Washington’s Business and Occupation (B&O) Tax isn’t something most nonprofits think about—until they’re audited or receive a letter from the Department of Revenue. Unlike a sales tax or income tax, the B&O tax is a gross receipts tax. That means Washington taxes organizations on what they earn, not what they keep. And yes, that includes some nonprofits.
What is the B&O Tax and Why Does It Apply to Nonprofits?
Washington’s B&O tax applies broadly to anyone engaging in business in the state. There’s no general exemption for 501(c)(3) organizations. Instead, nonprofits must navigate a patchwork of specific exemptions and deductions. If you’re earning revenue in Washington, you need to know if it’s taxable.
The Department of Revenue considers any activity that generates gross income to be potentially subject to the tax, even if the activity supports a charitable mission. That includes membership dues, fees for services, ticket sales, sponsorships, and even some grants and contract payments.
Common Scenarios That Trigger B&O Tax
- Government contracts – If a nonprofit is paid under a government contract to provide specific services (think: mental health counseling, housing navigation, or youth programs), that revenue may be considered taxable under the service and other activities classification.
- Fee-for-service programs – Charging for educational programs, training, consulting, or therapy? Even if it’s sliding scale or subsidized, it could be subject to B&O tax.
- Retail sales – Selling merchandise, books, or event tickets? You may have both retail sales tax and B&O tax obligations.
- Sponsorships and advertising – If your event sponsors are getting more than mere name recognition (like promotional benefits or booth space), the Department may treat the income as taxable advertising revenue.
What’s Exempt?
There are several narrow but important exemptions:
- Donations – True donations, where the donor receives nothing of value in return, are not subject to B&O tax.
- Grants – Many foundation grants qualify for an exemption, but only if they meet the definition of a qualifying grant under WAC 458-20-279.
- Fundraising events – Proceeds from qualifying fundraising events can be exempt if the event meets certain criteria under RCW 82.04.3651.
- Certain education programs – If your organization provides education as defined under Washington law, you may be eligible for a deduction.
What Should Nonprofits Do?
- Register with the Department of Revenue – Even if you think you’re exempt, you may still have a filing obligation.
- Review your revenue streams – Categorize income and identify which sources may trigger B&O liability.
- Track and document exemptions – If you claim an exemption, you’ll need to show the basis for it.
- File returns – Nonprofits must file B&O returns either monthly, quarterly, or annually depending on revenue.
- Ask for help – The rules are nuanced. Don’t guess. Consult your accountant or nonprofit counsel.
Final Thoughts
Washington’s B&O tax is one of those areas where good intentions don’t matter. It doesn’t care that you’re a nonprofit. It’s about revenue and definitions. If you’re earning money in Washington—even for charitable purposes—it’s worth pausing to make sure you’re in compliance. Because when it comes to state tax, “We didn’t know” usually isn’t a winning defense.
Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C. licensed to practice in Washington and Arizona. Ellis advises nonprofit and socially responsible businesses on federal tax and fundraising regulations nationwide. Ellis also advises donors concerning major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form.