Current through Register Vol. 23-24, December 15, 2023
(1)
Introduction. This rule describes the conditions in
RCW
84.36.805 and
84.36.840 that most nonprofit
organizations, associations, and corporations must satisfy in order to receive
a property tax exemption under chapter 84.36 RCW.
(2)
Definitions. For purposes of
this rule, the following definitions apply:
(a) "Department" means the department of
revenue.
(b) "Inadvertent use" or
"inadvertently used" means the use of the property in a manner inconsistent
with the purpose for which the exemption is granted through carelessness, lack
of attention, lack of knowledge, mistake, surprise, or neglect.
(c) "Maintenance and operation expenses"
means items of expense allowed under generally accepted accounting principles
to maintain and operate the loaned or rented portion of the exempt
property.
(d) "Revenue" means
income received from the loan or rental of exempt property when the income
exceeds the amount of maintenance and operation expenses attributable to the
portion of the property loaned or rented.
(e) "Personal service contract" means a
contract between a nonprofit organization, association, or corporation and an
independent contractor under which the independent contractor provides a
service on the organization's, association's, or corporation's tax exempt
property. (See example in subsection (5)(c) of this rule.)
(3)
Examples. This rule includes
examples that identify a set of facts and then state a conclusion. These
examples should only be used as a general guide. The department will evaluate
each case on its particular facts and circumstances.
(4)
Applicability of this rule.
This rule does not apply to exemptions granted to:
(a) Public burying grounds or cemeteries
under RCW
84.36.020;
(b) Churches, parsonages, convents, and
church grounds under
RCW
84.36.020;
(c) Administrative offices of nonprofit
recognized religious organizations under
RCW
84.36.032;
(d) Nonprofit homeownership development
entities under
RCW
84.36.049;
(e) Water distribution property owned by a
nonprofit corporation or cooperative association under
RCW
84.36.250;
(f) Nonprofit fair associations under
RCW
84.36.480(2); or
(g) Multipurpose senior citizen centers under
RCW
84.36.670.
(5)
Exclusive use. Exempt
property must be exclusively used for the actual operation of the activity for
which the nonprofit organization, association, corporation, hospital
established under chapter 36.62 RCW, or public hospital district established
under chapter 70.44 RCW, received the property tax exemption unless the
authorizing statute states otherwise. The property exempted from taxation must
not exceed an area reasonably necessary to facilitate the exempt purpose.
(a) Loan or rental of exempt property. As a
general rule, the loan or rental of exempt property does not make it taxable
if:
(i) The rents or donations received for
the use of the property are reasonable and do not exceed the maintenance and
operation expenses attributable to the portion of the property loaned or
rented; and
(ii) Except for the
exemptions under
RCW
84.36.030(4),
84.36.037,
84.36.050, and
84.36.060(1)(a) and
(b), the property would be exempt from tax if
owned by the organization to which it is loaned or rented.
(b) Fund-raising events. The use of exempt
property for fund-raising events conducted by an exempt organization,
association, corporation, hospital established under chapter 36.62 RCW, or
public hospital district established under chapter 70.44 RCW, does not
jeopardize the exemption if the fund-raising events are consistent with the
purposes for which the exemption was granted. The term "fund-raising" means any
revenue-raising event limited to less than five days in length that disburses
51 percent or more of the profits realized from the event to the exempt
nonprofit entity conducting the fund-raising event.
(i) Example 1. A nonprofit social service
agency holds an art auction in the auditorium of its tax exempt facility to
raise funds. The event must be less than five days in length and 51 percent of
the profits must be disbursed to the social service agency because the
fund-raising event is being held on exempt property.
(ii) Example 2. A nonprofit school has a
magazine subscription drive to raise funds and the subscriptions are being sold
door-to-door by students. There are no limitations on this fund-raising event
because the subscription drive is not being held on exempt property.
(c) Personal service contract -
Exempt programs. Programs provided under a personal service contract will not
jeopardize the exemption if the following conditions are met:
(i) The program is compatible and consistent
with the purposes of the exempt organization, association, or
corporation;
(ii) The exempt
organization, association, or corporation maintains separate financial records
as to all receipts and expenses related to the program; and
(iii) A summary of all receipts and expenses
of the program are provided to the department upon request.
(iv) Example 3. A nonprofit school may decide
to contract with a provider to offer aerobic classes to promote general health
and fitness. All brochures and bulletins advertising these classes must show
that the school is sponsoring the classes. Under the terms of the contract
between the nonprofit school and the aerobics instructor, an independent
contractor, the instructor must provide the classes for a predetermined fee.
All fees collected from the participants of the classes must be received by the
school; the school, in turn, will absorb all costs related to the
classes.
(d) Personal
service contract - Nonexempt programs. Programs provided under a personal
service contract (i) that require the contractor to reimburse the nonprofit
organization for program expenses, or (ii) in which the instructor is paid a
fee based on the number of people who attend the program will be viewed as a
rental agreement and will subject the property to property tax.
(e) Inadvertent use. An inadvertent use of
the property in a manner inconsistent with the purpose for which the exemption
was granted does not subject the property to tax if the inadvertent use is not
part of a pattern of use. A "pattern of use" is presumed when an inadvertent
use is repeated in the same assessment year or in two or more successive
assessment years.
(6)
No discrimination allowed. The exempt property and the services
offered must be available to all persons regardless of race, color, national
origin, or ancestry.
(7)
Compliance with licensing or certification requirements. A
nonprofit entity, hospital established under chapter 36.62 RCW, or public
hospital district established under chapter 70.44 RCW seeking or receiving a
property tax exemption must comply with all applicable licensing and
certification requirements imposed by law or regulation.
(8)
Property sold subject to an option
to repurchase. Property sold to a nonprofit entity, hospital established
under chapter 36.62 RCW, or public hospital district established under chapter
70.44 RCW with an option to be repurchased by the seller cannot qualify for an
exemption. This prohibition does not apply to:
(a) Limited equity cooperatives as defined in
RCW
84.36.675; or
(b) Property sold to a nonprofit entity, as
defined in
RCW
84.36.560, by:
(i) A nonprofit as defined in
RCW
84.36.800 that is exempt from income tax
under section 501(c) of the federal Internal Revenue Code;
(ii) A governmental entity established under
RCW
35.21.660,
35.21.670, or
35.21.730;
(iii) A housing authority created under
RCW
35.82.030;
(iv) A housing authority meeting the
definition of
RCW
35.82.210(2)(a);
or
(v) A housing authority
established under
RCW
35.82.300.
(9)
Duty to produce financial
records. To determine whether a nonprofit entity is entitled to receive
a property tax exemption under the provisions of chapter 84.36 RCW and before
the exemption is renewed each year, the entity claiming exemption must submit a
signed statement made under oath, with the department. This sworn statement
must include a declaration that the income, receipts, and donations of the
entity seeking the exemption have been used to pay the actual expenses incurred
to maintain and operate the exempt facility or for its capital expenditures and
to no other purpose. It must also include a statement listing the receipts and
disbursements of the organization, association, or corporation. This statement
must be made on a form prescribed and furnished by the department.
(a) The provisions of this subsection do not
apply to an entity either applying for or receiving an exemption under
RCW
84.36.020,
84.36.030, or
84.36.049.
(b) This signed statement must be submitted
on or before March 31st each year by any entity currently receiving a tax
exemption. If this statement is not received on or before March 31st, the
department will remove the tax exemption from the property. However, the
department will allow a reasonable extension of time for filing if the exempt
entity has submitted a written request for an extension on or before the
required filing date and for good cause.
(10)
Caretaker's residence. If a
nonprofit entity, hospital established under chapter 36.62 RCW, or public
hospital district established under chapter 70.44 RCW exempt from property tax
under chapter 84.36 RCW employs a caretaker to provide either security or
maintenance services and the caretaker's residence is located on exempt
property, the residence may qualify for exemption if the following conditions
are met:
(a) The caretaker's duties include
regular surveillance, patrolling the exempt property, and routine maintenance
services;
(b) The nonprofit entity,
hospital established under chapter 36.62 RCW, or the public hospital district
established under chapter 70.44 RCW demonstrates the need for a caretaker at
the facility;
(c) The size of the
residence is reasonable and appropriate in light of the caretaker's duties and
the size of the exempt property; and
(d) The caretaker receives the use of the
residence as part of his or her compensation and does not pay rent.
Reimbursement of utility expenses created by the caretaker's presence is not
considered rent.
(11)
Nonexempt uses of property. The use of property exempt under this
chapter, other than as specifically authorized by this chapter, nullifies the
exemption otherwise available for the property for the assessment year.
However, the exemption is not nullified by the use of the property by any
individual, group, or entity, where such use is not otherwise authorized by
this chapter, for not more than 50 days in each calendar year, and the property
is not used for pecuniary gain or to promote business activities for more than
15 of the 50 days in each calendar year. The 50 and 15-day limitations do not
include days for setup and takedown activities that take place immediately
preceding or following a meeting or other event. If these requirements are not
met, the exemption is removed for the affected portion of the property for that
assessment year.
(12)
Farmers
markets. The 50 and 15-day limitations in subsection (11) of this rule
do not apply to exempt property under
RCW
84.36.037 if the property is used for
activities related to a qualifying farmers market, for up to 53 days each
calendar year, and all income received from the rental or use of the exempt
property is used for capital improvements to the exempt property, maintenance
and operation of the exempt property, or exempt purposes. For purposes of this
rule, "farmers market" has the same meaning as "qualifying farmers market" as
defined in
RCW
66.24.170.
(13)
Segregation of nonqualifying
property. Any portion of exempt property not meeting the qualifications
of this rule will lose its exempt status. Nonqualifying property must be
segregated from property used for exempt purposes. For example, if a portion of
a building owned by a nonprofit hospital is rented to a sandwich shop, this
portion of the hospital must be segregated from the remainder of the building
that is being used for exempt hospital purposes. The portion of the building
rented to the sandwich shop is subject to property tax.
Amended by
WSR
15-07-021, Filed 3/10/2015, effective
4/10/2015
Amended by
WSR
18-04-006, Filed 1/25/2018, effective
2/25/2018
Amended by
WSR
22-24-097, Filed 12/6/2022, effective
1/6/2023
Statutory Authority:
RCW
84.36.865,
84.36.040,
84.36.042,
84.36.045,
84.36.046,
84.36.050,
84.36.385,
84.36.560,
84.36.570,
84.36.800,
84.36.805,
84.36.810,
84.36.815,
84.36.820,
84.36.825,
84.36.830,
84.36.833,
84.36.840,
84.36.850, and
84.40.350 through
84.40.390. 02-02-009, §
458-16-165, filed 12/20/01, effective 1/20/02. Statutory Authority:
RCW
84.36.865,
84.36.037,
84.36.805,
84.36.815,
84.36.825 and
84.36.840. 98-18-006, §
458-16-165, filed 8/20/98, effective 9/20/98. Statutory Authority:
RCW
84.08.010,
84.08.070 and
chapter
84.36 RCW. 94-07-008,
§ 458-16-165, filed 3/3/94, effective
4/3/94.