Executive Alliance

Nonprofits in Washington: 2004

Sources of Revenue
Charitable Giving
Supporting Organizations

Revenues of charitable organizations

Nonprofits in Washington: 2004

Section 4 - State Taxes and Exemptions

"Taxation is the rule and exemption is the exception. Anyone claiming a benefit of deduction from a taxable category has the burden of showing that he qualifies for it."

--Washington Supreme Court (1972)

Washington's approach to taxes differs from the practices in many other states and is often a surprise for people who have worked or volunteered for nonprofit organization elsewhere.

Washington State taxes that concern many nonprofits fall into four broad categories:

B&O taxes (gross receipts or Business and Occupation) collected by the State and 37 cities. Importantly, nonprofits do not pay B&O taxes on membership support, donations and grants. Most retailing activities and training fees are, though, subject to B&O tax.
Sales taxes collected by the State and for cities and transit districts. Purchases by cultural organizations for performances or exhibitions are exempt from sales tax, as are payments by participants in programs of youth organizations. With limitations, sales at charity auctions are not subject to sales tax (though the purchaser may owe an equivalent amount in use taxes).
Use taxes collected by the State when sales taxes have not, for some reason, been paid. An important exception applies to donated goods: neither the donor nor the recipient pays use tax on donated property. Purchases from out of state vendors often create an obligation to pay use tax on things like computer software, other supplies and newsletter subscriptions.
>Property taxes on land, buildings and equipment. There are many specific exemptions for nonprofits (the Department of Revenue's list is online in a .pdf file); 8,287 exempt parcels of land across the state are identified. In general, these exemptions require that the property be used exclusively for the exempt purpose. Several exceptions allow a limited number of space rentals for nonexempt purposes under specific conditions.

The taxes in each category have their own quirks of application and administration; a subject for a dissertation in itself. There are also a few very specific exemptions of benefit to particular nonprofits; some of these affect a single organization.

Recent changes

Since July 2003 organizers of special events (but not fundraising events) must make sure that vendors who might make retail sales during the events are properly registered with the Department of Revenue; among other requirements, the organizer must keep a list with names and registration numbers of all vendors who participate.

Also since July 2003, performing arts organizations and museums have been able to rent their facilities for purposes consistent with their mission up to 25 days a year, and 7 of those days can be for any use whatever (including commercial gain) by the renter. Nonprofits with exempt property are now asked to report rental use on the renewal application (due by March 31 each year). Not all special uses of the property are counted against the 25-day limit - for example, rentals to other nonprofits that qualify for property tax exemption.

Under a 2003 law, cities are required to standardize B&O taxes, which may result in new taxes for nonprofits in cities where nonprofits received special treatment.

The High Technology Tax incentives were renewed by the 2004 legislature, meaning that nonprofit research labs do not pay sales or use tax on construction or new equipment.

(Mark Hugh of Clark Nuber provided background information for this section; a longer online discussion of these and other tax matters is available online .)

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Section 5 - Landscape of Nonprofits

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