Page 186 - Washington Nonprofit Handbook 2018 Edition

• Services must be available regardless of race, color, national origin or
ancestry; and

• The Department of Revenue must have access to the corporation’s
books to determine whether the corporation should be exempt.

Requirements Concerning Boards

The most problematic area is the first requirement: at least eight board members,
none of whom is a paid employee. This means no member of the board of
directors may be a paid employee, regardless of the number of directors. For
example, an organization with 39 board members, five of whom are paid
employees, would not qualify for the deduction. Similarly, if the executive director,
a paid employee, is directly involved in the decision making or management by the
board of directors, no deduction is applicable. However, if the executive director
serves the board in an advisory capacity, without voting rights, a deduction is
allowed. Cautious nonprofit organizations that qualify for this deduction may want
to ensure that the organization’s articles call for at least eight directors and provide
that the executive director can only act in an advisory capacity to the board of
directors, without voting rights.

Articles or bylaws that call for a minimum of eight board members are also valuable
for boards with only eight members in the instance of a board resignation, which
leaves the board temporarily with only seven members. As long as the governing
documents call for eight and the board can demonstrate it is actively searching for
the eighth member, a deduction is still allowed.

The second requirement is that no part of the corporation’s income may be paid
directly or indirectly to its members, stockholders, officers, directors or trustees,
except in the form of services rendered by the corporation in accordance with its
purposes and bylaws. This requirement is intended to limit the ability of others to
profit indirectly from the operations of the nonprofit. This does not limit the ability
of the organization to reasonably compensate officers who are not board
members, to pay board stipends, or to provide services to board members who are
also constituents served by the nonprofit.

Artistic and cultural organizations are also exempt from paying the retail
sales or use tax on certain objects used for the purposes of exhibition or
presentation to the general public. These objects include objects of art or cultural

WASHINGTON NONPROFIT HANDBOOK -175- 2018