The Washington Court of Appeals has held that investment funds are subject to Washington state business and occupation (B&O) tax on their investment income. Although Washington law allows taxpayers to deduct "amounts derived from investments" from their gross income,1 the court concluded that the deduction was limited to investments "incidental to the main purpose of a business." Because the funds' investments in debt instruments were not "incidental" to the funds' businesses, the funds' investment income was subject to B&O tax. Antio, LLC v. Department of Revenue, 527 P.3d 164 (Wash. Ct. App. 2023). The court of appeals denied the taxpayers' petition for reconsideration on June 27, 2023, and the taxpayers filed a petition for discretionary review with the Washington Supreme Court on July 27, 2023.
Who Is Affected?
This decision will likely have significant B&O tax impact on investment vehicles with operations (and potentially investments, investors, or beneficial owners)2 in Washington, including:
- Private equity funds.
- Venture capital funds.
- Mutual funds.
- Other collective investment vehicles.
- Family trusts and offices.
- Businesses that conduct treasury or investment functions in special purpose entities (including federally disregarded entities) outside the entities that conduct the businesses' primary business operations.
The decision may also affect many individual investors with investment...
