Are nonprofits required to pay taxes?
In Washington, nonprofit organizations are not required to pay taxes on income determined to be related to their exempt purpose. Examples of such income include donations and program fees. However, nonprofits can be subject to taxes on income derived from activities that are not related to their exempt purpose. Examples of such income include investments, unrelated business activities, and taxable income from a for-profit subsidiary. Nonprofits are also required to pay state sales tax for goods and services purchased for their business operations. Additionally, some nonprofits may be required to pay unemployment insurance taxes if they have employees. All nonprofits are also required to pay federal income tax withholding from employee wages and payroll taxes from their employees’ wages. Nonprofits are required to pay real estate or property taxes for any property they own, but oftentimes may be eligible for real estate tax exemptions or reductions. Nonprofits are also subject to unrelated business income taxes (UBIT) when they operate a “trade or business” outside of their usual operations and make a profit. Overall, while nonprofits are not required to pay taxes on income associated with their exempt purpose, they are responsible for paying taxes on any income associated with non-exempt activities. Additionally, nonprofits must adhere to other tax requirements, such as paying state sales tax, unemployment insurance taxes, and federal income tax withholding, as well as real estate taxes, and UBITs in some cases.
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