HOUSE BILL REPORT

SSB 5543

As Amended by the House

BYSenate Committee on Economic Development & Labor (originally sponsored by Senators Lee, Smitherman, Kreidler and Niemi)

Regulating annual reports of nonprofit corporations.

House Committe on Commerce & Labor

Majority Report:  Do pass with amendments.  (11)

      Signed by Representatives Vekich, Chair; Cole, Vice Chair; Patrick, Ranking Republican Member; Jones, R. King, Leonard, O'Brien, Prentice, Smith, Walker and Wolfe.

House Staff:Joan Elgee (786-7166)

AS PASSED HOUSE APRIL 13, 1989

BACKGROUND:

State law authorizes several types of non-profit organizations. These include corporations organized under the Washington Non-profit Corporations Act and Miscellaneous and Mutual Corporations Act, and fraternal societies and agricultural marketing associations. Non-profit status under Washington law is not equivalent with tax exempt status under the Internal Revenue Code.

Non-profit corporations organized under the Non-profit Corporations Act must file an annual report setting forth the affairs conducted, the names of the directors, and other information.

Under the Internal Revenue Code, a tax exempt organization with gross receipts greater than $25,000 must annually file detailed information on a Form 990.  If a tax exempt organization has over $1000 in business income which is unrelated to its exempt purpose, the organization must file an unrelated business income return and pay taxes on the income at the regular corporate rate.

The issue of non-profit corporations competing with the private sector has received legislative attention during recent years.  In 1988, the Senate formed a Select Committee on Non-profit Competition with the Private Sector to examine the issue.  The select committee was composed of members of the Senate, non-profit community, business community, and state agencies.

The select committee recommended that the existing annual reporting requirements of non-profit corporations be expanded to provide a more detailed description of the corporation activities.  The select committee also examined the distinctions between "predominantly commercial" non-profit organizations and "public benefit" non-profit organizations, and between the state non-profit provisions and the Internal Revenue Code tax exempt provisions.

SUMMARY:

The items required to be set forth on the annual report of a non-profit corporation organized under the Non-profit Corporation Act are expanded to include: an indication of whether the purpose of the corporation changed and if so, the nature and reason for the change; whether the corporation has filed an Internal Revenue Service form 990; the gross revenue and any unrelated business income of the corporation; and the corporation's unified business identifier number.

The designation "public benefit non-profit corporation" is created. A corporation may use the designation only if it is incorporated under the Washington Non-profit Corporation Act and holds tax exempt status under section 501(c)(3) of the Internal Revenue Code (charitable, religious, public safety, literacy, or educational purposes).  Corporations shall apply to the Secretary of State for the designation.

Fiscal Note:      Not Requested.

House Committee ‑ Testified For:    John Dziedzic, Office of the Secretary of State; Ben Lindekugel, United Way of King County; Sharon Foster, YMCA's, YWCA's, Boy Scouts, and Girl Scouts of Washington; Doug Bohlke, Taxi Association.

House Committee - Testified Against:      None Presented.

House Committee - Testimony For:    This bill is one of a package of bills stemming from the Senate's Select Committee on Non-profit Competition with the Private Sector.  A portion of SB 5544, dealing with the use of the term "public benefit non-profit corporation," should be added.

House Committee - Testimony Against:      None Presented.