In WA State, RCW 64.34.356 - Surplus Funds is unambiguous. Certain CIC statutes in other states contain similar language. Note that allocating surplus funds to a reserve account may not reduce future common expense assessments and may therefore be illegal.
Unless otherwise provided in the declaration, any surplus funds of the association remaining after payment of or provision for common expenses and any prepayment of reserves shall, in the discretion of the board of directors, either be paid to the unit owners in proportion to their common expense liabilities or credited to them to reduce their future common expense assessments.
In order that the Unit Owners are correctly assessed for the actual expenses of the Association, unless the Board determines a reconciliation would not result in a material savings to any Unit Owner, the accounts of the Association shall be reconciled at least annually, and any material surpluses (or deficits) in the accounts shall be credited to the benefit of or paid to (or charged to the account of or assessed against) the Unit Owners who paid the surplus (or owe the deficit).
FEDERAL TAX IMPLICATIONS
Operating surpluses may have Federal tax ramifications for your association. The Revenue Ruling 70-604 Election must be ratified by over half the votes in attendance at an Annual Meeting in order for to elect to file the Form 1120 instead of 1120-H. Refer to SECTION 19 - INCOME TAX MATTERS as well as APPENDIX A1 and APPENDIX A2: 70-604 ELECTION LETTER RECOMMENDED FORMAT in the Schwindt & Co. Treasurer's Accounting & Procedures Manual for more information.
The Form 1120-H corporate tax rate is 30% given that the form itself is quite simple. The Form 1120 corporate tax rate is the standard 21%. CICs that have a majority of their cash invested and earning consistent returns may have non-membership income such that the Form 1120 provides a superior tax-advantaged election because it reduces the Federal income tax bill. 5% or 10% of $50,000 or $100,000 (or whatever your annual interest income may be) can be a material savings over time. The amount saved on an annual basis should exceed whatever additional costs are involved with filing the Form 1120. Check with your CPA.