HB 1506
In CommitteeHouse
Credit union-bank merger/tax
Imposing a business and occupation tax on state-chartered credit unions that merge with a commercial bank.
This status may be delayed. See Action History below for the latest updates.
How does a bill become law?
- Introduced: The bill is filed and assigned a number.
- Committee: A subject-matter committee holds hearings, takes public testimony, and decides whether to advance the bill.
- Floor Vote: The full chamber (House or Senate) debates and votes on the bill.
- Opposite Chamber: The bill repeats the committee and floor vote process in the other chamber.
- Governor: The Governor reviews the bill and decides whether to sign or veto it.
- Signed: The bill has been signed into law.
AI Analysis
This bill removes the business and occupation (B&O) tax exemption for state-chartered credit unions that merge with or acquire a bank regulated by the Washington Department of Financial Institutions, making them subject to a 1.2% B&O tax on their gross income starting October 1, 2025.
- Revises the existing tax exemption for state- and federally chartered credit unions by removing it for those that merge with or acquire a bank regulated by the Washington Department of Financial Institutions.
- Imposes a 1.2% business and occupation (B&O) tax on the merged credit union’s gross income starting October 1, 2025, if the merger involves a bank.
- Clarifies that only credit unions merging with *banks* (not other credit unions or financial institutions) trigger loss of tax-exempt status.
Who is affected
- State-chartered credit unions — State-chartered credit unions that merge with or acquire a commercial bank regulated by the Washington Department of Financial Institutions will lose their tax-exempt status and owe B&O tax on their gross income.
- Commercial banks — Commercial banks that merge with or are acquired by a state-chartered credit union may see changes in the regulatory and tax environment of the resulting entity.
- State and local governments — Washington state taxpayers may be affected if the state loses tax revenue from credit unions that previously paid no B&O tax but now do after a merger.
Pro/Con Analysis
Potential Benefits (2)
The bill promotes regulatory parity: credit unions that become bank-like through mergers should contribute to general revenue like other financial institutions, supporting public safety infrastructure (e.g., law enforcement, emergency services) funded by general revenues.
Public SafetyPeopleRef: Sec. 1, subsection (2)By eliminating a tax advantage for credit unions that operate like banks, the bill levels the playing field, potentially encouraging fairer competition and preventing market distortion that could disadvantage community banks and credit unions that choose not to merge.
Business & EmploymentPeopleRef: Sec. 1, subsection (2)
Potential Concerns (3)
State-chartered credit unions that merge with a bank will face a new 1.2% B&O tax on gross income, which may reduce profitability and discourage such mergers—potentially limiting consumer access to integrated financial services or reducing competitive pressure on banks.
Business & EmploymentRef: Sec. 1, subsection (2)Credit unions—especially smaller, community-based ones—may absorb the tax burden through reduced dividends to members, higher fees, or slower growth, which could disproportionately impact lower- and middle-income members who rely on credit unions for affordable financial services.
Business & EmploymentPeopleRef: Sec. 1, subsection (2)While the state gains $10M annually, local governments may see reduced property tax revenue if merged entities scale back local branch operations or hiring in response to tax liability.
Local GovernmentRef: Sec. 1, subsection (2)
Who Is Most Affected
State-chartered credit unions that do not merge face no change; those that do merge will pay new taxes, potentially reducing member dividends, increasing fees, or slowing expansion—especially impactful for smaller, community-focused credit unions.
Commercial banks may benefit from reduced competitive disadvantage if merged credit unions now face the same tax burden, but could also face integration challenges if the merged entity restructures operations.
Lower- and middle-income credit union members—especially those who rely on credit unions for affordable loans and banking—may face higher fees or reduced services if the merged entity passes costs to consumers.
The state gains $10M/year in new revenue, which can fund public services; however, this is a relatively small share of the state budget and may not significantly shift fiscal capacity.
Wealthier individuals and shareholders in large credit unions or banks may benefit if merged entities maintain profitability through fee increases or premium services, but this is unlikely to be the primary outcome.