Investment income/B&O tax

AN ACT Relating to clarifying the scope of the investment income 1
business and occupation tax deduction; amending RCW 82.04.4281; and 2
creating new sections. 3
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:4
NEW SECTION. Sec. 1. The legislature finds that the application 5
of the business and occupation tax deduction provided in RCW 6
82.04.4281(1)(a) for investment income has once again become the 7
subject of uncertainty as a result of the decision of the state 8
supreme court in Antio, LLC v. Department of Revenue , which could 9
lead to a restrictive, narrow interpretation of the deductibility of 10
investment income for business and occupation tax purposes. The 11
legislature intends, by adopting this revision to RCW 82.04.4281, to 12
clarify and preserve the certainty and stability for taxpayers and 13
the state that generally ensued following the adoption of chapter 14
250, Laws of 2002 in response to the decision of the state supreme 15
court in Simpson Investment Co. v. Department of Revenue . The 16
legislature intends, by adopting this clarifying revision of RCW 17
82.04.4281, to avoid uncertainty while continuing to treat similarly 18
situated taxpayers fairly.19
S-1798.1
SENATE BILL 5774
State of Washington 69th Legislature 2025 Regular Session
By Senator Torres
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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; and7
(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 10
is less than five percent of gross receipts of the business annually.11
(2) The following are not deductible under subsection (1)(a) of 12
this section: 13
(a) Amounts received from loans, except as provided in subsection 14
(1)(c) of this section, or the extension of credit to another, 15
revolving credit arrangements, installment sales, the acceptance of 16
payment over time for goods or services, factoring, or any of the 17
foregoing that have been transferred by the originator of the same to 18
an affiliate of the transferor; or 19
(b) Amounts received by a banking, lending, or security business.20
(3) The definitions in this subsection apply only to this 21
section. 22
(a) "Banking business" means a person engaging in business as a 23
national or state-chartered bank, a mutual savings bank, a savings 24
and loan association, a trust company, an alien bank, a foreign bank, 25
a credit union, a stock savings bank, or a similar entity that is 26
chartered under Title 30, 31, 32, or 33 RCW, or organized under Title 27
12 U.S.C. 28
(b) "Factoring" means the purchase, sale, and collection of 29
accounts receivable, including credit card receivables.30
(c) "Investment" has its ordinary meaning and includes without 31
limitation any investment in equities; fixed income instruments 32
including, but not limited to, bonds, notes, debentures, commercial 33
paper, savings deposits, bank deposits, time certificates, and 34
mortgage loans; derivative instruments including, but not limited to, 35
options, futures, repurchase agreements, and swaps; and commodities 36
instruments.37
(d) "Lending business" means a person engaged in the business of 38
making secured or unsecured loans of money, or extending credit, and 39
(i) more than one-half of the person's gross income is earned from 40
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such activities and (ii) more than one-half of the person's total 1
expenditures are incurred in support of such activities.2
(((c))) (e) The terms "loan" and "extension of credit" do not 3
include ownership of or trading in publicly traded debt instruments, 4
or substantially equivalent instruments offered in a private 5
placement. 6
(((d))) (f) "Security business" means a person, other than an 7
issuer, who is engaged in the business of effecting transactions in 8
securities as a broker, dealer, or broker-dealer, as those terms are 9
defined in the securities act of Washington, chapter 21.20 RCW, or 10
the federal securities act of 1933. "Security business" does not 11
include any company excluded from the definition of broker or dealer 12
under the federal investment company act of 1940 or any entity that 13
is not an investment company by reason of sections 3 (c)(1) and 14
3(c)(3) through 3(c)(14) thereof. 15
NEW SECTION. Sec. 3. This act applies retroactively. The 16
legislature does not intend for section 2 of this act to 17
retroactively create a right of refund for taxes paid on amounts 18
derived from investments before the effective date of this section.19
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