Nonprofit or Library Fundraising

The Legislature passed this preference with the stated purpose to provide use tax relief to individuals who support charitable activities by purchasing or winning items at fundraising events or through fundraising activities held by nonprofits or libraries. Those organizations are already exempt from collecting sales tax at qualifying fundraising events under existing law.

The Legislature categorized this preference as one intended to accomplish a "general purpose." Since 2013, the Legislature is required to include a performance statement for all new or expanded tax preferences and indicate which one of several categories of preferences best describes the legislative purpose.

What is use tax?

Use tax is a tax on the use of goods in Washington when sales tax was not collected at the time of sale. The use tax rate is the same as the sales tax rate. Goods used in Washington are subject to either sales or use tax, but not both.

Use tax exemption for items valued at less than $12,000

Individuals who purchase or win items valued at less than $12,000 at qualifying nonprofit or library fundraising events do not owe use tax on the items.

Qualifying fundraising events must meet specific criteria

To qualify for a use tax exemption, a nonprofit or library fundraising event must be:

• Exempt from paying business and occupation (B&O) tax on the gross income received from the event under RCW 82.04.3651.
• Limited in time rather than an ongoing business endeavor. For example, raffles and auctions qualify. Regular business operations, such as thrift stores, gift shops, or coffee shops, do not qualify. There is no limit to the number of qualifying events a nonprofit can hold in any given year.
• Raising money to further the goals of the nonprofit organization or library.

Preference scheduled to expire July 1, 2020

The preference took effect October 1, 2013, and is set to expire July 1, 2020.

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Value of exempted items has increased over time

The Legislature initially passed this preference in 2013 to exempt items valued at less than $10,000. The original preference was scheduled to expire on July 1, 2017.

The 2015 Legislature expanded the exemption to cover items valued at less than $12,000, and extended the expiration date to July 1, 2020.

Source: JLARC staff analysis of RCW 82.12.225.

Preference removes use tax obligation for items already exempt from sales tax

Before this preference passed, existing law exempted nonprofit organizations and libraries from collecting sales tax on items purchased or won at qualifying fundraising events. However, there was no corresponding use tax exemption on those same items. Individuals who purchased or won items at qualifying fundraising events were required to pay use tax directly to the Department of Revenue on the value of the items.

With this preference, individuals are now exempt from paying either sales or use tax on items valued under $12,000 when acquired at qualifying fundraising events.

Other tax exemptions apply to nonprofit and library fundraising activities

In addition to this preference, nonprofit organizations and libraries are also exempt from the following:

• Paying business and occupation (B&O) tax on amounts earned at qualifying fundraising activities.

• Collecting sales tax from individuals who purchase goods at qualifying fundraising activities. The exemption applies regardless of the value of the goods.

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Preference is achieving the stated public policy objective

When this preference passed in 2013, the Legislature stated the public policy objective was to provide use tax relief to individuals who support charitable activities by purchasing or winning goods at fundraising events.

The preference is achieving the stated objective by exempting individuals from paying use tax on their purchases or winnings valued at under $12,000.

Preference has direct and indirect beneficiaries but size of revenue impact unknown

Direct beneficiaries of the preference are individuals who purchase or win items valued at less than $12,000 at qualifying fundraising events held by nonprofit organizations and libraries.

Indirect beneficiaries of the preference are Washington nonprofit organizations and libraries holding fundraising events.

Beneficiaries not required to report to DOR

In 2015, the Legislature directed JLARC to evaluate this preference to measure its effectiveness. While the public policy objective of providing use tax relief is being achieved, no data exists to identify how much tax relief is being provided.

Direct beneficiaries of the use tax exemption are not required to report, file, deduct, or otherwise document their use of the preference. Therefore, the number of individuals benefiting from this preference and its value cannot be determined. It is commonly known that many nonprofit organizations and libraries hold fundraising events throughout the year, such as auctions, raffles, or book sales. These events are not tracked by, or reported to, the Department of Revenue (DOR).

The nonprofit organizations and libraries holding qualifying fundraising events are also not required to report sales from these events to DOR.

When the Legislature extended and expanded the preference in 2015, the fiscal note at the time estimated a loss in state tax revenue of $15,000 per year for fiscal years 2018, 2019, and 2020. JLARC staff cannot validate the accuracy of this estimate.

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Exemptions—Nonprofit fund-raising activities. (Expires July 1, 2020.)

(1) The provisions of this chapter do not apply in respect to the use of any article of personal property, valued at less than twelve thousand dollars, purchased or received as a prize in a contest of chance, as defined in RCW 82.04.285, from a nonprofit organization or a library, if the gross income the nonprofit organization or library receives from the sale is exempt under RCW 82.04.3651.

(2) This section expires July 1, 2020. [ 2015 3rd sp.s. c 32 § 2; 2013 2nd sp.s. c 13 § 1402.]

Notes:

Tax preference performance statement—2015 3rd sp.s. c 32 § 2: "(1) This section is the tax preference performance statement for the tax preference in section 2 of this act. This performance statement is only intended to be used for subsequent evaluation of the tax preference. It is not intended to create a private right of action by any party or be used to determine eligibility for preferential tax treatment.

(2) The legislature categorizes this tax preference as one intended to accomplish a general purpose as indicated in RCW 82.32.808(2)(f).

(3) It is the legislature's specific public policy objective to provide use tax relief for individuals who support charitable activities by purchasing or winning articles of personal property from a nonprofit organization or library when the personal property is sales tax exempt.

(4) To measure the effectiveness of the exemption provided in this act in achieving the specific public policy objective described in [subsection] (3) of this section, the joint legislative audit and review committee must evaluate this tax preference." [ 2015 3rd sp.s. c 32 § 1.]

Intent—2013 2nd sp.s. c 13: "It is the intent of part XIV of this act to provide use tax relief for individuals who support charitable activities by purchasing or winning articles of personal property from a nonprofit organization or library when the personal property is sales tax exempt. It is also the intent of the legislation to provide this tax preference in a fiscally responsible manner by capping the exemption for articles of personal property that are valued at ten thousand dollars or less." [ 2013 2nd sp.s. c 13 § 1401.]

Effective date—2013 2nd sp.s. c 13: See note following RCW 82.04.43393.

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