Today the state Supreme Court held that an additional business and occupation (B&O) tax on certain financial institutions is constitutional. The additional tax was imposed in 2019. As we wrote that year, it was one of many tax increases enacted even as the state’s revenues were experiencing strong growth.

SHB 2167 (now codified as RCW 85.04.29004) imposed an additional tax of 1.2% for financial institutions with annual net income of at least $1.0 billion. (This is on top of their current regular 1.75% B&O tax rate.) The fiscal note for the bill estimated that the tax would increase general fund–state revenues by $133.2 million in 2019–21, $205.6 million in 2021–23, and $219.1 million in 2023–25.

Because it was expected that this tax would apply mainly (if not entirely) to out-of-state banks, some argued that it violated the interstate commerce clause of the U.S. Constitution. The state Supreme Court finds that it does not: “Because the tax applies equally to in- and out-of-state institutions and is limited to Washington-related income, it does not discriminate against interstate commerce.” Further, “the tax does nothing to artificially limit the playing field or grant benefits to local institutions denied to their out-of-state competitors.”

The decision includes a data point about the fiscal impact: “RCW 82.04.29004 took effect on January 1, 2020. For the first three months of that year, the State received $34 million in revenue from 153 financial institutions, including three Washington-based taxpayers.”