Current through Register Vol. 24-06, March 15, 2024
(1)
Introduction. This rule explains the application of Washington's
business and occupation (B&O), retail sales, and use taxes to educational
institutions, school districts, student organizations, and private schools. It
also gives tax reporting information to persons operating nursery schools,
preschools, or providing child care.
(a)
Other rules that may apply. Readers may also want to refer to
other rules for additional information, including those in the following list:
(i) WAC
458-20-169 Nonprofit
organizations.
(ii) WAC
458-20-189 Sales to and by the
state of Washington, counties, cities, towns, school districts, and fire
districts.
(iii) WAC
458-20-244 Food and food
ingredients.
(b)
Examples. Examples found in this rule identify a number of facts
and then state a conclusion. These examples should be used only as a general
guide. The tax results of other situations must be determined after a review of
all facts and circumstances.
(2)
Definitions. For the
purposes of this rule, the following definitions apply:
(a)
Tuition fees. The term
"tuition fees" includes fees for instruction, library, laboratory, and health
services. The term also includes special fees and amounts charged for room and
board when the property or service for which such charges are made is furnished
exclusively to the students, teachers, or other staff of the institution.
RCW
82.04.170.
(b)
Educational institutions.
"Educational institutions" means the following:
(i) Institutions which are established,
operated, and governed by this state or its political subdivisions under
Title
28A (Common school
provisions), 28B (Higher education), or 28C (Vocational education)
RCW.
(ii) Nonpublic schools,
including parochial or independent schools or school districts, carrying out a
program for any or all of grades one through twelve, which have been approved
by the Washington state board of education. (See also chapter 180-90 WAC,
Private schools.)
(iii)
Degree-granting institutions offering educational credentials, instruction, or
services prerequisite to or indicative of an academic or professional degree or
certificate beyond the secondary level, provided the institution is accredited
by an accrediting association recognized by the United States Secretary of
Education and offers to students an educational program of a general academic
nature. Degree-granting institutions should refer to chapter 28B.85 RCW for
information about the requirement for authorization by the Washington higher
education coordinating board.
(iv)
Institutions which are not operated for profit, and which are privately endowed
under a deed of trust to offer instruction in trade, industry, and
agriculture.
(v) Programs that an
educational institution cosponsors with a nonprofit organization, as defined by
the Internal Revenue Code Sec. 501 (c)(3), provided that educational
institution grants college credit for course work successfully completed
through the educational program.
(vi) Certain branch campuses of foreign
degree-granting institutions, provided the following requirements, among
others, are satisfied:
(A) The branch campus
must be owned and operated directly by a foreign degree-granting institution or
indirectly through a Washington profit or nonprofit corporation in which the
foreign degree-granting institution is the sole or controlling shareholder or
member;
(B) Courses must be
provided solely and exclusively to students enrolled in a degree-granting
program offered by the institution;
(C) The branch campus must be approved by the
Washington higher education coordinating board to operate in this state;
and
(D) The branch campus must be
recognized to be exempt from income taxes pursuant to 26 U.S.C. Sec.
501(c).
(vii)
"Educational institutions" does not include any entity defined as a "private
vocational school" under
RCW
28C.10.020 and/or any entity defined as a
"degree-granting private vocational school" under chapters 28C.10 and 28B.85
RCW (other than those described in (b)(iv) of this subsection).
(c)
Private schools.
"Private schools" means all schools and institutions which are excluded from
the above definition of "educational institutions." For example, an elementary
school operated by a church organization is a "private school" if the school is
not approved. It will be given the tax treatment of an "educational
institution" for purposes of this rule only if it has obtained approval from
the Washington state board of education.
(3)
Business and occupation tax.
Departments and institutions of the state of Washington are not subject to the
B&O tax. School districts are also not subject to the B&O tax, except
as to income derived from a public utility or enterprise activity.
RCW
82.04.419. Private schools, student
organizations, and school districts engaging in utility or enterprise
activities, and educational institutions which are not departments or
institutions of the state of Washington are subject to the B&O tax as
follows:
(a)
Service and other business
activities. The service and other business activities B&O tax
applies to the following nonexclusive list of activities or sources of income:
(i) Tuition fees received by private schools.
However, educational institutions, as defined above, may deduct amounts derived
from tuition fees.
RCW
82.04.4282.
(ii) Rental of conference facilities to
various organizations or groups.
(iii) Rental by private schools of
dormitories or other student lodging facilities which are not generally
available to the public and where the student does not have an absolute right
of control and occupancy. However, educational institutions may deduct the
income from charges for lodging made to students. These amounts are defined by
law as being tuition. For additional information on the rental of real estate
and the license to use real estate, see WAC
458-20-118.
(iv) Amounts received by private schools for
providing meals to students where the meals are provided exclusively for
students, teachers, staff, and their guests. However, refer to the comments
under retailing for the taxability of meals sold to guests of students. Income
from providing meals to students by educational institutions is
deductible.
(v) Amounts received
from owners of vending machines that operate after accepting payment, for
allowing the placement of those machines on the premises of the school. For
additional information on sales through vending machines, see WAC
458-20-187.
(b)
Retailing. Activities and
sources of income subject to the retailing B&O tax include, but are not
limited to, the following:
(i) Sales of
tangible personal property or services classified as retail sales. This
includes sales of books and supplies to students where these materials are not
supplied as part of the tuition charge. Sales of academic transcripts are
exempt from B&O tax.
RCW
82.04.399.
(ii) Sales of meals to guests of
students.
(iii) Sales of meals or
prepared foods in facilities which are generally open to the public, including
those sold to students. For additional information on sales by caterers and
food service contractors, see WAC
458-20-119.
(iv) Amounts derived from charges made by an
educational institution to its alumni or other members of the public for the
use of any of the educational institution's athletic or fitness facilities, or
charges for the recreational activities defined as retail sales under
RCW
82.04.050.
(4)
Retail sales tax. The retail
sales tax applies to all retail sales including, but not limited to, those
identified in subsection (3)(b) of this rule, unless a specific statutory
exemption applies.
(a)
Tangible personal
property and retail services. Educational institutions, school
districts, student organizations, and private schools, including departments or
institutions of the state of Washington, are required to collect the retail
sales tax on sales of tangible personal property and retail services to
consumers, even though such sales may be exempt from the retailing B&O tax.
Retail sales tax exemptions are provided for sales of academic transcripts
(RCW
82.08.02537 ) and certain food products
(RCW
82.08.0293 and
82.08.0297.
(b)
Interdepartmental charges.
Amounts derived from charges between departments or institutions of the state
of Washington, or between departments of the same entity, constitute
interdepartmental charges and are not subject to the retailing B&O tax or
retail sales tax. For additional information on interdepartmental charges, see
WAC 458-20-201.
(c)
Sales through vending
machines. Persons selling through vending machines should refer to WAC
458-20-187.
(d)
Charges to alumni and members of
the public. Amounts derived from charges made by an educational
institution to its alumni or other members of the public for the use of any of
the educational institution's athletic or fitness facilities, or charges for
the recreational activities defined as retail sales under
RCW
82.04.050.
(5)
Deferred sales or use tax.
Educational institutions, school districts, student organizations, and private
schools are required to report the deferred sales or use tax upon the use of
all tangible personal property purchased or acquired under conditions whereby
the Washington retail sales tax has not been paid, unless a specific statutory
exemption applies. If items are purchased for dual purposes (i.e., for both
consumption and resale), a tax paid at source deduction may be claimed for the
cost of the articles resold upon which retail sales tax was previously paid.
For additional information on reseller permits, see WAC
458-20-102. For additional
information on use tax and the use of tangible personal property, see WAC
458-20-178.
(a)
Meals for students and
faculty. These organizations are the consumers of food or beverage
products which are ingredients of meals that are furnished to students and
faculty. However, certain food products are exempt from the retail sales and/or
use tax. RCW 82.12.0293 and
82.12.-0297.
(b)
Exemptions. Use tax exemptions are also provided for the
following:
(i) Academic transcripts.
RCW
82.12.0347.
(ii) Computers, computer components, computer
accessories, computer software, digital goods, or digital codes, irrevocably
donated to any public or private nonprofit school or college in this state, as
defined by
chapter
84.36 RCW. For the
purposes of this exemption,
RCW
82.04.215 defines "computer" as an electronic
device that accepts information in digital or similar form and manipulates it
for a result based on a sequence of instructions.
RCW
82.12.0284. This exemption is available to
both the donor and the public or private nonprofit school or college receiving
the donation.
(iii) Tangible
personal property donated to a nonprofit charitable organization or state or
local governmental entity including the subsequent use of the property by a
person to whom the property is donated or bailed by the nonprofit charitable
organization, or state or local governmental entity, if used to further the
purpose of that organization. RCW 82.12.-02595.
(iv) The donation of tangible personal
property without intervening use to a nonprofit charitable organization, or the
incorporation of tangible personal property without intervening use into real
or personal property of or for a nonprofit charitable organization in the
course of installing, repairing, cleaning, altering, imprinting, improving,
constructing, or decorating the real or personal property for no charge.
RCW
82.12.02595.
(v) Motor vehicles equipped with dual
controls loaned to and exclusively used by a school in connection with the
school's driver training program. This exemption is available to both the donor
and the school receiving the donation. For the purposes of this exemption,
RCW
82.12.0264 limits the term "school" to:
(A) The University of Washington, Washington
State University, the regional universities, The Evergreen State College, and
the state community colleges;
(B)
Any public, private, or parochial school accredited by either the state board
of education or by the University of Washington (the state accrediting
station); or
(C) Any public
vocational school meeting the standards, courses, and requirements established
and prescribed or approved in accordance with the Community College Act of
1967.
(6)
Nursery schools, preschools, child
care providers, privately operated kindergartens, and persons monitoring home
child care facilities. Income received by nursery schools, preschools,
child care providers, and privately operated kindergartens for the care or
education of children who are under eight years of age and not enrolled in or
above the first grade is exempt from the B&O tax.
RCW
82.04.4282. Such persons are, however,
subject to B&O tax upon the gross proceeds derived from providing child
care to children who are eight years of age or older or enrolled in or above
the first grade.
Persons providing child care for periods of less than
twenty-four hours are subject to tax under the child care B&O tax
classification.
RCW
82.04.2905. The service and other business
activities B&O tax classification applies to child care services provided
for periods in excess of twenty-four hours. Nursery schools, preschools, and
child care providers receiving both taxable and exempt income must properly
segregate such income in their books of account.
(a) 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.
(b) Persons who monitor home child care
facilities under one or more federal nutrition programs are required to
register with the department and are taxable on their gross income under the
service and other business activities classification of the B&O tax. These
monitors contract with, and are accountable to the office of superintendent of
public instruction which receives funds from the United States Department of
Agriculture and disburses funds to each monitor. Commonly, a portion of the
funds received by the monitor is required by law to be passed directly to the
home child care facilities for the provision of qualifying meals. That portion
of the funds received by the monitor may be taken as a "reimbursement"
deduction on the monitor's excise tax return, so that the monitor is subject to
B&O tax only on the portion of funds retained for the rendering of
services.
(7)
Examples.
(a)
Example
1. MN University is an educational institution created by the state of
Washington. MN University operates a book store at which it sells text books,
school supplies, and apparel to students and nonstudents. As an institution of
the state of Washington, MN University is exempt from the B&O tax with
respect to all sales, irrespective that sales are made to nonstudents. However,
MN is required to collect and remit retail sales tax on its gross proceeds of
sales made through its book store.
(b)
Example 2. DMG College is a
degree-granting institution accredited by an accrediting association recognized
by the United States Secretary of Education. DMG College is an educational
institution operated by a church. DMG makes charges to its students for
tuition, meals, and lodging. It also receives income for occasionally providing
lodging and meals to guests of its students during the year. DMG also rents its
conference and dormitory facilities to various groups during the summer,
providing cafeteria services when needed. The income from tuition, meals, and
lodging received from the students is exempt from B&O tax and retail sales
tax because this entity meets the definition of an educational institution.
However, DMG must report the retailing B&O tax and collect and remit retail
sales tax upon the gross proceeds derived from the sales of meals and prepared
foods to the conference attendees and guests. The income derived from the
rental of the conference and dormitory facilities to various groups and student
guests is subject to the service and other business activities B&O tax. The
college is not considered as holding itself out for the sale of lodging to the
general public.
(c)
Example
3. JB College is an educational institution which is not a department or
institution of the state of Washington. JB College has converted five housing
units from student use to use by nonstudents. Guests of the administration use
these units for stays of two or three days, and are charged a specific amount
per night. The college provides linen, towels, etc., to the users. These units
are always rented for periods under thirty days. JB College must report this
rental income under the retailing B&O tax and collect and remit retail
sales tax. This income is not derived from the occasional rental of student
lodging facilities, but is derived from the rental of accommodations
specifically maintained for public use.
(d)
Example 4. Jane Doe operates
a private preschool and kindergarten, providing care and elementary education
for children. She also provides after hours child care. Jane Doe may claim a
deduction for the income received for the care and education of children under
eight years old and not enrolled in or above the first grade, provided this
income is properly segregated in her books of account. The income attributable
to the care of children at or above the first grade level (i.e., eight years
old or enrolled in or above the first grade), is subject to the child care
B&O tax classification. Jane Doe may be able to reduce or eliminate any
child care B&O tax liability if she qualifies for the small business
B&O tax credit.
RCW
82.04.4451 and WAC
458-20-104.
Statutory Authority:
RCW
82.32.300 and
82.01.060(2).
07-10-056, § 458-20-167, filed 4/27/07, effective 5/28/07. Statutory
Authority:
RCW
82.32.300. 99-03-005, § 458-20-167,
filed 1/7/99, effective 2/7/99; 94-07-047, § 458-20-167, filed 3/10/94,
effective 4/10/94; 83-07-032 (Order ET 83-15), § 458-20-167, filed
3/15/83; Statutory Authority:
RCW
82.01.060(2) and
82.32.300. 78-07-045 (Order ET
78-4), § 458-20-167, filed 6/27/78; Order ET 70-3, § 458-20-167 (Rule
167), filed 5/29/70, effective 7/1/70.