January 6, 2017

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:

  1. The organization must own, or in some cases lease, the property (see further discussion of leased property below).
  2. The property must be used exclusively for the “actual operation of the activity” for which the exemption is granted.
  3. The exempt property must not exceed an amount reasonably necessary for the qualifying purpose or purposes.
  4. The facilities and services must be available to all regardless of race, color, national origin, or ancestry.
  5. The organization must be duly licensed or certified where such licensing or certification is required by law or regulation.
  6. 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.

© 2017 Clark Nuber PS All Rights Reserved

This article 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.