SeeSALT Blog
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.
A Washington state trial judge partially granted the state’s motion to dismiss a lawsuit challenging the validity of a recently enacted Washington tax measure that increases the state’s Business & Occupation Tax (B&O Tax) on large, out-of-state financial institutions. The Plaintiffs, the Washington Bankers Association and American Bankers Association (collectively, the “Bankers Associations”) filed a challenge to invalidate House Bill 2167, which targets large out-of-state financial institutions by increasing Washington’s B&O Tax rate if the institution’s annual net income equals to or exceeds $1 billion. The Bankers Associations sought to invalidate the law, which became effective January 1, 2020, on the grounds that the measure violates: (1) the state’s constitutional requirement to introduce a bill at least 10 days prior to the adjournment of a legislative session; and (2) the U.S. Constitution’s Commerce Clause because it discriminates against out-of-state financial institutions by imposing a higher tax rate on out-of-state financial institutions versus in-state institutions. The state moved to dismiss the complaint, focusing on the procedural issue under the state’s constitution rather than the apparent discriminatory nature of the law. Specifically, the state asserted that the “enrolled bill doctrine” enjoined the Washington trial court from reviewing evidence, other than the final enrolled bill itself, to show that a constitutional violation occurred during the enactment process.
The Washington Court of Appeals held that Gartner, Inc.’s online research service was a digital automated service subject to the state’s retail sales tax and retailing Business and Occupation (B&O) Tax. Gartner, Inc. v. Washington Department of Revenue, No. 51637-3-II (Wash. App. Div. 2 Jan. 13, 2020). This decision addressed the scope of Washington’s “human effort” exclusion from the retail sales tax, the applicability of the “bundled transaction” and “true object” tests to offerings that contain taxable and nontaxable components, and the Internet Tax Freedom Act.
