Page 195 - Washington Nonprofit Handbook 2018 Edition

• The amounts received qualifying for exemption must be used for the
activities for which the exemption is granted;

• 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 in order to determine whether the corporation should be
exempt.

Second, “qualifying services” are limited to: mental health, drug or
alcoholism counseling; family counseling; health care services; therapeutic,
diagnostic, rehabilitative or restorative services for the care of the sick, the aged or
certain disabled individuals; activities for the prevention of juvenile delinquency or
child abuse; care of orphans or foster children; day care of children; employment
development, training, and placement; indigent legal services; low-income
weatherization or home repairs; low-income heating assistance; or community
services to low-income families and groups designed to reduce poverty in a
measurable way.

Third, this deduction applies only to amounts the corporation received as
compensation for, or to support, health or social welfare services from any of the
following sources: The United States or any instrumentality thereof, or from the
State of Washington or any municipal corporation or political subdivision thereof.

Several issues frequently arise surrounding the health or social welfare
deduction. If a fee or grant is received from a nongovernmental organization, such

as a for-profit organization, a charitable foundation or another nonprofit
organization, this deduction does not apply, and the nonprofit corporation must
analyze its B&O tax liability under the general rule that permits taxation of grants if
those grants are exchanged for services. Any compensation for services from a
nongovernmental payer is taxable.

The same analysis applies if a qualifying nonprofit corporation receives a
government grant to provide services other than services meeting the definition of
“qualified services” described above.

Salary or compensation paid to officers and executives must be at levels
comparable to the salary or compensation of like positions within the public service
of the state. The Department of Revenue has attempted to disqualify an
organization from this deduction by showing that the organization’s executives

WASHINGTON NONPROFIT HANDBOOK -184- 2018