Washington State Property Tax Exemptions Available to Organizations Owning or Leasing Real Property

Posted on Jan 6, 2017 in Washington State Tax

By Joe Haberzetle, JD, LLM

April 21, 2020 update: To provide accounting relief and clarity during the COVID-19 crisis, the FASB published an exposure draft with proposals to delay the effective dates for Leases (Topic 842). Find more information here.

Unlike many jurisdictions, Washington provides no automatic exemption from state and local taxes for nonprofit organizations that enjoy federal tax-exempt status. However, state law provides tax relief to nonprofit entities that engage in a variety of specific public benefit activities. It does this by exempting real and personal property used by the organization from state and local property taxes. The following is a partial list of activities, or purposes, for which property tax relief is available in Washington:

Operating a church, parsonage, or convent
Operating a nonprofit school or college
Operating a hospital, cancer care center, blood or tissue bank, or outpatient dialysis facility
Providing facilities without charge for medical research and medical personnel training
Providing housing for the aging and developmentally disabled
Operating a public assembly hall or meeting place
Maintaining and exhibiting artistic, scientific, and historical collections
Producing and performing musical, dance, artistic, dramatic, or literary works
Providing character-building, benevolent, protective, or rehabilitative social services directed at persons of all ages
Providing camp facilities used for organized and supervised recreational activities
Activities of veteran organizations recognized by the U.S. Department of Defense
Activities of relief organizations incorporated under any act of Congress
Issuing debt to provide, or guarantee, student loans
Providing emergency and transitional housing for victims of domestic violence and low-income homeless persons
Developing housing for sales to low income households
Operating cemeteries or public burying grounds
Engaging in water distribution as a nonprofit or cooperative association

Further, property exempted from property tax for a qualifying purpose may be used for nonexempt purposes under limited circumstances, as previously discussed. Property that ceases to be used for a qualifying purpose, however, will no longer be exempt from property taxes. If it was exempted for fewer than ten consecutive years, it may be subject to recapture of taxes that would otherwise have been due in the most recent three years.

An exemption application must be submitted to the Department of Revenue to qualify. Once approved, the exempt property is removed from the county tax rolls and will remain exempt as long as the organization confirms annually that its qualifying use continues.

General Qualifying Criteria

Specific qualifying criteria are stated in the statutes that provide each exemption, and organizations seeking to take advantage of an available exemption should look to the statute to understand those requirements. However, certain general criteria must also be met to qualify for property tax exemptions under Washington law:

The organization must own, or in some cases lease, the property (see further discussion of leased property below).
The property must be used exclusively for the “actual operation of the activity” for which the exemption is granted.
The exempt property must not exceed an amount reasonably necessary for the qualifying purpose or purposes.
The facilities and services must be available to all regardless of race, color, national origin, or ancestry.
The organization must be duly licensed or certified where such licensing or certification is required by law or regulation.
The organization generally must receive a substantial part of its support from the United States or any state or any political subdivision thereof or from direct or indirect contributions from the general public.

Exemptions Applicable to Property Leased by Nonprofit Organizations

Under many of the Washington exemption statutes, ownership of the property by the nonprofit organization is required. However, under certain exemptions, property leased to the organization may also qualify. For leased property to be exempt, the lessee must be responsible under the lease for payment of any property tax due, and the lessee will be responsible for filing the property tax exemption application.

These property tax exemptions allow leased property to qualify:

Hospitals, cancer care centers, and other health facilities
Nonprofit schools and colleges
Facilities provided without charge for medical research and medical personnel training
Housing for the aging and developmentally disabled
Providing emergency and transitional housing for victims of domestic violence and low-income homeless persons
Nonprofit housing development for sales to low income households
Maintaining and exhibiting art, scientific, and historical collections
Producing or performing musical, dance, artistic, dramatic, or literary works

If you have questions regarding property tax exemptions for nonprofit organizations, contact Clark Nuber or your state tax professional for more information.

This article or blog contains general information only and should not be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. Before making any decision or taking any action, you should engage a qualified professional advisor.