form 990 and any Form 990-T remains open — generally three years from filing, extending to six years if gross income is substantially understated. When the IRS audits a charitable gaming operation, they typically request retained games, sales register slips, bank deposit slips, and monthly gaming reports filed with the state.12Internal Revenue Service. Organizations Conducting Gaming Activities If you cannot substantiate your gross receipts, the IRS will reconstruct them, and their math rarely favors the operator.
Allowable expenses from gaming revenue generally include costs directly tied to running the games: accounting for gaming records, advertising for the gaming operation, theft and liability insurance, bank fees for the dedicated gaming account, and similar operational costs. Net proceeds after these direct expenses must go to the organization’s stated charitable purposes. Regulators and the IRS both look for a reasonable relationship between gaming revenue and charitable spending. An organization that generates substantial gaming income but distributes very little to its charitable mission will attract scrutiny, and if net proceeds benefit private individuals or insiders, the organization risks losing both its gaming license and its federal tax exemption.
Compensation arrangements deserve special attention. Paying workers undermines the volunteer labor exception that shields most organizations from UBIT, and many state regulators independently restrict whether gaming workers can receive wages or commissions tied to gaming revenue. If your organization uses paid staff for any gaming-related work, consult both your state’s gaming regulations and a tax professional before structuring compensation.