Washington State: High court upholds B&O tax surcharge on banks

A Washington State Supreme Court case concerning business and occupation (B&O) tax surcharge imposed on banks.

High court upholds B&O bank surcharge

The Washington State Supreme Court today, September 30, 2021, upheld the constitutionality of the state’s business and occupation (B&O) tax surcharge imposed on certain financial institutions. 

The case is: Washington Bankers Association v. Department of Revenue. Read the high court’s decision [PDF 562 KB] 


Effective January 1, 2020, an additional B&O tax surcharge of 1.2% is imposed on specified financial institutions—defined as financial institutions that are members of a consolidated financial institution group that reported on its consolidated financial statement for the previous calendar year annual net income of at least $1 billion. 

After enactment of this new B&O tax surcharge, the Washington Bankers Association and the American Bankers Association challenged imposition of the surcharge on constitutional grounds.

A state superior court judge in May 2020 held in favor of the two banking associations. The trial court found that while the tax was not facially discriminatory, it did discriminate in its effect and its purpose. Read TaxNewsFlash

Shortly thereafter, the state requested direct review by the Washington State Supreme Court. 

Supreme Court’s decision

In a lengthy opinion, the high court concluded that the surcharge was not discriminatory on its face or in effect. Further, the high court determined the surcharge was not enacted with discriminatory purpose.  In the court’s view, because the tax applied equally to in-state and out-of-state financial institutions and was limited to Washington-apportioned income, it did not discriminate against interstate commerce. 

For more information, contact a KPMG State and Local Tax professional:

Michele Baisler | +1 206 913 4117 | mbaisler@kpmg.com


The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 3712, 1801 K Street NW, Washington, DC 20006.