WAC 458-16-165   Conditions under which nonprofit organizations, associations, or corporations may obtain a property tax exemption.  (1) Introduction. In order to receive the property tax exemption authorized in chapter 84.36 RCW, most nonprofit organizations, associations, and corporations must also satisfy the conditions set forth in RCW 84.36.805 and 84.36.840. This rule describes these conditions.

     (2) Definitions. For purposes of this rule, the following definitions apply:

     (a) "Department" means the state department of revenue.

     (b) "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.

     (c) "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.

     (d) "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 contained in subsection (4)(c) of this rule.)

     (3) 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) Water distribution property owned by a nonprofit corporation or cooperative association under RCW 84.36.250; or

     (e) Property used for the conservation of ecological systems, natural resources, or open space by a nonprofit corporation or association under RCW 84.36.260.

     (4) Exclusive use. Exempt property must be exclusively used for the actual operation of the activity for which the nonprofit organization, association, or corporation 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 shall 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 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 the property would be exempt from tax if owned by the organization to which it is loaned or rented. Property owned by organizations and societies of war veterans, public assembly halls, public meeting places, community meeting halls, and community celebration facilities are not subject to these limitations.

     (i) Exception - loaned or rented for less than fifteen days. The status of exempt property will not be affected if:

     (A) The property is loaned or rented for a period of fifteen consecutive days or less;

     (B) The property is loaned or rented to another nonprofit organization, association, or corporation or public hospital district established under chapter 70.44 RCW that would qualify for exemption if it owned the loaned or rented property; and

     (C) All income received from the rental is devoted exclusively to the exempt purpose of the nonprofit organization, association, or corporation or public hospital district established under chapter 70.44 RCW receiving the tax exemption.

     (ii) Loaned or rented to produce income. If the lessor or lessee of exempt property intends to produce income from exempt property, the property will lose its exempt status. Property loaned or rented to produce income must be segregated from property used for exempt purposes. However, property exempt under RCW 84.36.030(4) (an organization or society of veterans of any war of the United States for veterans) and RCW 84.36.037 (public assembly halls, public meeting places, community meeting halls, and community celebration facilities) may be loaned or rented:

     (A) For pecuniary gain or to promote business activities for a maximum of seven days each assessment year; or

     (B) In a county with less than ten thousand people, the property may be used to promote the following business activities: Dance lessons; art classes; or music lessons (see WAC 458-16-300 and 458-16-310).

     (iii) 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.

     (b) Fund-raising activities. The use of exempt property for fund-raising activities sponsored by an exempt organization, association, or corporation or public hospital district established under chapter 70.44 RCW does not jeopardize the exemption if the fund-raising activities are consistent with the purposes for which the exemption was granted. The term "fund-raising" means any revenue-raising activity limited to less than five days in length that disburses fifty-one percent or more of the profits realized from the activity to the exempt nonprofit entity holding 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 activity must be less than five days in length and fifty-one percent of the profits must be disbursed to the social service agency because the fund-raising activity 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 activity 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. 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 aerobic 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.

     (4) Irrevocable dedication required. The property must be irrevocably dedicated to the purpose for which the exemption was granted. Upon the liquidation, dissolution, or abandonment by an exempt nonprofit entity, the property must not directly or indirectly benefit any shareholder or other individual except a nonprofit organization, association, or corporation that would be entitled to receive a property tax exemption if it applied for it.

     Irrevocable dedication is not required if the property is leased or rented to an entity qualified for a property exemption under chapter 84.36 RCW. This exception only applies if the lease or rental agreement requires the lessee nonprofit organization, association, or corporation or public hospital district established under chapter 70.44 RCW to receive the benefit of the exemption.

     (5) No discrimination allowed. The exempt property and the services offered thereon must be available to all persons regardless of race, color, national origin, or ancestry.

     (6) Compliance with licensing or certification requirements. A nonprofit entity 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.

     (7) Property sold subject to an option to repurchase. Property sold to a nonprofit entity 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 property sold to a nonprofit entity, as defined in RCW 84.36.560(7), by:

     (a) 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;

     (b) A governmental entity established under RCW 35.21.660, 35.21.670, or 35.21.730;

     (c) A housing authority created under RCW 35.82.030;

     (d) A housing authority meeting the definition of RCW 35.82.210 (2)(a); or

     (e) A housing authority established under RCW 35.82.300.

     (8) Duty to produce financial records. In order 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 shall also include a statement listing the receipts and disbursements of the organization, association, or corporation. This statement shall 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 or 84.36.030.

     (b) This signed statement must be submitted on or before April 1 each year by any entity currently receiving a tax exemption. If this statement is not received on or before April 1, the department shall remove the tax exemption from the property. However, the department shall 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.

     (9) Caretaker's residence. If a nonprofit entity 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 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 are not rent.



[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.]