Passive investment vehicles

AN ACT Relating to clarifying the business and occupation tax 1
treatment of the investment income of passive investment vehicles 2
managed by a person subject to business and occupation tax under RCW 3
82.04.290(1); amending RCW 82.04.4281; and creating new sections.4
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:5
NEW SECTION. Sec. 1. The legislature finds that the application 6
of the business and occupation tax deduction provided in RCW 7
82.04.4281(1)(a) for investment income has once again become the 8
subject of uncertainty as a result of the decision of the state 9
supreme court in Antio, LLC v. Department of Revenue , which could 10
lead to a restrictive, narrow interpretation of the deductibility of 11
investment income for business and occupation tax purposes. The 12
legislature intends, by adopting this revision to RCW 82.04.4281, to 13
clarify and preserve the certainty and stability for taxpayers and 14
the state that generally ensued following the adoption of chapter 15
250, Laws of 2002 in response to the decision of the state supreme 16
court in Simpson Investment Co. v. Department of Revenue . The 17
legislature intends, by adopting this clarifying revision of RCW 18
82.04.4281, to avoid uncertainty while continuing to treat similarly 19
situated taxpayers fairly.20
S-1569.1
SENATE BILL 5766
State of Washington 69th Legislature 2025 Regular Session
By Senators Liias, Braun, Chapman, and Gildon
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Sec. 2. RCW 82.04.4281 and 2007 c 54 s 9 are each amended to 1
read as follows: 2
(1) In computing tax there may be deducted from the measure of 3
tax: 4
(a) Amounts derived from investments; 5
(b) Amounts derived as dividends or distributions from the 6
capital account by a parent from its subsidiary entities; ((and))7
(c) Amounts derived from interest on loans between subsidiary 8
entities and a parent entity or between subsidiaries of a common 9
parent entity, but only if the total investment and loan income is 10
less than five percent of gross receipts of the business annually ; 11
and12
(d) Amounts derived from investments made pursuant to an 13
investment management or advisory agreement with a person subject to 14
tax under RCW 82.04.290(1). Nothing in this section affects the 15
business and occupation tax obligations of any person subject to tax 16
under RCW 82.04.290(1). 17
(2) The following are not deductible under subsection (1)(a) of 18
this section: 19
(a) Amounts received from loans, except as provided in subsection 20
(1)(c) of this section, or the extension of credit to another, 21
revolving credit arrangements, installment sales, the acceptance of 22
payment over time for goods or services, or any of the foregoing that 23
have been transferred by the originator of the same to an affiliate 24
of the transferor; or 25
(b) Amounts received by a banking, lending, or security business.26
(3) The definitions in this subsection apply only to this 27
section. 28
(a) "Banking business" means a person engaging in business as a 29
national or state-chartered bank, a mutual savings bank, a savings 30
and loan association, a trust company, an alien bank, a foreign bank, 31
a credit union, a stock savings bank, or a similar entity that is 32
chartered under Title 30, 31, 32, or 33 RCW, or organized under Title 33
12 U.S.C. 34
(b) "Investment" has its ordinary meaning and includes without 35
limitation securities; fixed income instruments including, but not 36
limited to, bonds, notes, debentures, commercial paper, savings 37
deposits, bank deposits, time certificates, federal funds, and 38
mortgage loans; derivative instruments including, but not limited to, 39
options contracts, futures contracts, forward contracts, notional 40
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principal contracts, repurchase agreements, and swaps; and 1
commodities. 2
(c) "Lending business" means a person engaged in the business of 3
making secured or unsecured loans of money, or extending credit, and 4
(i) more than one-half of the person's gross income is earned from 5
such activities and (ii) more than one-half of the person's total 6
expenditures are incurred in support of such activities.7
(((c))) (d) The terms "loan" and "extension of credit" do not 8
include ownership of or trading in publicly traded debt instruments, 9
or substantially equivalent instruments offered in a private 10
placement. 11
(((d))) (e) "Security business" means a person, other than an 12
issuer, who is engaged in the business of effecting transactions in 13
securities as a broker, dealer, or broker-dealer, as those terms are 14
defined in the securities act of Washington, chapter 21.20 RCW, or 15
the federal securities act of 1933. "Security business" does not 16
include any company excluded from the definition of broker or dealer 17
under the federal investment company act of 1940 or any entity that 18
is not an investment company by reason of sections 3 (c)(1) and 19
3(c)(3) through 3(c)(14) thereof. 20
NEW SECTION. Sec. 3. This act applies retroactively. The 21
legislature does not intend for section 2 of this act to 22
retroactively create a right of refund for taxes paid on amounts 23
derived from investments before the effective date of this section.24
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