washington state and local taxation of nonprofit …...b&o tax & nonprofits – special...

WashingtonStateandLocalTaxationofNonprofitOrganizations

PresentedbyBobHellerClarkNuberP.S.

November 2, 2017Seattle, Washington

NonprofitsPayStateandLocalTaxesinWashington

• UnliketheFederalGovernment,WashingtonStatehasnogeneraltaxexemptionfornonprofits

• Potentiallyapplicabletaxes:– WashingtonBusinessandOccupation(B&O)tax– CityB&Otaxes– Retailsales/usetaxes– Realandpersonalpropertytaxes– Stateincome/franchisetaxes(otherstates)

• Stateregistrationrequirements– Taxesapplyto“persons”– Awordaboutorganizationalstructure

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Business&OccupationTax• Natureofthetax

– Businessprivilegetax– Imposedonallbusinessactivity– Notanetincometax(nodeductionsforthecostofdoingbusiness)

• Classifications– Determinedbasedonnatureofactivity– Over30classifications– Differentmeasures(taxbase)andtaxrates

Business&OccupationTax

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• Commonclassifications– Retailing

• Grossproceedsofsale/.471%

– Wholesaling• Grossproceedsofsale/.484%

– Manufacturing• ValueofproductsmanufacturedinWashington/.484%

– Service&Other• Grossincomeofthebusiness/1.5%

B&OTaxDeductions,Exemptions,ExclusionsforAllTaxpayers

• Wages• Investmentincome• Smallbusinesscredit• Realestateexemption• Baddebts• Cashandtradediscounts• Advancesandreimbursements

– Agency– Noliabilitytothirdpartyexceptasagent

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NonprofitB&OTaxExemptions

• Exemptionsarestrictlyconstruedinfavoroftaxationandagainstexemption.Theorganizationhastomeetalltherequirementsforexemption.

• Basicconsiderations– Who(entitybased)?– What(revenuebased)?– How(activitybased)?

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NonprofitB&OTaxExemptions

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• Entitybased– AmericanRedCross– Bloodbanksandtissuebanks– Comprehensivecancercenters– Organprocurementorganizations– Shelteredworkshops,adultfamilyhomes– Creditunions– TheWashingtonhealthbenefitexchange– DepartmentsandinstitutionsoftheStateofWashington

NonprofitB&OTaxExemptions

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• Revenuebased– Membershipduesandinitiationfees– Contributionsanddonations– Grantsandsponsorship– Tuitionfees

• Activitybased– Fundraising– Healthorsocialwelfareservices– Legalservicestolowincomepersons– Creditcounseling– Daycareprovidedbychurches

B&OTax&Nonprofits–SpecialProblems

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• Contributions,DonationsandGrants– Aresignificantgoods,servicesorbenefitsprovidedtothe“donor”inexchangeforthegiftorgrant?

– Normalaccountabilityprovisionsareacceptableunlesstheyresultinadirectbenefittothedonor.

• FundraisingActivities– Fundraisingactivitiesareexempt,unlessconductedata“regularplaceofbusiness”thatkeepsregularbusinesshours.

– Definitionofregularbusinesshoursmayvarydependingontypeofbusinessbeingconducted.

SpecialProblems(Cont.)• FormofOrganizationandGovernance

– HealthorSocialWelfareOrganizationsmustbeorganizedunderChap.24.03RCW

– ArtisticorCulturalOrganizationsmustbefor“organizedandoperatedexclusivelyforthepurposeofprovidingartisticorculturalexhibitions,presentations,orperformancesorculturalorarteducationprograms...forviewingorattendancebythegeneralpublic.”

– BoardComposition• HealthorSocialWelfareandArtisticofCulturalOrganizationmustbemanagedbyagoverningboardofnotlessthaneightindividualsnoneofwhomisapaidemployeeoftheorganization.

• Executivedirectorasboardmembernotpermitted(maybeanon-memberadvisor)

• Employeesofaffiliateentitiesmaybeaproblem

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SpecialProblems(Cont.)• CostSharing

– Eachlegallyrecognizedentityisaseparatetaxable“person”underWashingtontaxlaw

– Inter-entitychargesaretaxable– Advances/reimbursementsareproblematicandrequirea

particularformtobenontaxable

• Purchases– Software– Digitalgoodsandservices– Telecommunicationsservices

SpecialProblems(Cont.)• MembershipOrganizations

– Membershipdues– Conferencesandseminars

CityTaxes

• CityB&Otaxes:Seattle,Bellevue,Tacoma,Everett,36othercities

• B&Otaxapportionmentrules• Squarefootagetax:largerB&Otaxcities• Headtax:variousnon-B&Otaxcities• Seattleparkingtax• Admissiontax

SalesTax• Taxonsales/rentalsoftangiblepersonalpropertyandspecificservices

• Paidbytheconsumer

• Collectedbytheseller

• Purchasesforresale– mustobtainresellerpermitfromDepartmentofRevenueinadvanceofmakingpurchases

SalesTaxExemptions• AmericanRedCross• Foodandfoodingredients• Salestoartisticorculturalorganizations• Salesofmedicalsuppliestobloodbanks,tissuebanks,organprocurementorganizationsandcomprehensivecancercenters

• Amusementandrecreationservicesprovidedbyyouthorganizations

• Manufacturingmachineryandequipment• Fundraisingsales

UseTaxandNonprofits

• Companiontosalestax– samerate• Everyoneowesusetaxonpropertypurchasedforuseinthestatewhennosalestaxiscollectedbytheseller

• Generallyparallelexemptionsfromsalestaxandusetax

• Usetaxisnotdueondonateditems– Donoralsoexempt

PropertyTaxOverview

• Allpropertyisassumedtobetaxableunlessaspecificexemptionexists

• Exemptionsareconstruednarrowlyinfavoroftaxation

• TheDepartmentofRevenueischargedwithadministeringpropertytaxexemptions,includingdisseminatinginformationtotaxpayers

WhatisaPropertyTaxExemption?

• Exemptionscoverrealandpersonalpropertytaxandleaseholdexcisetax

• Doesnotexemptanorganizationfromothercountyimposedfees

• Notautomatic,exemptionsrequireanapplicationandannualrenewal

GeneralConditionsWAC458-16-165

• Exemptpropertymustbeusedexclusively fortheactualoperationoftheactivityforwhichtheexemptionwasgranted

• Theexemptareamustnotexceedtheareareasonablynecessarytofacilitatetheexemptpurpose

• Generallythenot-for-profitmustowntheproperty,butinsomecasesleasedpropertyqualifies

• Loanorrentaloftheexemptpropertytoothersislimitedtospecifiedthresholds,dependingontheuser

GeneralConditionsWAC458-16-165(con’t)

• Propertymustbeirrevocablydedicatedtotheexemptpurpose(exceptionforleasedproperty)

• Discriminationnotallowed,propertyandservicesmustnotbediscriminatory

• Organizationmustcomplywithalllicensingandcertificationrequirementsimposedbylaw

• Dutytoproducerecords,reasonableaccess

QualifyingExemptActivity• Publicproperty(governmentagenciesandinstitutions)

• Churches,conventsandcemeteries• Propertyusedtoprovidecertainsocialservices• Hospitals,blood/bone/tissuebanks,cancercenters,andpropertyusedinmedicalresearch

• Schoolsandcolleges• Museumsandperformingartsfacilities• Publicassemblyhallsandmeetingplaces,ifavailabletoallorganizationsandpersons

LoanorRentalofExemptPropertyAlwayssubjecttouselimitations:• Byanotherqualifyingorganization,generallynotlimitedifusedbyanorganizationthatwouldbeexemptifitownedtheproperty

• Byotherusers(non-commercialactivities),can’texceed50daysineachcalendaryear

• Forcommercialactivitiesortoproduceincome,can’texceed15daysineachcalendaryear

• And… rentorfeescan’texceedmaintenanceandoverheadcosts

ImportantDates

• Applicationsforexemptionshouldbefiledwithin60daysofthestartoftheexemptactivity

• Generallyexemptioniseffectivefortheassessmentyearfollowingtheyearwhentheexemptactivitybegins

• AnnualrenewalsmustbefiledannuallybyMarch31st

• Lastsforever,withmaintenanceandnodisqualifyinguse

Questions?

BobHellerbheller@clarknuber.com

(425)635-7424