Running a contest or promotion on your website or social media pages can be a great way to engage your audience and promote your business. However, it is important to make sure that your contest or promotion is legal before you launch it.
In the United States, there are a number of laws that regulate contests and promotions, including state and federal consumer protection laws, gambling laws, and tax laws. Businesses that fail to comply with these laws can face serious consequences, such as fines, lawsuits, and even criminal charges.
Here are some key legal considerations for running a website or social media contest or promotion:
- Avoid creating an illegal lottery. A lottery is defined as a gambling activity where participants pay to enter for a chance to win a prize. Website and social media contests and promotions can be considered illegal lotteries if they meet all three of the following elements:
To avoid creating an illegal lottery, businesses should make sure that their website and social media contests and promotions do not require entrants to pay anything to enter. Businesses can also offer an alternative method of entry (AMOE) that does not require entrants to take any action that could be considered consideration, such as following the business on social media or liking or sharing a post.
- Comply with state and federal consumer protection laws. State and federal consumer protection laws prohibit businesses from engaging in deceptive or unfair trade practices. When running a website or social media contest or promotion, businesses must make sure that their official rules are clear and concise, and that they do not mislead entrants about the terms of the promotion.
- Comply with gambling laws. Gambling laws vary from state to state, but most states have laws that restrict or prohibit gambling activities. Businesses should check the gambling laws in the states where they are operating to make sure that their website and social media contests and promotions comply with the law.
- Comply with tax laws. The Internal Revenue Service (IRS) considers contest and promotion prizes to be taxable income. Businesses are responsible for withholding and remitting taxes on prizes valued at $600 or more.
In addition to the legal considerations listed above, businesses should also be aware of the social media platform guidelines that apply to running contests and promotions. Most social media platforms have specific rules that businesses must follow when running promotions on their platforms. For example, Facebook requires that all promotions be run through specific pages or apps, not on personal pages.
By understanding the legal and social media platform requirements for running contests and promotions, businesses can avoid legal pitfalls and run successful promotions that engage their audience and promote their products or services.
Here are some additional tips for running a legal website or social media contest or promotion:
- Have an attorney review your official rules before launching your promotion. This will help to ensure that your official rules comply with all applicable laws and regulations.
- Post your official rules on your website and social media pages. This will make it easy for entrants to find the information they need about the promotion.
- Randomly select winners and announce them publicly. This will help to ensure that your promotion is fair and transparent.
- Notify winners promptly and provide them with instructions on how to claim their prizes.
- Comply with all tax laws applicable to prize winnings.
By following these tips, businesses can run legal and successful website and social media contests and promotions that benefit their businesses and their audiences.