Insurer taxes

AN ACT Relating to taxes imposed on insurers operating within the 1
state; amending RCW 82.04.320; creating new sections; and repealing 2
RCW 82.04.322. 3
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:4
NEW SECTION. Sec. 1. (1) The legislature finds that unintended 5
tax loopholes adversely impact the state budget and reduce amounts 6
available to fund schools and other essential services.7
(2) The legislature further finds that in 1935 the legislature 8
enacted as RCW 82.04.320 a business and occupation tax exemption that 9
applied to "any person in respect to insurance business upon which a 10
tax based on gross premiums is paid to the state." The Washington 11
supreme court, in Armstrong v. State , 61 Wn.2d 116 (1962), 12
unanimously held that the purpose of the exemption was to prevent 13
insurance businesses from paying two state taxes on the same income, 14
not to create a means for noninsurers to avoid paying any state tax.15
(3) In 2024, in Envolve Pharmacy Solutions, Inc. v. Department of 16
Revenue, 4 Wn.3d 142 (2024), a majority of the Washington supreme 17
court broadly construed the exemption to permit pharmacy benefit 18
managers, and likely other businesses that do not earn premium income 19
and do not pay a premium tax, to avoid paying business and occupation 20
tax on amounts they receive from insurance businesses that do pay 21
Z-0407.3
SENATE BILL 5949
State of Washington 69th Legislature 2026 Regular Session
By Senators Robinson and Frame; by request of Department of Revenue
Prefiled 12/29/25. Read first time 01/12/26. Referred to Committee
on Ways & Means.
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premium tax, contrary to the purpose of the exemption as construed in 1
Armstrong. The court relied in large part on the legislature's use of 2
passive voice, rather than active voice, when it enacted the 3
exemption in 1935. If left unchecked, the decision in Envolve 4
Pharmacy Solutions, Inc. would create a large and unintended drain on 5
the state's budget. 6
(4) Therefore, the legislature finds that it is necessary to 7
restore parity between the language used in RCW 82.04.320 and the 8
intended purpose of that business and occupation tax exemption by 9
restating the exemption in active voice. To streamline the 10
administration of the tax as applied to insurers, the legislature 11
intends to consolidate the similar tax exemptions in RCW 82.04.320 12
and 82.04.322 into a single exemption. 13
(5) The legislature further finds that on October 2, 2019, the 14
department of revenue issued public guidance in the form of an 15
interim guidance statement that explained, in part, that a person 16
claiming the exemptions in RCW 82.04.320 must show proof that it paid 17
premium tax to the state with respect to the gross income it claims 18
as exempt from business and occupation tax. The supreme court's 19
decision in Envolve Pharmacy Solutions, Inc . forced the department to 20
rescind that guidance. 21
(6) The legislature intends for this act to apply both 22
prospectively and retroactively to tax periods beginning on or after 23
October 2, 2019, the date that the department of revenue issued the 24
interim guidance statement. By applying the act retroactively to 25
October 2, 2019, the legislature intends to treat businesses that did 26
not follow the department's guidance equally to those businesses that 27
followed the guidance. The legislature intends that enforcement 28
actions by the department of revenue against persons governed by the 29
exemption under RCW 82.04.322 before the effective date of this 30
section remain valid. 31
Sec. 2. RCW 82.04.320 and 2021 c 281 s 10 are each amended to 32
read as follows: 33
(1) ((Except as otherwise provided in this section, this chapter 34
does not apply to any person in respect to insurance business upon 35
which a tax based on gross premiums is paid to the state.36
(2) The provisions of this section do not exempt any person 37
engaging in the business of representing any insurance company, 38
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whether as general or local agent, or acting as broker for such 1
companies. 2
(3) The provisions of this section do not exempt any bonding 3
company from tax with respect to gross income derived from the 4
completion of any contract as to which it is a surety, or as to any 5
liability as successor to the liability of the defaulting contractor.6
(4))) This chapter does not apply to gross premiums received by 7
an insurer upon which the same insurer paid insurance premium taxes 8
to the state pursuant to chapter 48.14 or 48.15 RCW.9
(2) The exemption in subsection (1) of this section also applies 10
to gross premiums received by an insurer that is exempt from premium 11
taxes under RCW 48.14.0201(6).12
(3) For purposes of this section, for periods preceding May 12, 13
2021, eligible captive insurers as defined in RCW 48.201.020 are 14
deemed, in respect to their insurance business, to have paid a tax 15
under RCW 48.14.020 or 48.201.040 on ((gross)) their receipt of 16
premiums ((to the state)). 17
(((5))) (4) Eligible captive insurers affiliated with a public 18
institution of higher education that are exempt from paying a premium 19
tax under RCW 48.201.040 are exempt from the tax imposed by this 20
chapter in respect to their insurance business. For purposes of this 21
subsection (((5))) (4), the definitions in RCW 48.201.020 apply.22
(5) For the purposes of this section:23
(a) "Insurance business" means activity performed by an insurer 24
as defined in RCW 48.01.050 upon which it earns or receives premiums.25
(b) "Insurer" means a person that lawfully transacts insurance 26
business in this state, including an insurance broker who pays 27
premium taxes pursuant to chapter 48.14 or 48.15 RCW on behalf of 28
insurance businesses.29
(c) "Premium" has the same meaning as in RCW 48.18.170.30
NEW SECTION. Sec. 3. RCW 82.04.322 (Exemptions— Health 31
maintenance organization, health care service contractor, certified 32
health plan) and 1993 c 492 s 303 are each repealed.33
NEW SECTION. Sec. 4. Section 2 of this act applies both 34
prospectively and retroactively to October 2, 2019.35
NEW SECTION. Sec. 5. This act does not affect any final 36
judgment, no longer subject to appeal, entered by a court of 37
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competent jurisdiction before the effective date of section 2 of this 1
act. 2
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