ARTICLE | November 12, 2024

In a recent decision, the Washington Supreme Court upheld a significant change to the state’s Business & Occupation (B&O) tax rules, narrowing eligibility for the investment income deduction. This ruling now limits the deduction to what it describes as “incidental investments of surplus funds,” impacting a wide range of businesses that previously relied on this deduction to reduce tax liabilities.

What Has Changed?

Historically, the Department of Revenue allowed businesses, including investment funds and certain non-financial entities, to apply the deduction broadly to investment income. However, under this ruling, only incidental investment income—typically from occasional investments of surplus business funds—qualifies for the deduction. Businesses with regular investment income may now face higher B&O taxes.

 What This Means For You

With this narrower interpretation, businesses may need to reassess their eligibility for the deduction and could face increased tax liabilities. For more details or assistance in understanding how this may impact your specific situation, please reach out to your LG advisor. Staying informed and proactive is key to minimizing potential tax impacts.