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Nonprofit water associations are typically taxed in two ways:
- Income from the distribution of water is taxable under the Distribution of Water public utility tax (PUT) classification.
- Income from extending water service to new customers and similar charges (hook-up fees) made prior to the delivery of water is taxable under the Service and Other Activities business and occupation (B&O) tax classification.
Available deduction
A nonprofit water association may qualify for a deduction from the PUT for amounts used for capital improvements.
To qualify for the deduction, the income must be both:
- From the distribution of water.
- Used for capital improvements related to water distribution.
Amounts that only meet one of these conditions are not deductible. For example, income from the distribution of water and used for operating expenses does not qualify for the deduction.
Generally, capital improvements refer to infrastructure related expenses and do not include operating expenses such as office equipment, vehicles, or payroll.
There is no corresponding deduction from B&O tax.
How to claim the deduction
You will report your gross income under the Distribution of Water PUT classification and then take the Amounts Received by Nonprofit Water Associations for Capital Projects deduction.
Register my nonprofit water association
Nonprofit water associations that are not registered with the department may apply for a business license online through MyDOR or by mail using our Business License Application.
References
RCW 82.16.020 – Public utility tax imposed – Additional tax imposed – Deposits of moneys
RCW 82.16.050 – Deductions in computing tax
WAC 458-20-169 – Nonprofit organizations
WAC 458-20-179 – Public utility tax
