Nonprofit organizations, exemptions

This brochure provides a basic

description of the speciﬁc

exemptions for nonproﬁt

organizations operating in

Washington. It is current at the

time of publication, but future

changes may invalidate some

of this information and not all

applications of tax are discussed.

The material is intended only for

general informational purposes;

it does not alter or supersede any

administrative regulations or rulings

issued by the Department.

EXEMPTIONS FOR NONPROFIT

ORGANIZATIONS

Nonproﬁt organizations, even

though they may be exempt from

federal taxes, are not generally

exempt from taxes in Washington.

Unless a nonproﬁt organization

has a speciﬁc exemption for

either property or excise taxes,

it is required to pay taxes in the

same manner as other entities.

Generally, nonproﬁt organizations

are required to pay the sales or use

tax on items of tangible personal

property they purchase for their

own use and on any construction

performed for their organization.

If a nonproﬁt organization conducts

taxable business activities in

Washington, it must register to

do business within the state by

completing a business license

application. The application can

be obtained from any Department

of Revenue ofﬁce or our website

at dor.wa.gov or by calling our

Telephone Information Center

at 1-800-647-7706.

OCTOBER 2013

Nonproﬁt Organizations

WASHINGTON STATE DEPARTMENT OF REVENUE

continued

PROPERTY TAX

General

Requirements

Nonproﬁt organizations in the state

of Washington may be eligible for an

exemption from property tax. In most

situations, nonproﬁt ownership is

required to qualify for an exemption.

In addition, the organization must

conduct an activity speciﬁcally

identiﬁed in the exemption laws.

The use of the property determines

the exemption. Not all nonproﬁt

organizations have a purpose and

activity that entitles them to an

exemption.

Typical organizations receiving a

property tax exemption are schools,

churches, cemeteries, hospitals, social

service agencies, character building

organizations, nursing homes,

homes for the aging, museums,

and public meeting halls. Nonproﬁt

organizations engaged in artistic

performances for the general public,

including production of musical,

dance, artistic, dramatic and literary

works, as well as art, scientiﬁc and

historical collections, are also exempt

from the property tax on property

actually used for these purposes.

Generally, labor unions or fraternal

organizations are not eligible for an

exemption, unless they are exclusively

using their property for to conduct

an activity exempted by law. For

example, a training facility operated

by a labor union could qualify for an

exemption as a school.

The law provides an exemption

from the following taxes:

Personal Property Tax: Assessed

on movable items such as furniture

and equipment. It also includes a

privately owned building located

on land owned by a public entity.

In some circumstances, a mobile

home may be classiﬁed as personal

property.

Real Property Tax: Assessed

on land and buildings. Exemptions

do not include special assessments

such as sewer, water, street

improvements, and surface water

management.

Leasehold Excise Tax: In lieu of

property tax paid by organizations

or individuals using publicly owned

property which is exempt from

property tax.

APPLICATION PROCESS

Filing an

Application

To apply for a property tax exemption,

organizations must ﬁle an application

with the Property Tax Division at the

Department of Revenue. Applications

are available online at dor.wa.gov

under Get a form or publication

(REV 63 0001) or any county

assessor’s ofﬁce.

The application must include

veriﬁcation of nonproﬁt status,

bylaws, an accurate map and

site plan that will identify all

improvements by dimension, and all

ﬁling fees. Nonproﬁt status may be

evidenced by Articles of Incorporation

and/or a determination letter from the

Internal Revenue Service approving

exempt status with the federal

government. Incorporated applicants

must be currently registered with the

Washington Secretary of State’s ofﬁce

and provide a copy of their Articles of

Incorporation.

FILING DATE

Applications are due within 60

days of acquiring the property and/

or converting the property to an

exempt use. Applications requesting

a retroactive exemption are accepted

as long as it is ﬁled within three

years of the date the taxes were due.

Late or retroactive applications are

subject to late ﬁling penalties. No fee

applications are accepted annually

between January 1 and March 31 for

applicants simply seeking exemption

in the following year. Again, these

applications, if submitted after March

31, are subject to a late ﬁling penalty.

LATE FILING PENALTY

Applications ﬁled after the ﬁling date

are subject to a late ﬁling penalty.

The penalty is computed at $10 per

month, or any portion of a month.

For example, a nonproﬁt organization

purchases property on June 15. The

organization has until August 14 (60

days) to ﬁle their application before

accruing a late ﬁling penalty. If the

application is submitted on August 15

or a later day in August, the penalty is

$10. If the application is submitted on

September 1 or later, then the penalty

increases to $20.

If you have questions regarding the

late ﬁling fee penalty, please contact

our Exempt Property Tax Section (see

page 4).

EFFECTIVE DATE

The taxes exempted will be for the

year following the year the property

qualiﬁed for exemption. For example,

property qualifying for exemption in

2013 will be exempt for taxes payable

in 2014. Taxes owed in the year of

purchase, or the year the property is

converted to an exempt use, cannot

be exempted.

RENEWING THE EXEMPTION

The exemption must be renewed by

March 31 each year. The Department

of Revenue will mail a postcard to

each applicant annually in January

reminding the applicant to renew their

exemption online at dor.wa.gov using

the “My account” system.

The renewal process cannot be used to

add property to an existing exemption.

Organizations wanting to add

previously taxed property to an existing

exemption must ﬁle a new application.

Jeopardizing the

Exemption

Washington’s laws and rules restrict the

manner in which property qualifying

for exemption may be used. Generally,

commercial activities cannot be conducted

on the property. For example, if a nonproﬁt

church receives a property tax exemption,

the portion of the church which is used

to sell books will not be exempt because

it is used for a commercial activity. The

property will be placed on the tax rolls

if nonexempt activities are conducted

on the property, and taxes will be due

from the date the nonexempt activity

begins. If the nonexempt activity ceases,

a new application form must be ﬁled to

reinstate the exemption. The exemption

will be effective in the year following

the year the property is returned to an

exempt activity.

Organizations must report when the

manner of exempt use changes or is

discontinued.

Some of the most common reasons

for losing an exemption include:

7 Use of the property by unqualiﬁed

organizations or individuals for

monetary gain, regardless of whether

a fee is charged.

A qualiﬁed organization is one that

would qualify for exemption if they

owned the property and used it for

an exempt purpose.

7 Rent charged in excess of the

organization’s operation and

maintenance expenses.

The amount of rent charged to

qualiﬁed organizations may not exceed

the amount it costs the organization

to operate and maintain the exempted

portion of property for the time or

period rented or leased. Donations

made for the use of an organization’s

exempt property are viewed as rent.

References

n WAC 458-20-169 Nonproﬁts

nSpecial Notice: Nonproﬁt

Fundraising January 5, 2004

The following activities are also exempt:

7 Artistic or Cultural Organizations:

Income derived from conducting any

business activities as a nonproﬁt artistic

or cultural organization (deﬁned in

Washington Administrative Code 458-20-

249) is not subject to the B&O tax.

7 Child Care Resource and Referral: Income

received by nonproﬁt organizations for

providing child care resource and referral

services is not subject to the business and

occupation tax.

7 Emergency Lodging: The charge for

furnishing emergency lodging to the

homeless purchased via a shelter voucher

program administered by cities, towns

and counties, or private organizations

that provide emergency food and shelter

services is exempt from the sales tax, the

convention and trade center tax, and the

special hotel/motel taxes.

7 Sheltered Workshops: The gross income

received by nonproﬁt organizations

from the business activities of sheltered

workshops is exempt from the business

and occupation tax. “Sheltered

workshops” are business activities, on

or off the premises, performed for the

primary purpose of:

1. Providing gainful employment

or rehabilitation services to the

handicapped as an interim step in the

rehabilitation process for those who

cannot be readily absorbed in the

competitive labor market or during such

time as employment opportunities for

them in the competitive labor market

do not exist.

2. Providing evaluation and work

adjustment services for handicapped

individuals.

7 Commercial use of exempt

property. Fundraising activities

conducted by nonproﬁt

organizations are not usually

considered commercial use.

Further information about fund-

raising activities may be obtained

by contacting the Exempt Property

Tax Section (see page 4).

7 Ceasing to use the property for

an exempt activity.

7 Transfer of ownership of the

property. Exemptions are granted

to legal owners. Therefore, when

title is transferred to another

entity, the new owner must ﬁle

an application for exemption.

TAX ROLLBACK

Most exempt organizations are

subject to a property tax rollback

when they stop using their property

for an exempt activity or sell it.

Taxes, plus interest, may be assessed

for the current year plus the three

previous years. There are several

exceptions to this rule. Please

contact the Exempt Property Tax

Section for more information (see

page 4).

BUSINESS AND OCCUPATION (B&O)

AND RETAIL SALES/USE TAXES

Fundraising

Exemptions

Nonproﬁt organizations who conduct

periodic fundraising activities, which do

not constitute the operation of a regular

place of business, are exempt from the

Business and Occupation (B&O) tax and

the requirement to collect sales tax.

Fundraising activities include directly

soliciting money or other property, or

selling goods or services to further the

nonproﬁt organization’s goals.

It does not include a regular place

of business with regular hours such as

a bookstore, thrift shop, restaurant or

similar business.

For the purpose of the fundraising

exemption, the term “nonproﬁt

organization” means the following:

1. An organization exempt from federal

tax under Section 501 (c)(3), (4), or

(10) of the federal internal revenue

code.

2. A nonproﬁt organization that would

qualify under number one above

but not organized as a nonproﬁt

corporation.

3. A nonproﬁt organization meeting

all of the following criteria:

a. Members, stockholders, ofﬁcers,

directors, or trustees of the

organization do not receive any part

of the organization’s gross income,

except payment for services.

b. Compensation received by any

person for services that does not

exceed a reasonable amount.

c. Activities of the organization do

not include a substantial amount

of political activity.

Printed on recycled paper

Prepared by the Taxpayer Services Division

For tax assistance or to request this document in

an alternate format, visit http://dor.wa.gov or call

1-800-647-7706. Teletype (TTY) users may use the

Washington Relay Service by calling 711.

The information contained in this fact sheet is current as

of the date of this publication and provides only general

information about non-proﬁt organizations. It does not

alter or supersede any administrative regulations or

rulings issued by the Department.

TELEPHONE INFORMATION CENTER

1-800-647-7706

WEBSITE

dor.wa.gov

MAILING ADDRESS

Washington State

Department of Revenue

PO Box 47478

Olympia, WA 98504-7478

TPFS0016 10/13

Registration

Amounts received for activities that

are speciﬁcally exempt do not need

to be reported to the Department

of Revenue. Unless the nonproﬁt

organization is exempt on all of its

income, it is required to register with

the Department of Revenue to receive

either a temporary or a permanent

Uniﬁed Business Identiﬁer (UBI)

number. Once registered with the

Department, the organization will

receive excise tax returns for

the period(s) of operation.

For assistance in determining

whether your organization should

be registered or for help completing

the return, please contact our

Telephone Information Center at

1-800-647-7706. Teletype (TTY) users

may use the Washington Relay Service

by calling 711.

FOR MORE INFORMATION

For answers to speciﬁc questions

about the property tax exemption

for nonproﬁt organizations,

please contact:

EXEMPT PROPERTY TAX SECTION

Washington State

Department of Revenue

P.O. Box 47471

Olympia, WA 98504-7471

Email: SindyA@dor.wa.gov

Call: (360) 534-1412

FAX: (360) 534-1380

If you have questions about

the business and occupation or sales/

use tax exemptions, call our Telephone

Information Center at 1-800-647-7706

or write to:

TAXPAYER INFORMATION

AND EDUCATION

Washington State

Department of Revenue

P.O. Box 47478

Olympia, WA 98504-7478

FAX (360) 705-6655