Washington State Rules for Nonprofit Organizations

When forming a nonprofit organization in Washington state, those who run it must register with the Department of Revenue, the Office of the Secretary of State and other state agencies to comply with tax and procedural rules. The current Washington Nonprofit Corporation Act will change many of its requirements when it goes into effect on January 1, 2022.

Washington state law requires those wishing to start a nonprofit to register with three agencies. Potential nonprofits must first apply with the Office of the Secretary of State/Corporations to become a corporation and submit an annual report for the organization. Once it is a corporation, the organization's assets must be kept separate from personal assets.

A nonprofit must also register with the Washington Secretary of State to be a charitable organization. If it raises more than $50,000 a year and pays someone to work with the organization, it must also submit an annual renewal form. A nonprofit that conducts a specific kind of business, hires employees, or has a trade name must apply for a Master Business License with the state's department of revenue.

Those wishing to form a nonprofit in Washington must first create a corporation. To begin the process, they must choose one or more directors for its board. Then they choose a name, but it cannot be the same or similar to another corporation or limited liability company name.

It cannot end with the following words or their abbreviations: company, corporation, incorporated, limited liability, or limited partnership. Nonprofits can use terms such as association, club, services, league, fund, committee, society, nonprofit corporation or foundation.

Before deciding on a name, nonprofits should check the Washington Secretary of State's Corporations Name Search database. When they find one they like, they can reserve it, so no one else can use it.

Nonprofits must also file articles of incorporation with the secretary of state's office and include the following information on its articles of incorporation form:

• Corporation name.
• Perpetual or stated years of expected duration.
• Corporation's purpose.
• Provisions for distribution of assets on dissolution; regulation of powers regarding directors and members; limitations on corporations' directors or members.
• Contact information for corporation's registered office and name and contact information for registered agent.
• Names and contact information of directors and incorporators and those who will receive net assets after dissolution of the corporation.

The articles of incorporation form does not include Internal Revenue Service requirements to obtain 501(c)(3) federal tax-exempt status. Organizations will need to add specific language in their articles, including a statement of purpose, a statement saying the nonprofit will not engage in political or legislative activity, and a provision dedicating the organization's assets to another 501(c)(3) organization after it dissolves.

Every nonprofit must have bylaws that contain its procedures and rules for meetings, elections and other state-mandated formalities. This serves as an internal operating manual; nonprofits do not have to file it with the state. Next, the organization must obtain an Employer Identification Number (EIN) before submitting applications to the IRS for tax exemption status.

Depending on the nature of the business and its location, the organization may also need permits or business licenses to operate, but there is no requirement for a statewide business license. Nonprofits in Washington must file a report with the secretary of state every year detailing critical changes in the organization.

Nonprofits can get federal tax exemption status from the IRS by completing IRS Form 1023: Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. Smaller entities can use Form 1023-EZ: Streamlined Application for Recognition of Exemption under Section 501(c)(3) of the Internal Revenue Code. Only those with projected annual gross receipts of $50,000 or less and assets totaling less than $250,000 can use this streamlined application.

Washington has no corporate income tax, so nonprofits are not subject to Washington state tax. However, the Washington Department of Revenue may have other exemption requirements for nonprofits depending on their circumstances. They include:

• Personal Property Tax: Movable items such as furniture and office machinery assessment or privately-owned buildings on public land.

• Real Property Tax: Buildings and land assessments, not including sewer, water, surface water management or street improvements.

• Leasehold Excise Tax: Instead of the payment of property taxes paid by those using publicly-owned land.

In Washington state, commercial fundraisers working with a nonprofit organization must register with the state Charities Program, acquire a $25,000 surety bond and submit proof of it to the program before fundraising efforts begin. The nonprofit that contracts with a commercial fundraising organization must apply using a Fundraising Service Contract Registration Form and send an agreement copy and a small filing fee to the Charities Program.

Some organizations do not have to register with the Charities Program. They are:

• Nonprofits that raise less than $50,000 a year when volunteers perform the organization's fundraising activities.
• Nonprofits subject to the Federal Elections Campaign Act or Washington State Public Disclosure Act.
• Churches and auxiliary organizations.
• Organizations that solicit funds on behalf of a named individual if the proceeds benefit that individual. Those that fundraise for one or more persons on an ongoing or repeated basis are exempt.
• Consultants, fundraising advisors or commercial co-venturers

In May 2021, Governor Jay Inslee signed the Washington Nonprofit Corporation Act (New Act) to replace the current law, adopted in 1967. The New Act, set to go into effect January 1, 2022, modernizes current, yet outdated, provisions that no longer reflect today's recommended practices. It updates current rules, allowing members, directors and officers to affirmatively opt-in before receiving emails from the nonprofit.

The new law will allow email notices with an opt-out option if a member, director or officer does not want to continue receiving them. It also changes how members, directors and officers meet – they can do so online by videoconference, phone or another medium other than email, or other asynchronous media.

The New Act also adds new requirements for protecting a nonprofit's charitable assets, such as altering gift restrictions, curbing the improper distribution of philanthropic assets, changing their handling in transactions and reporting specific changes to the nonprofit's activities or purposes. It also clarifies the role of the state attorney general's office concerning the possible misuse or mishandling of charitable assets.

Finally, the New Act adds rules regarding the relationship between nonprofits and their members, an area with few provisions in the current law. It clarifies that members usually do not have fiduciary duties and also updates procedures for ballot voting. Membership nonprofits should consult legal counsel to ensure that their governing documents are consistent with the new law.