Date of Adoption: April 16, 2001.

Purpose: This rule informs nonprofit organizations about their tax responsibilities under Washington's tax system. The tax-reporting instructions were reorganized and revised for statutory changes, particularly for fund-raising activities and donations.

Citation of Existing Rules Affected by this Order: Amending WAC 458-20-169 Religious, charitable, benevolent, nonprofit services organizations and sheltered workshops.

Statutory Authority for Adoption: RCW 82.32.300.

Adopted under notice filed as WSR 01-03-091 on January 18, 2001.

Changes Other than Editing from Proposed to Adopted Version: Subsection (1), the introduction was revised to explain that a nonprofit organization may have other business tax liabilities not described in the rule. A referral to WAC 458-20-167 for more information regarding educational institutions was added. Two separate referrals to WAC 458-20-183 were combined into a single referral.

     Subsection (4)(b), in the discussion of general tax reporting responsibilities for retail sales tax, instructions were added for use of the resale certificate by a nonprofit organization holding an exempt fund-raiser.

     Subsection (5), this subsection describes the exemptions from B&O taxes. In response to comments, clarification of several exemptions and examples for the fund-raising exemption were added to the final rule. The order of the exemptions was also changed to alphabetical order.

Number of Sections Adopted in Order to Comply with Federal Statute: New 0, Amended 0, Repealed 0; Federal Rules or Standards: New 0, Amended 0, Repealed 0; or Recently Enacted State Statutes: New 0, Amended 1, Repealed 0.

Number of Sections Adopted at Request of a Nongovernmental Entity: New 0, Amended 0, Repealed 0.

Number of Sections Adopted on the Agency's Own Initiative: New 0, Amended 1, Repealed 0.

Number of Sections Adopted in Order to Clarify, Streamline, or Reform Agency Procedures: New 0, Amended 0, Repealed 0.

Number of Sections Adopted Using Negotiated Rule Making: New 0, Amended 0, Repealed 0; Pilot Rule Making: New 0, Amended 0, Repealed 0; or Other Alternative Rule Making: New 0, Amended 1, Repealed 0. Effective Date of Rule: Thirty-one days after filing.

April 16, 2001

Claire Hesselholt, Rules Manager

Legislation and Policy Division

OTS-4582.5

AMENDATORY SECTION(Amending WSR 91-21-001, filed 10/3/91, effective 11/3/91)

WAC 458-20-169   ((Religious, charitable, benevolent,)) Nonprofit ((service)) organizations((, and sheltered workshops)).   (1) Introduction. ((Religious, charitable, benevolent, and nonprofit service organizations are subject to business and occupation tax, retail sales tax, and use tax, unless otherwise provided by this section.

     (2) Definitions.

     (a) "Sheltered workshops" is defined by the law to mean the performance of business activities of any kind on or off the premises of such nonprofit organizations which are performed for the primary purpose of:

     (i) 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; or

     (ii) Providing evaluation and work adjustment services for handicapped individuals.

     (b) "Health or social welfare organization" means an organization which renders health or social welfare services as defined below, which is a not-for-profit corporation under chapter 24.03 RCW and which is managed by a governing board of not less than eight individuals none of whom is a paid employee of the organization or which is a corporation solely under chapter 24.12 RCW. In addition, in order to be exempt of business and occupation tax under RCW 82.04.4297, a corporation shall satisfy the following conditions:

     (i) No part of its income may be paid directly or indirectly to its members, stockholders, officers, directors, or trustees except in the form of services rendered by the corporation in accordance with its purposes and bylaws;

     (ii) Salary or compensation paid to its officers and executives must be only for actual services rendered, and at levels comparable to the salary or compensation of like positions within the public service of the state;

     (iii) Assets of the corporation must be irrevocably dedicated to the activities for which the exemption is granted and, on the liquidation, dissolution, or abandonment by the corporation, may not inure directly or indirectly to the benefit of any member or individual except a nonprofit organization, association, or corporation which also would be entitled to the exemption;

     (iv) The corporation must be duly licensed or certified where licensing or certification is required by law or regulation;

     (v) The amounts received qualifying for exemption must be used for the activities for which the exemption is granted;

     (vi) Services must be available regardless of race, color, national origin, or ancestry; and

     (vii) The director of revenue shall have access to its books in order to determine whether the corporation is entitled to this exemption.

     (c) "Health or social welfare services" include and are limited to:

     (i) Mental health, drug, or alcoholism counseling or treatment;

     (ii) Family counseling;

     (iii) Health care services;

     (iv) Therapeutic, diagnostic, rehabilitative, or restorative services for the care of the sick, aged, or physically-disabled, developmentally-disabled, or emotionally-disabled individuals;

     (v) Activities which are for the purpose of preventing or ameliorating juvenile delinquency or child abuse, including recreational activities for those purposes;

     (vi) Care of orphans or foster children;

     (vii) Day care of children;

     (viii) Employment development, training, and placement; and

     (ix) Legal services to the indigent;

     (x) Weatherization assistance or minor home repairs for low-income homeowners or renters;

     (xi) Assistance to low-income homeowners and renters to offset the cost of home heating energy, through direct benefits to eligible households or to fuel vendors on behalf of eligible households; and

     (xii) Community services to low-income individuals, families and groups which are designed to have a measurable and potentially major impact on the poverty in the communities of the state.

     (d) A "public benefit organization" means an organization exempt from federal income tax under section 501 (c)(3) of the Internal Revenue Code of 1986 as in effect on January 1, 1991.

     (i) An organization qualifies as a public benefit organization when the organization has received from the Internal Revenue Service a ruling of tax exemption under section 501 (c)(3) of the Internal Revenue Code.

     (ii) An organization qualifies as a public benefit organization if the organization is one chapter or unit in a larger organization, like a church or the boy scouts, and the larger organization has been issued a group section 501 (c)(3) exemption ruling by the Internal Revenue Service.

     (iii) An organization qualifies as a public benefit organization if, prior to the auction, the organization has made application to the Internal Revenue Service for section 501 (c)(3) exemption and the effective date of the exemption, when granted, is prior to the auction.

     (e) An "auction" means the sale of property and/or services to the highest bidder.

     (f) The phrase "more than one auction per year" means more than one auction in any calendar year.

     (g) The phrase "conduct or participate in" means actively holding a fund-raising auction. The mere attendance, purchase of items, or the donation of articles to be sold at an auction conducted by others, is not active participation in an auction.

     (h) The phrase "not extend over a period of more than two days" means that an auction is not conducted on more than two consecutive or nonconsecutive calendar days in any seven calendar day period.

     (3) Fund raising. The following applies to the fund-raising activities of religious, charitable, benevolent, and nonprofit service organizations:

     (a) Public benefit organization auctions. Chapter 51, Laws of 1991, effective April 26, 1991, provides to public benefit organizations an exemption from B&O tax and retail sales tax when conducting or participating in an auction.

     (i) B&O tax. Amounts received from sales by a public benefit organization conducting or participating in an auction are exempt from B&O tax, if:

     (A) The organization does not conduct or participate in more than one auction per year; and

     (B) The auction does not extend over a period of more than two days.

     (ii) Retail sales tax. Retail sales tax does not apply to sales by a public benefit organization conducting or participating in an auction, if:

     (A) The organization does not conduct or participate in more than one auction per year; and

     (B) The auction does not extend over a period of more than two days.

     (iii) Use tax. An article sold at an auction conducted or participated in by a public benefit organization is subject to use tax. The use tax on the article purchased at the auction is paid by the buyer. The use tax due from the buyer is collected at time of registration or licensing in the case of an auto, boats, etc., purchased at the auction. The use tax due on other items purchased at an auction is remitted by the buyer to the department. Because the use tax is a complementary tax to the retail sales tax and the legislature intended to exempt an auctioning organization from the collection responsibilities of retail sales tax, the auctioning organization also need not collect the use tax. See: WAC 458-20-178.

     (iv) Examples.

     (A) An organization which has been ruled tax exempt under section 501 (c)(3) by the Internal Revenue Service conducts an auction for fund raising. This is the only auction conducted by the organization in the calendar year and it is conducted over a two-day period. The proceeds of the auction are exempt from B&O tax and the sales at the auction are exempt from retail sales tax.

     (B) At the auction in example (a)(iv)(A) of this subsection, an automobile has been donated to the organization and is sold. The buyer of the automobile is liable for use tax on the vehicle purchased.

     (C) At the auction in example (a)(iv)(A) of this subsection, tickets for a dinner before the auction and a dance after the auction are sold by the organization. The exemption from tax only applies to the auction activities. The dinner-dance activities are taxable when the proceeds, as measured by the lesser of the selling price or the fair market value, exceeds one thousand dollars. See (d) of this subsection.

     (D) A public benefit organization has as part of its structure various suborganizations that have no separate identity or purpose, like a hospital guild. Both the larger organization and the suborganizations might conduct various fund-raising activities, including auctions. When the Internal Revenue Service does not consider the suborganizations as separate entities in a single 501 (c)(3) exemption, both the larger organization and the suborganizations are collectively entitled to one exempt auction. If a second auction is conducted within a calendar year by either the larger organization or suborganizations both auctions are taxable as provided in (d) of this subsection. However, if a suborganization is considered a separate 501 (c)(3) entity, as evidenced by a group exemption issued by the Internal Revenue Service, then the larger organization and each suborganization included as part of a group section 501 (c)(3) exemption are each entitled to conduct one exempt auction per calendar year.

     (b) Meals. Organizations serving meals for fund-raising purposes are not engaged in the business of making sales at retail and are not required to collect the retail sales tax upon such sales, nor pay the business and occupation tax, if such meals are served no more frequently than once every two weeks and the gross receipts are one thousand dollars or less.

     (c) Bazaars/rummage sales. Organizations conducting bazaars or rummage sales who are not generally engaged in the business of making sales at retail are not required to collect the retail sales tax nor pay the business and occupation tax if such bazaars or rummage sales are conducted no more than twice per year and do not extend over a period of more than two days each, and if the gross receipts from each such bazaar or rummage sale are one thousand dollars or less.

     (d) Fund-raising drives/concessions. When organizations make retail sales in the course of annual fund-raising drives, other than a public benefit organization auction as provided above, or make such sales through concessions operated no more than twice a year which do not extend over a period of more than two days each, for the support of various benevolent, athletic, recreational, or cultural programs, the retail sales tax and business and occupation tax need not be accounted for if the gross receipts from each such annual fund-raising drive or concession are one thousand dollars or less.

     (i) Persons who serve fund-raising meals, conduct bazaars/rummage sales, or fund-raising drives/concessions more frequently than provided in (a), (b), or (c) of this subsection, or receive more than the amounts allowed therein, are required to report and pay tax upon their gross receipts from all such activities.

     (ii) When an organization conducts a taxable fund-raising event, the measure of the tax for all purposes is the lesser of the selling price or the fair market value of the item sold. The excess of the selling price over the fair market value is a nontaxable donation. The department will accept an organization's reasonable allocation of the fair market value and donation portions of the sales proceeds. When a merchant or professional donates an item to be sold, the fair market value is its ordinary retail selling price. Donors of items to be sold are not liable for use tax on the items donated. The fair market value of homemade items, items which are not commercially sold (e.g., art work or pottery) is the value of materials used. Some items may have no fair market value. For example, the right to conduct a school band at a concert, the right to serve as honorary mayor for a day, or the right to be the dinner guest at someone's home each has no fair market value. Receipts from items sold which have no fair market value are considered nontaxable donations to the organization. An organization may advertise that the selling price includes retail sales tax. An organization may "advertise" by posting a sign that applicable retail sales tax is included in the listed price, or, the organization may add a statement in its written advertising that applicable sales tax will be included in the price.

Fund raising - Proceeds from a nonauction sale

     (7) Other activities. In every case where such organizations conduct business activities other than as outlined above, the retail sales tax and business and occupation tax are fully applicable to the gross sales made and merchandise may be purchased for resale without paying the retail sales tax by furnishing vendors with resale certificates as prescribed in WAC 458-20-102.)) Unlike most states' and the federal tax systems, Washington's tax system, specifically its business tax, applies to nonprofit organizations. Washington's business tax is imposed upon all entities that generate gross receipts or proceeds, unless there is a specific statutory exemption or deduction. This rule reviews how the business and occupation (B&O), retail sales, and use taxes apply to activities often performed by nonprofit organizations. Although some nonprofit organizations may be subject to other taxes (e.g., public utility or insurance premium taxes on income from utility or insurance activities), these taxes are not discussed in this rule. The rule describes the most common exemptions and deductions for the B&O, retail and use taxes specifically provided to nonprofit organizations by state law. Other exemptions and/or deductions not specific to nonprofit organizations may also apply.

     Other rules that may be relevant to specific activities of nonprofit organizations include the following:

     (a) Artistic or cultural organizations, WAC 458-20-249;

     (b) Educational institutions, school districts, student organizations, and private schools, WAC 458-20-167;

     (c) Hospitals, nursing homes, and adult family homes, WAC 458-20-168;

     (d) Membership organizations, nonprofit groups and clubs providing amusement, recreation, or physical fitness services, WAC 458-20-183; and

     (e) Organizations holding trade shows, conventions, or seminars, WAC 458-20-256.

     (2) Registration requirements. Nonprofit organizations with $12,000 or more per year in gross receipts from sales, and/or gross income from services subject to the B&O tax or who are required to collect or pay to the department of revenue (department) retail sales tax or any other tax or fee which the department administers (regardless of the level of annual gross receipts) must register with the department. Nonprofit organizations that have gross receipts of less than $12,000 per year and who are not required to collect retail sales tax or any other tax or fee administered by the department are not required to register with the department.

     For more details on registration requirements see WAC 458-20-101 (Tax registration and tax reporting).

     (3) Filing tax returns. Nonprofit organizations making retail sales that require the collection of the retail sales tax must file a tax return, regardless of the annual level of gross receipts or gross income and whether or not any B&O tax is due. (See also WAC 458-20-104 (Small business tax relief based on volume of business).) The combined excise tax return with payment is generally filed on a monthly basis. However, under certain conditions the department may authorize taxpayers to file and remit payment on either a quarterly or annual basis. Refer to WAC 458-20-22801 for more information regarding how reporting frequencies are assigned.

     Nonprofit organizations that do not have retail sales tax to remit, but are required to register, do not have to file a tax return if they meet certain statutory requirements (e.g., annual gross income of less than $28,000) and are placed on an "active nonreporting" status by the department. Refer to WAC 458-20-101 for more information regarding the "active nonreporting" status.

     (4) General tax reporting responsibilities. While Washington state law provides some tax exemptions and deductions specifically targeted toward nonprofit organizations, these organizations otherwise have the same tax-reporting responsibilities as those of for-profit organizations.

     (a) Business and occupation tax. Chapter 82.04 RCW imposes a B&O tax upon all persons engaged in business activities within this state, unless the income is specifically exempt or deductible under state law. The B&O tax applies to the value of products, gross proceeds of sales, or gross income of the business, as the case may be. RCW 82.04.220.

     (i) Common B&O tax classifications. Chapter 82.04 RCW provides a number of classifications that apply to specific activities. The most common B&O tax classifications that apply to income received by nonprofit organizations are the service and other activities, retailing, and wholesaling classifications. If an organization engages in more than one kind of business activity, the gross income from each activity must be reported under the appropriate tax classification.

     (ii) Measure of tax. The most common measures of the B&O tax are "gross proceeds of sales" and "gross income of the business." RCW 82.04.070 and 82.04.080, respectively. These measures include the value proceeding or accruing from the sale of tangible personal property or services rendered without any deduction for the cost of property sold, cost of materials used, labor costs, discounts paid, delivery costs, taxes, losses or any other expenses.

     (b) Retail sales tax. A nonprofit organization must collect and remit retail sales tax on all retail sales, unless the sale is specifically exempt by statute. Examples of retail sales tax exemptions that commonly apply to nonprofit organizations are those for sales of certain food products (see WAC 458-20-244 for more information regarding sales of food products), construction materials purchased by a health or social welfare organization for new construction of alternative housing for youth in crisis, to be licensed as a family foster home (RCW 82.08.02915), and fund-raising activities (see subsection (5)(e) of this rule). New construction includes renovating an existing structure to provide new housing for youth in crisis.

     A nonprofit organization must pay retail sales tax when it purchases goods or retail services for its own use as a consumer, unless the purchase is specifically exempt by statute. Items purchased for resale without intervening use are purchases at wholesale and are not subject to the retail sales tax. The purchaser should provide the seller with a resale certificate. (See WAC 458-20-102 for information regarding resale certificates.) Organizations not required to register should indicate on the resale certificate that the group is a qualifying nonprofit organization and the items will be resold at a tax exempt nonprofit fund-raiser.

     (c) Use tax. The use tax is imposed on every person, including nonprofit organizations, using tangible personal property within this state as a consumer, unless such use is specifically exempt by statute. The use tax applies only if retail sales tax has not previously been paid on the item. The rate of tax is the same as the sales tax rate that applies at the location where the property is first used.

     A common application of the use tax occurs when items are purchased from an out-of-state seller who has no presence in Washington. Because the out-of-state seller is under no obligation to collect Washington's retail sales or use tax, the buyer is statutorily required to remit use tax directly to the department. (See also WAC 458-20-178 for more information regarding the use tax.)

     Except for fund-raising, exemptions from use tax generally correspond to the retail sales tax exemptions. For example, a use tax exemption for construction materials acquired by a health or social welfare organization for new construction of alternative housing for youth in crisis, to be licensed as a family foster home, RCW 82.12.02915, corresponds with the retail sales tax exemption described in subsection (4)(b) above for purchasing these construction materials.

     (i) Use tax exemption for donated items. RCW 82.12.02595 provides a use tax exemption for property donated to a nonprofit charitable organization. This exemption is available for the nonprofit charitable organization, and the donor if the donor did not previously use the item as a consumer. It also applies to the use of property by a donor who is incorporating the property into a nonprofit organization's real or personal property for no charge.

     The exemption also applies to another person using property originally donated to a charitable nonprofit organization that is subsequently donated or bailed to that person by the charitable nonprofit organization, provided that person uses the property in furtherance of the charitable purpose for which the property was originally donated to the charitable nonprofit organization. For example, a hardware store donates an industrial pressure washer to a nonprofit community center for neighborhood cleanup, the community center bails this washer to people enrolled in its neighborhood improvement group for neighborhood clean-up projects. No use tax is due from any of the participants in these transactions. An example of a gift that would not qualify is when a car is donated to a church for its staff and the church gives that car to its pastor. The pastor must pay use tax on the car because it serves multiple purposes. It serves the church's charitable purpose, but it also acts as compensation to the pastor and is available for the pastor's personal use. The subsequent donation of property from the charity to another person must be solely for a charitable purpose. If the property is donated or bailed to the third party for a charitable purpose in line with the nonprofit organization's charitable activities, generally, no additional proof is required that this was the charitable purpose for which the property was originally donated.

     (ii) Use tax implications with respect to fund-raising activities. Subsection (5)(e) below explains that a retail sales tax exemption is available for certain fund-raising sales. However, there is no comparable use tax exemption provided to the buyer/user of property purchased at these fund-raising sales. While the nonprofit organization is under no obligation to collect use tax from the buyer, the organization is encouraged to inform the buyer of the buyer's possible use tax obligation.

     (5) Exemptions. The following sources of income are specifically exempt from tax. As such they should not be included or reported as gross income if the organization is required to file a combined excise tax return.

     (a) Adult family homes. The B&O tax does not apply to income earned by a licensed adult family home or an adult family home exempt from licensing. RCW 82.04.327.

     (b) Camp or conference centers. RCW 82.04.363 and 82.08.830 respectively provide B&O and retail sales exemptions to amounts received by a nonprofit organization from the sale or furnishing of certain items or services at a camp or conference center conducted on property exempt from the property tax under RCW 84.36.030 (1), (2), or (3).

     Income derived from the sale of the following items and services is exempt:

     (i) Lodging, conference and meeting rooms, camping facilities, parking, and similar licenses to use real property;

     (ii) Food and meals;

     (iii) Books, tapes, and other products that are available exclusively to the participants at the camp, conference, or meeting and are not available to the public at large.

     The property tax exemptions are further discussed at WAC 458-16-210 (Church camps), WAC 458-16-220 (Nonprofit organizations or associations organized and conducted for nonsectarian purposes), and WAC 458-16-230 (Character building organizations).

     (c) Child care resource and referral services. The B&O tax does not apply to nonprofit organizations with respect to amounts received for child care resource and referral services. Child care resource and referral services do not include child care services provided directly to children. RCW 82.04.3395.

     (d) Credit and debt services. RCW 82.04.368 provides a B&O tax exemption for amounts received by nonprofit organizations for providing specialized credit and debt services. These services include:

     (i) Presenting individual and community credit education programs including credit and debt counseling;

     (ii) Obtaining creditor cooperation allowing a debtor to repay debt in an orderly manner;

     (iii) Establishing and administering negotiated repayment programs for debtors; and

     (iv) Providing advice or assistance to a debtor with regard to (i), (ii), or (iii) of this subsection.

     (e) Day care provided by churches. The B&O tax does not apply to income derived by a church for the care of children of any age for periods of less than twenty-four hours, provided the church is exempt from property tax under RCW 84.36.020. RCW 82.04.339.

     (f) Fund-raising. RCW 82.04.3651 provides a B&O tax exemption for amounts received from certain fund-raising activities. RCW 82.08.02573 provides a comparable retail sales tax exemption.

     It is important to note that these exemptions apply only to the fund-raising income received by the nonprofit organization. For example, the commission income received by a nonprofit organization selling books owned by a for-profit entity on a consignment basis is exempt of tax if the statutory requirements are satisfied. The nonprofit organization is generally responsible for collecting and remitting retail sales tax upon the gross proceeds of sales when selling items for another person (see WAC 458-20-159).

     (i) What nonprofit organizations qualify? Nonprofit organizations that qualify for this exemption are those that are:      (A) A tax-exempt nonprofit organization described by section 501 (c)(3) (educational and charitable), (4) (social welfare), or (10) (fraternal societies operating as lodges) of the Internal Revenue Code;

     (B) A nonprofit organization that would qualify for tax exemption under these codes except that it is not organized as a nonprofit corporation; or

     (C) A nonprofit organization that does not pay its members, stockholders, officers, directors, or trustees any amounts from its gross income, except as payment for services rendered, does not pay more than reasonable compensation to any person for services rendered, and does not engage in a substantial amount of political activity. Political activity includes, but is not limited to, influencing legislation and participating in any campaign on behalf of any candidate for political office.

     A nonprofit organization may meet (A), (B), or (C) above.

     (ii) Qualifying fund-raising activities. For the purpose of this exemption, "fund-raising activity" means soliciting or accepting contributions of money or other property, or activities involving the anticipated exchange of goods or services for money between the soliciting organization and the organization or person solicited, for the purpose of furthering the goals of the nonprofit organization.

     (A) Money raised by a nonprofit charitable group from its annual telephone fund drive to fund its homeless shelters where nothing is promised in return for a donor's pledge is exempt as fund-raising contributions of money to further the goals of the nonprofit organization.

     (B) A nonprofit group organized as a community playhouse has an annual telephone fund drive. The group gives the caller a mug, jacket, dinner, or vacation trip depending on the amount of pledge made over the phone. The community playhouse does not sell or exchange the mugs, jackets, dinners or trips for cash or property, except during this pledge drive. The money is used to produce the next season's plays. The money earned from the pledges is exempt from both retail sales tax and business and occupation tax to the extent these amounts represent an exchange for goods and services for money to further the goals of the nonprofit group. The money earned from the pledges above the value of the goods and services exchanged is exempt as a fund-raising contribution of money to further the goals of the nonprofit organization.

     (C) A nonprofit group sells ice cream bars at booths leased during the two-week runs of three county fairs, for a total of six weeks during the year, to fund youth camps maintained by the nonprofit group. The money earned from the booths is exempt from both retail sales tax and business and occupation tax as a fund-raising exchange of goods for money to further the goals of the nonprofit group.

     (iii) Contributions of money or other property. The term contributions includes grants, donations, endowments, scholarships, gifts, awards, and any other transfer of money or other property by a donor, provided the donor receives no significant goods, services, or benefits in return for making the gift. For example, an amount received by a nonprofit educational broadcaster from a group that conditions receipt upon the nonprofit broadcaster airing its seminars is not a contribution regardless of how the amount paid was titled by the two organizations.

     It is not unusual for the person making a gift to require some accountability for how the gift is used as a condition for receiving the gift or future gifts. Such gifts remain exempt, provided the "accountability" required does not result in a direct benefit to the donor (examples of direct benefits to a donor are: Money given for a report on the soil contamination levels of land owned by the donor, medical services provided to the donor or the donor's family, or market research benefitting the donor directly). This "accountability" can take the form of conditions or restrictions on the use of the gift for specific charitable purposes or can take the form of written reports accounting for the use of the gift. Public acknowledgment of a donor for the gift does not result in a significant service or benefit simply because the gift is publicly acknowledged.

     (iv) Nonqualifying activities. Fund-raising activity does not include the operation of a regular place of business in which services are provided or sales are made during regular hours such as a bookstore, thrift shop, restaurant, legal or health clinic, or similar business. It also does not include the operation of a regular place of business from which services are provided or performed during regular hours such as the provision of retail, personal, or professional services. A regular place of business and the regular hours of that business depend on the type of business being conducted.

     (A) In the example demonstrating that an amount received by a nonprofit broadcaster was not a contribution because services were given in return for the funds, this activity must also be examined to see whether the exchange was for services as part of a fund-raising activity. The broadcaster was in the business of broadcasting programs. It had a regular site for broadcasting programs and ran broadcasts for 24 hours every day. Broadcasting was a part of its business activity performed from a regular place of business during regular hours. The money received from the group with the requirement that its seminars be broadcast would not qualify as money received from a fund-raising activity even though the parties viewed the money as a "donation."

     (B) A nonprofit organization that makes catalog sales throughout the year with a 24-hour telephone line for taking orders has a regular place of business at the location where the sales orders are processed and regular hours of 24 hours a day. Catalog sales are not exempt as fund-raising amounts even though the funds are raised for a nonprofit purpose.

     (C) A nonprofit group organized as a community playhouse has three plays during the year at a leased theatre. The plays run for a total of six weeks and the group provides concessions at each of the performances. The playhouse has a regular place of business with regular hours for that type of business. The concessions are done at that regular place of business during regular hours. The concessions are not exempt as fund-raising activities even though amounts raised from the concessions may be used to further the nonprofit purpose of that group.

     (D) A nonprofit student group, that raises money for scholarships and other educational needs, sets up an espresso stand that is open for two hours every morning during the school year. The espresso stand is a regular place of business with regular hours for that type of business. The money earned from the espresso stand is not exempt, even though the amounts are raised to further the student group's nonprofit purpose.    

     (v) Fund-raising sales by libraries. RCW 82.04.3651 specifically provides that the sale of used books, used videos, used sound recording, or similar used information products in a library is not the operation of a regular place of business, if the proceeds are used to support the library. The library must be a free public library supported in whole or in part with money derived from taxes. RCW 27.12.010.

     (g) Group training homes. RCW 82.04.385 provides a B&O tax exemption for amounts received from the department of social and health services for operating a nonprofit group training home. The amounts excluded from gross income must be used for the cost of care, maintenance, support, and training of developmentally disabled individuals. A nonprofit group training home is an approved nonsectarian facility equipped, supervised, managed, and operated on a full-time nonprofit basis for the full-time care, treatment, training, and maintenance of individuals with developmental disabilities.

     (h) Sheltered workshops. RCW 82.04.385 provides a B&O tax exemption for amounts received by a nonprofit organization for operating a sheltered workshop.

     (i) What is a sheltered workshop? A sheltered workshop is that part of the nonprofit organization engaged in business activities that are performed primarily to provide evaluation and work adjusted services for a handicapped person or to provide gainful employment or rehabilitation services to a handicapped person. The sheltered workshop can be maintained on or off the premises of the nonprofit organization.

     (ii) What is meant by "gainful employment or rehabilitation services to a handicapped person"? Gainful employment or rehabilitation services must be an interim step in the rehabilitation process which is provided because the person cannot be readily absorbed into the competitive labor market or because employment opportunities for the person do not exist during that time in the competitive labor market.

     "Handicapped," for the purposes of this exemption, means a physical or mental disability that restricts normal achievement, including medically recognized addictions and learning disabilities. However, this term does not include social or economic disadvantages that restrict normal achievement (e.g., prior criminal history or low-income status).

     (i) Student loan services. RCW 82.04.367 provides a B&O tax exemption for the gross income of nonprofit organizations that are exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code that:

     (i) Are guarantee agencies under the federal guaranteed student loan program or that issue debt to provide or acquire student loans; or

     (ii) Provide guarantees for student loans made through programs other than the federal guaranteed student loan program.

     (6) B&O tax deduction of government payments made to health or social welfare organizations. RCW 82.04.4297 provides a B&O tax deduction to health or social welfare organizations for amounts received from the United States, any instrumentality of the United States, the state of Washington, or any municipal corporation or political subdivision of the state of Washington as compensation for health or social welfare services. A deduction is not allowed, however, for amounts that are received under an employee benefit plan. These deductible amounts should be included in the gross income reported on the return, and then deducted on the return when determining the amount of the organization's taxable income.

     (a) What is a health or social welfare organization? A health or social welfare organization is a nonprofit organization providing health or social welfare services that is also:

     (i) A corporation sole under chapter 24.12 RCW or a not-for-profit corporation under chapter 24.03 RCW. It does not include a corporation providing professional services authorized under chapter 18.100 RCW;

     (ii) Governed by a board of not less than eight individuals who are not paid corporate employees when the organization is a not-for-profit corporation;

     (iii) Not paying any part of its corporate income directly or indirectly to its members, stockholders, officers, directors, or trustees except as executive or officer compensation or as services rendered by the corporation in accordance with its purposes and bylaws to a member, stockholder, officer, or director or as an individual;

     (iv) Only paying compensation to corporate officers and executives for actual services rendered. This compensation must be at a level comparable to like public service positions within Washington;

     (v) Irrevocably dedicating its corporate assets to health or social welfare activities. Upon corporate liquidation, dissolution, or abandonment, any distribution or transfer of corporate assets may not inure directly or indirectly to the benefit of any member or individual, except for another health or social welfare organization;

     (vi) Duly licensed or certified as required by law or regulation;

     (vii) Using government payments to provide health or social welfare services;

     (viii) Making its services available regardless of race, color, national origin, or ancestry; and

     (ix) Provides access to the corporation's books and records to the department's authorized agents upon request.

     (b) Qualifying health or welfare services. Health or social welfare services are limited exclusively to the following services:

     (i) Mental health, drug, or alcoholism counseling or treatment;

     (ii) Family counseling;

     (iii) Health care services;

     (iv) Therapeutic, diagnostic, rehabilitative or restorative services for the care of the sick, aged, physically-disabled, developmentally-disabled, or emotionally-disabled individuals;

     (v) Activities, including recreational activities, intended to prevent or ameliorate juvenile delinquency or child abuse;

     (vi) Care of orphans or foster children;

     (vii) Day care of children;

     (viii) Employment development, training, and placement;

     (ix) Legal services to the indigent;

     (x) Weatherization assistance or minor home repairs for low-income homeowners or renters;

     (xi) Assistance to low-income homeowners and renters to offset the cost of home heating energy, through direct benefits to eligible households or to fuel vendors on behalf of eligible households; and

     (xii) Community services to low-income individuals, families and groups that are designed to have a measurable and potentially major impact on the poverty in Washington.

[Statutory Authority: RCW 82.32.300. 91-21-001, § 458-20-169, filed 10/3/91, effective 11/3/91; 88-21-014 (Order 88-7), § 458-20-169, filed 10/7/88; 86-02-039 (Order ET 85-8), § 458-20-169, filed 12/31/85; 83-07-033 (Order ET 83-16), § 458-20-169, filed 3/15/83. Statutory Authority: RCW 82.01.060(2) and 82.32.300. 78-07-045 (Order ET 78-4), § 458-20-169, filed 6/27/78; Order ET 70-3, § 458-20-169 (Rule 169), filed 5/29/70, effective 7/1/70.]

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