Nonprofit organizations, even though they may be exempt from federal taxes, are generally not exempt from taxes in Washington. Unless a nonprofit organization has a specific exemption for excise taxes, it is required to pay taxes in the same manner as for-profit organizations. This article will broadly address business and occupation taxes, as well as retail sales tax and use tax obligations of independent schools.
Business and Occupation Tax
Independent schools receive income from various sources. Unless an exclusion exists, these amounts should be reported on the excise tax return and business and occupation (B&O) tax may or may not be due. These activities or source of income may be:
- Tuition fees (deduction available for approved educational institutions)
- Interest and finance charges
- Grants and donations (deduction available only if not in exchange for significant goods or services)
- Before and after school care, summer camps (deduction for care of certain ages exist)
- Student activities
- Providing or selling meals
- Rental of facilities to various organizations or groups
- Amounts received for the placement of vending machines or amusement devices on the school premises
- Sales of tangible personal property, such as books, clothing, etc. at a regular place of business
- Sales of retail services
Retail Sales Tax
Independent schools must collect retail sales tax on all retail sales unless a specific exemption applies. One such exemption is for qualified nonprofit organizations for amounts received from certain fundraising activities.
Independent schools must pay retail sales tax just like any other consumer or business on their purchases of consumable supplies, furniture, equipment, and retail services. Independent schools should pay sales tax to their seller at the time of purchase. If an independent school does not pay sales tax to their seller, then use tax may be due.
Examples of goods and services subject to retail sales or use tax include:
- Office, kitchen, and cleaning supplies
- Equipment (such as appliances, computers, tools)
- Office and facility furnishings
- Hospitality services (meals, lodging, catering)
- Landscaping services
- Construction, repair, remodel, installation services.
For more information on state and local taxes on nonprofit organizations or if you need assistance on a specific matter, please contact Sonjia Barker, CPA, State and Local Tax Senior Manager at 206-382-7808.