The Washington State Department of Revenue (DOR) recently provided updated guidance regarding the tax exemption for certain emergency grants under Substitute House Bill 1095 passed during the 2021 legislative session. Previously, DOR instructed that organizations should delay reporting these funds in anticipation of the legislation. WSHA provided input to DOR and strongly supported the bill.
The following is from the DOR guidance (WSHA additions in bold italics).
Beginning Feb. 29, 2020, certain financial assistance is exempt from tax in Washington. Businesses who receive these funds do not need to report or pay business and occupation (B&O) tax, retail sales tax, or public utility tax on the grants described below.
What are the requirements for the exemptions?
- Official proclamation of either:
- National emergency by the President of the United States.
- State of emergency by the Governor of Washington.
- Assistance provided by a federal, tribal, state, or local government entity.
- Grant clearly established to address the impacts of the declared emergency.
What types of assistance qualify for a tax exemption?
- Grants received directly from a government entity.
- Grants received through a non-governmental entity that is authorized by a governmental entity to distribute funds. This includes federal ASPR COVID emergency grants distributed though WSHA.
- Debt relief received from a private entity that has received a direct financial benefit, including receiving funds, from a governmental entity for this purpose.
What types of income do not qualify for exemption?
- Amounts received under a procurement contract for providing specific goods or services.
- Amounts received for manufacturing, extracting, or selling products on a per-item basis.
- Amounts received based on the quantity, volume, or weight of products sold or transported.
- Amounts received from production subsidies.
Note, this does not address advanced or accelerated payments from health insurers. Such amounts need to be reported and may be subject to B&O tax at the time of receipt, though these payments, depending on the type or organization and payor program, may be subject to B&O tax deduction. For example, Medicare payments and most Medicaid payments are deductible from the B&O taxable amount for qualifying entities under RCW 82.04.4297
Can I request a refund?
No, you may not request a refund of tax you paid on emergency financial assistance grant income prior to Feb. 19, 2021. In addition, you may not amend your excise tax returns to eliminate any emergency financial assistance grant income you reported prior to Feb. 19, 2021. Substitute House Bill 1095 applies only to tax that has not yet been paid; it does not allow for refunds of tax paid.
Retail sales tax due on purchases
This exemption does not extend to purchases of goods and retail services made with emergency assistance funds. These purchases remain subject to retail sales tax and/or use tax.
If you have questions about any specific emergency financial assistance that you have received, submit a tax ruling request. For information about the taxability of grant income for other purposes, please see our Tax Topics article titled Grant income. For more information, please see SHB 1095, Chapter 4, Laws of 2021. (Andrew Busz, AndrewB@wsha.org)