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Washington: US Supreme Court Denies Reviewing Constitutionality of Added 1.2% B&O Tax on Banks

Docket No. 21-1066, US (cert denied 6/13/22). The US Supreme Court denied review of a case challenging the constitutionality of Washington’s additional 1.2% business and occupation (B&O) tax on certain “specified financial institutions” pursuant to legislation enacted in 2019 [see SHB 2167 (2019) for more details on this law]. In 2021, the Washington Supreme Court (Court) reversed a trial court to hold that the added 1.2% tax does not discriminate against interstate commerce in effect or in purpose but rather “applies equally to all financial institutions meeting the $1 billion income threshold, irrespective of whether they are based inside or outside of Washington” [see Case No. 98760-2, Wash. (9/30/21) and State Tax Matters, Issue 2021-40, for more details on this case]. The Court additionally reasoned that the 1.2% tax is apportioned such that affected institutions remit taxes only on income generated in Washington; and because the imposition is not discriminatory, “the dormant commerce clause is not implicated” but “in any event, the statute satisfies the Pike balancing test.” In 2020, a state superior court judge had granted summary judgment in favor of the two bank association challengers, holding that such added 1.2% B&O taxation discriminates against interstate commerce in violation of the Commerce Clause in applying exclusively to select out-of-state financial institutions. Please contact us with any questions.