Prologue
Kyle N. Richard recently joined Foster Garvey. Kyle’s practice is primarily focused on assisting our municipal clients in bond and tax matters. With his tax experience, however, he assists our tax practice group clients on broader federal, state and local tax matters. We are excited to have Kyle join our tax team, adding to our already robust bench strength.
The article below was authored by Kyle. Expect to see more of Kyle’s contributions to Larry’s Tax Law in the future.
Larry
On September 30, 2021, the Washington State Supreme Court upheld the constitutionality of the additional 1.2 percent business and occupation (B&O) tax imposed by the 2019 Substitute House Bill 2167 (“SHB 2167”) on “specified financial institutions”—financial institutions with annual net income of more than $1 billion. SHB 2167 increases the tax rate for these institutions from 1.5 percent (the rate generally applicable to financial institutions) to 2.7 percent.
The tax was codified in Section 82.04.29004 Revised Code of Washington (“RCW”). Like other B&O taxes in Washington, the amount of tax due is measured by the amount of the specified financial institution’s gross revenues attributed to Washington State, which is generally based on an apportionment formula (contained in RCW 82.04.460-.462). The effect of this apportionment regime is that a certain percentage of a financial institution’s total gross income for the year is treated as earned in Washington and taxed under Washington law.
The Washington Bankers Association and American Bankers Association (taxpayers) commenced a lawsuit, arguing that the tax violated the U.S. Constitution’s Dormant Commerce Clause (“DCC”). At trial, the court concluded that the taxpayers had standing to challenge the tax under the Uniform Declaratory Judgments Act (“UDJA”) and held that the additional graduated tax rate discriminated against out-of-state businesses, in violation of the DCC. The trial court denied reconsideration of its decision. The Washington Department of Revenue then appealed directly to the Washington State Supreme Court.