This interim guidance statement expired on June 30, 2021 and was replaced by ETA 3229.2021 (Nonprofit Organizations Receiving Governmental Funds for Habitat Restoration Projects).
The Department of Revenue is issuing this interim guidance statement to address the tax-reporting responsibilities of nonprofit conservation organizations receiving income from government agencies to coordinate or facilitate habitat restoration projects for fish and wildlife.
For purposes of this guidance, habitat restoration refers to the renewing and restoring, by human intervention, of degraded, damaged, or destroyed ecosystems and habitats.
State, local, and federal government agencies fund a number of habitat restoration or enhancement projects throughout Washington State. These governmental entities often provide funding to nonprofit conservation organizations that, in turn, are responsible for coordinating or facilitating these projects. Generally, these nonprofit conservation organizations hire others to perform specific services required to accomplish the project. The funding may be in the form of a grant award in advance of a particular project, or by reimbursing the organization for costs incurred during the course of the project.
The guidance provided in this notice is limited to the tax responsibilities of nonprofit conservation organizations coordinating or facilitating habitat restoration projects funded by governmental entities.
This interim guidance does not address taxability associated with restoration project on land of or for an Indian Tribe. If a nonprofit conservation organization will receive income associated with a project on land of or for an Indian Tribe, that organization is encouraged to refer to WAC 458-20-192 Indians – Indian country and/or request a letter ruling from the Department.
This guidance also does not address the taxability of persons establishing or maintaining developed or landscaped areas – these persons should continue to refer to WAC 458-20-226 Landscape and horticultural services.
B&O and retail sales tax reporting responsibilities, generally
Generally, nonprofit organizations are subject to B&O tax and retail sales tax
Unless there is a specific tax exemption or deduction, a nonprofit conservation organization is responsible for paying business and occupation (B&O) tax on its gross income, and is responsible for collecting and remitting retail sales tax on any retail sales or services provided.
B&O tax applies to habitat restoration projects
The funding a nonprofit conservation organization receives from a governmental entity to coordinate or facilitate a habitat restoration project is gross income generally subject to the service and other activities B&O tax, unless a specific tax exemption or deduction applies.
B&O tax deduction for salmon restoration
Pursuant to RCW 82.04.4339, a nonprofit organization that receives a grant from the United States, the state of Washington, or any municipal corporation for salmon restoration purposes may claim a B&O tax deduction for the amount of that grant. For purposes of this deduction, a nonprofit organization is one that qualifies as such under RCW 82.04.3651. If your habitat restoration project is for salmon restoration purposes and you believe you may qualify for the B&O deduction under RCW 82.04.4339, please request a letter ruling from the Department.
Retail sales and use tax on purchases
No general retail sales/use tax exemption for nonprofit organizations
There is no general retail sales or use tax exemption for purchases of materials or retail services by a nonprofit conservation organization coordinating or facilitating habitat restoration projects. Under RCW 82.04.190, service providers are deemed the consumers of all tangible personal property or retail services acquired to provide their service. Thus, in fulfilling their obligations under a habitat restoration project, a nonprofit conservation organization is responsible for paying the retail sales tax on the purchase of tangible personal property or retail services.
If retail sales tax is not paid to the seller at the time of purchase as required by RCW 82.08.020, the nonprofit conservation organization remains liable for the tax until it is paid to the Department of Revenue.
Taxable purchases of tangible personal property
Common examples of taxable purchases of tangible personal property by a nonprofit conservation organization when coordinating or facilitating a habitat restoration project include:
Seedlings, shrubs, and grasses to be planted by members of the organization or volunteers, unless specifically exempt;
Sand, gravel, logs, and woody debris;
Shovels, picks, and other tools provided for use to members of the organization or volunteers; and
Office equipment and supplies.
Taxable purchases of retail services
Common examples of taxable purchases of retail services by a nonprofit conservation organization when coordinating or facilitating a habitat restoration project include:
Cleaning, demolishing, or moving existing buildings, dams, bulkheads, docks, levees, railway trestles, or other structures;
Constructing new or improving existing buildings or structures;
Clearing land such as digging up tree stumps, removing logjams, or grading land in preparation of revegetation; and
Moving earth such as bulldozing to create or groom a shoreline or trenching to restore or enhance waterways or water channels.
Nontaxable purchases of services
Common examples of nontaxable services that a nonprofit conservation organization might purchase without incurring a retail sales or use tax liability include:
Engineering and architectural services;
Hydraulic and hydrologic analysis services;
Conceptual design services;
Removing derelict fishing gear or other debris from waterways;
Removing trash from shorelines;
Planting native or beneficial vegetation to improve streambeds and wetlands;
Spreading beach gravel, sand, or other natural materials on shoreline to restore, maintain, or improve natural conditions and processes; and
Placing of logs and woody debris to prevent erosion or enhance wildlife habitat.
Taxable purchases under a federal government contract
When a habitat restoration project is for renovating land of or for the federal government, a different tax result for purchases of some “retail services” may apply. Nonprofit conservation organizations coordinating or facilitating habitat restoration projects of or for the federal government should refer to WAC 458-20-17001 Government contracting for additional information and/or request a letter ruling from the Department.
If you have questions about this guidance, please contact the Department at 360-705-6705.