State Supreme Court upholds B&O tax on big banks in Washington

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Washington State Supreme Court overturned a lower court decision Thursday, ruling that a B&O tax on banks doing business in Washington state is indeed constitutional.

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The tax was passed by the state legislature in 2019, instituting an additional 1.2% levy on B&O on financial institutions worth at least $ 1 billion.

The Washington Bankers Association and the American Bankers Association filed a complaint about the tax later in the year, claiming it violated the trade clause of the U.S. Constitution by targeting only institutions outside the state and giving to Washington banks an unfair advantage. The groups’ initial filing also alleged that the measure violated the Washington State Constitution because of its initial status as a “title only” bill.

“Title-only” bills essentially function as a legislative IOU: legislators first introduce a bill with a title and without a text, then amend it to add the actual provisions later. In the case of this tax, the substantive policies of the bill were not fleshed out until the last two days of the legislative session. The WBA and ABA claimed it violated a clause in the state’s constitution requiring bills to be introduced at least 10 days before the end of the session.

This request was dismissed by a lower court, with the state Supreme Court subsequently declaring that “this case is not the appropriate place to attack or collaterally challenge a dismissed issue.” Regardless, the judges also noted that the plaintiffs “offered little argument and no convincing case law or authority to support” their argument regarding the “title only” bills.

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The State Supreme Court voted 8 to 1 against the other claims of the banking groups, noting that the B&O tax “also applies to all financial institutions reaching the income threshold of $ 1 billion, whether they are based inside or outside Washington ”.

State Attorney General Bob Ferguson welcomed the court decision Thursday, saying he “applies the law correctly and is a victory for those who fight to make Washington’s tax system fairer.”

“I am proud of my team’s work to maintain Washington’s new progressive tax on large, extremely profitable banks operating in Washington,” he added.

KIRO Radio reporter Hanna Scott contributed to this story.



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