SENATE BILL REPORT
SB 5815
As of April 16, 2025
Title: An act relating to funding public schools, including higher education, health care, social services, and other programs and services to benefit Washingtonians by modifying business and occupation tax surcharges, rates, and the advanced computing surcharge cap, clarifying the business and occupation tax deduction for certain investments, and creating a temporary business and occupation tax surcharge on large companies with annual revenues with more than $250,000,000.
Brief Description: Modifying business and occupation tax surcharges, rates, and the advanced computing surcharge cap, clarifying the business and occupation tax deduction for certain investments, and creating a temporary business and occupation tax surcharge on large companies.
Sponsors: Senators Saldaña and Robinson.
Brief History:
Committee Activity: Ways & Means: 4/16/25.
Brief Summary of Bill
  • Increases business and occupation (B&O) tax rates for certain existing activities.
  • Creates an additional 0.5 percent B&O surcharge on taxpayers with Washington taxable income over $250 million.
  • Increases the tax rate for several existing B&O surcharges.
  • Increases the annual cap for the Advanced Computing Surcharge.
  • Modifies the  B&O investment income deduction.
SENATE COMMITTEE ON WAYS & MEANS
Staff: Jeffrey Mitchell (786-7438)
Background:

Washington's primary business tax is the business and occupation (B&O) tax.  Businesses operating in Washington pay B&O tax on the business's gross income without deductions for the cost of doing business. The activities of a business determine the B&O tax classifications and tax rates under which the business pays B&O taxes.

 

The major B&O tax rates include:

  • 0.471 percent for retailing;
  • 0.484 percent for manufacturing, wholesaling, and extracting;
  • 1.5 percent for service and other activities when the business's taxable service and other activities income is less than $1 million in the prior year; and
  • 1.75 percent for service and other activities if the business's taxable service and other activities income is $1 million or more in the prior year.

 

The majority of B&O tax collected is deposited into the general fund. One exception is tax collected from the 1.75 percent service and other activities B&O tax rate—the Workforce Education Investment Account (WEIA) receives 14.3 percent of those tax collections.

 

Certain taxpayers pay B&O surcharges in addition to B&O tax, such as the specified financial institution surcharge and the workforce education investment surcharge. Surcharges are in addition to B&O tax.

 

The additional tax on specified financial institutions is a 1.2 percent B&O surcharge on their service and other activities income.

 

A specified financial institution is a member of a consolidated financial institution group that reported an annual net income of at least $1 billion on its consolidated financial statement for the previous year, not including net income attributable to noncontrolling interests.

 

The advanced computing surcharge (ACS) is a 1.22 percent B&O surcharge, on the service and other activities B&O income of select advanced computing businesses.

 

The amount of ACS paid by all members of an affiliated group is capped at $9 million per calendar year.

 

The general fund receives the tax collections from the additional tax on specified financial institutions. The Workforce Education Investment Account receives the tax collections from the ACS.

 

Gains realized from trading in stocks, bonds, or other evidences of indebtedness, interest income, dividends, and other investment related income would generally be subject to the state B&O tax; however, state law provides a deduction for amounts derived from investment income.  Banking, lending, and security businesses are not eligible for the deduction. 

 

The Washington Supreme Court recently held in Antio v. Washington State Department of Revenue that this deduction is limited to income that is earned through investments that are incidental to the main purpose of the taxpayer’s business, even if the business is not a banking, lending, or security business. Generally speaking, this means that a taxpayer cannot deduct investment income if the investment activity generating the income is the main business activity of the taxpayer.
Summary of Bill:

The bill as referred to committee not considered.
Summary of Bill (Proposed Substitute):

The B&O tax rate is increased for these activities:

  • from 0.484 percent to 0.5 percent for standard manufacturing, extracting, and wholesaling;
  • from 0.471 percent 0.5 percent for standard retailing and radioactive waste clean-up;
  • from 0.484 percent to 0.5 percent for research and development by non-profits;
  • from 0.484 percent to 0.5 percent for insurance agents, childcare, treatment of chemical dependency, and services for salmon canners;
  • from 1.5 percent to 1.8 percent for contests of chance—gambling;
  • from 0.484 percent to 0.5 percent for the manufacturing, wholesaling, and retailing of commercial airplanes, or components of such airplanes;
  • from 0.484 percent to 0.5 percent for both the manufacturing and retailing of tooling, specifically for use in manufacturing commercial airplanes, or components of such airplanes;
  • from 0.484 percent to 0.5 percent for printing materials—other than newspapers, and of publishing periodicals or magazines; highway contractors; cold storage warehousing; radio or television broadcasting; and government contractors; and
  • from 1.75% percent to 2.1 percent for the service and other activities B&O tax rate for businesses with gross income of over $1 million.

 

The B&O surcharge rates are increased to:

  • from 1.2 percent to 1.5 percent for the additional tax on specified financial institutions; and
  • from 1.22 percent to 5 percent for the ACS.

 

In addition to the tax increase, the ACS annual cap is increased to $50 million.

 

An additional 0.5 percent B&O surcharge on taxpayers with Washington taxable income over $250 million is created, but excludes:

  • taxpayers who pay the specified financial institution surcharge;
  • manufacturing activities; and
  • sales of food, food ingredients, food stamp purchases, and prescription drugs.

 

The calculation for the $250 million threshold excludes:

  • manufacturing activities; and
  • sales of food, food ingredients, food stamp purchases, and prescription drugs.

 

The additional surcharge applies only to taxable income over $250 million. The first $250 million in taxable income each calendar year is exempt.

 

With respect to the B&O investment income deduction, only amounts that are incidental to the main purpose of the business may be deducted.  Investments are considered incidental if the total worldwide gross income from the investments is less than 5 percent of the business's total worldwide gross income of the business annually.  Nonprofit organizations and collective investment vehicles may deduct investment income regardless of whether the investments are incidental to the main purpose of the person's business.

 

A "collective investment vehicle" is a mutual fund, collective fund, or any similar investment vehicle where the investment vehicle's total gross income derived from its investments is at least 90 percent of the investment vehicle's total worldwide gross income of the business annually, it holds title to passive investment assets for the benefit of the business's investors, investment decisions are made by another person who serves as the collective investment vehicle's manager or advisor, and the business accepts unrelated persons as its investors.
Appropriation: None.
Fiscal Note: Requested on April 15, 2025.
Creates Committee/Commission/Task Force that includes Legislative members: No.
Effective Date: The bill contains several effective dates. Please refer to the bill.