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Trade Groups Ask SCOTUS to Hear Commerce Clause Challenge to Washington B&O Surtax on Financial Institutions

Two organizations, the Washington Bankers Association and American Bankers Association (collectively, the “Associations”), are urging the U.S. Supreme Court to review the constitutionality of Washington’s business and occupation surtax on large financial institutions. On January 28, 2022, the Associations filed a cert petition arguing that the surtax discriminates against interstate commerce in violation of the Commerce Clause and that the Washington Supreme Court’s decision upholding the surtax is erroneous.

 

The 1.2% surtax, which went into effect January 1, 2020, applies to “specified financial institutions,” a term defined in relevant part as a financial institution that is a member of a consolidated financial institution group with consolidated global annual net income of at least $1 billion. Last year, the Washington Supreme Court rejected the Associations’ argument that the legislative history and the significant $1 billion threshold established by the legislature demonstrated that the surtax was designed to single out large out-of-state financial institutions. Notwithstanding evidence that the surtax falls overwhelmingly on out-of-state financial institutions, the court held that the surtax does not discriminate against interstate commerce in purpose or effect.

In their petition, the Associations cite three overarching reasons why the U.S. Supreme Court should hear the case. First, the Associations assert that the Court must resolve a split among the circuit courts regarding the constitutionality of laws that use classifications as proxies for interstate commerce to target out-of-state businesses. Second, the Associations argue that review is warranted because the Washington Supreme Court’s decision is contrary to Commerce Clause precedent with respect to facially neutral laws that have a discriminatory effect on interstate commerce. Third, the Associations contend that the case presents an issue of significant national concern that, if left unaddressed, would tacitly authorize states and localities to use facially neutral laws to single out out-of-state companies.

The State’s response to the cert petition is due March 3, 2022. The case is Washington Bankers Association v. State of Washington, Department of Revenue, No. 21-1066.