Page 193 - Washington Nonprofit Handbook 2018 Edition

and not enrolled in or above the first grade. A special B&O tax rate of
0.484% exists for those who provide day care services or care of
children eight years or older or at the first-grade level or above. See
RCW 82.04.4282 & 82.04.431.

• Endowment Funds. Income from endowment funds is deductible.
See RCW 82.04.4282.

• Grants. Grants received by nonprofit organizations may be deductible
from the B&O tax under the bona fide contribution and donation
deduction. However, if the grants received are in exchange for
significant goods or services, the bona fide contribution and donation
deduction does not apply. To qualify a grant for this exemption, the
grantee may have to establish that the grantor had a “gratuitous
intent” when making the grant.

A grant is presumed nontaxable if three conditions are met: (1) the
grantor must receive no significant goods, services or benefits in
return for making the grant; (2) the grantee is a nonprofit or
governmental organization; and (3) the grant must be used to
promote, advance, or fulfill charitable purposes, including related
administrative expenses, within the meaning of section 501(c)(3) of the
Code.

A safe harbor provision exists for certain restrictions imposed by the
grantor regarding grantee accountability. This provision permits a
grantor to place restrictions on the use of the grant for specific
charitable purposes and provides that a grantee may submit
accountability reports to the grantor regarding the use of the funds or
describing the general nature of the project.

Sponsorship or public acknowledgement that the grantor provides a
grant alone does not trigger B&O tax liability for the grantee.

Several statutory provisions permit nonprofit research institutions to
reduce their potential tax liability. A special B&O tax classification
exists for nonprofit organizations that engage in research and
development within Washington. The current tax rate is 0.484%. In
addition, if a grant is otherwise taxable but services are performed
both inside and outside of Washington, a nonprofit can apportion its

WASHINGTON NONPROFIT HANDBOOK -182- 2018