HB 2023
In CommitteeHouse
Investment income taxation
Establishing a work group to study the taxation of investment income under RCW 82.04.4281.
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 pauses enforcement of potential Business and Occupation (B&O) tax on investment income for non-banking businesses due to uncertainty from a recent state Supreme Court decision, and creates a work group to study how investment income should be taxed under current law. The pause lasts until July 1, 2026, and the work group must deliver recommendations to the legislature by November 30, 2025.
- Prohibits the Department of Revenue from taxing investment income of non-banking/lending/security businesses under the Business and Occupation (B&O) tax until July 1, 2026, due to uncertainty from a recent state Supreme Court ruling.
- Establishes a work group convened by the Department of Revenue to study how investment income should be taxed under existing law (RCW 82.04.4281) and submit recommendations to the legislature by November 30, 2025.
- The work group includes representatives from state agencies, investment management firms, nonprofit arts organizations, union pension funds, business associations, and accounting professionals.
- The work group must meet at least once a month and deliver its final report to the legislature by November 30, 2026, after which the temporary protection expires.
- The bill takes effect immediately to prevent uncertainty and potential unfair tax assessments while the legislature studies the issue.
Who is affected
- Investors and small business owners with investment income — Individuals and businesses that earn investment income (like dividends, interest, or capital gains) but are not banks, lenders, or securities firms — they are temporarily protected from being taxed on that income under current B&O rules until July 2026.
- Washington Department of Revenue and Office of Financial Management — State agencies responsible for tax administration and budget planning will need to coordinate with the work group and prepare for potential future changes to tax policy.
- Nonprofit arts/cultural organizations and union pension funds — Organizations in the arts and cultural sector, as well as union pension funds, will help advise the state on how investment income taxation could affect their operations and beneficiaries.
- General business associations and certified public accountants — Business associations and accounting professionals will provide input on how proposed changes might affect Washington businesses and tax compliance.
Pro/Con Analysis
Potential Benefits (5)
The pause prevents immediate uncertainty and potential retroactive tax assessments for small and mid-sized businesses that hold investment income (e.g., law firms, accounting practices, real estate offices), allowing them to plan without fear of unexpected liabilities.
Business & EmploymentRef: Sec. 2(1)The work group provides a structured, time-bound process to clarify ambiguous tax law — reducing long-term compliance risk and promoting consistency in how investment income is treated across sectors.
Local GovernmentRef: Sec. 3(1)-(5)Inclusion of nonprofit arts and union pension fund representatives ensures that impacts on public-sector beneficiaries (e.g., cultural institutions, public employee retirees) are considered — though not decisive — in policy development.
Business & EmploymentRef: Sec. 3(2)(d)-(f)Immediate effect prevents administrative chaos and inconsistent enforcement across counties or firms while the legal ambiguity persists, supporting stable tax administration during a transition period.
Business & EmploymentRef: Sec. 4 (Emergency clause)By pausing enforcement, the bill avoids penalizing taxpayers who reasonably relied on prior DOR guidance and precedent — supporting fairness and due process in tax administration.
FinancialRef: Sec. 1 (Findings)
Potential Concerns (5)
The pause on B&O tax enforcement for investment income creates a temporary windfall for high-net-worth individuals and entities with significant investment portfolios, as they avoid a potential tax liability that may ultimately be reinstated — but only after a 17-month delay that allows them to defer payment and potentially restructure activities to avoid future taxation.
FinancialRef: Sec. 2(1)The work group includes representatives from international investment management firms, giving concentrated financial industry interests direct access to shape tax policy — while everyday investors (e.g., retirement account holders without direct advisory relationships) have no formal representation.
Business & EmploymentRef: Sec. 3(2)(c)The bill delays any revenue generation from taxing investment income until at least mid-2026, potentially reducing funds available for state and local services during a period of budget uncertainty — though no immediate fiscal impact is projected, the delay risks lost revenue if future legislation fails to act.
Local GovernmentRef: Sec. 2(2) & Sec. 3(6)While nonprofit arts and union pension fund representatives are included, their influence is advisory only; final tax policy decisions remain with the legislature and DOR, limiting the practical impact of their participation on outcomes affecting their beneficiaries.
Public SafetyRef: Sec. 3(2)(d)-(f)The bill’s framing as protecting “numerous Washingtonians” is misleading: only non-banking businesses with investment income (e.g., law firms, real estate firms, tech companies with cash reserves) qualify — not individuals with modest investment accounts or retirees on fixed incomes.
FinancialRef: Sec. 1 (Findings)
Who Is Most Affected
Non-banking businesses with investment income (e.g., law firms, real estate offices, tech companies with cash reserves) gain temporary relief from uncertain tax liability, reducing compliance risk — but may face future tax increases if recommendations lead to tightening of the deduction.
High-net-worth individuals who receive investment income through pass-through entities or closely held businesses benefit from the pause — but the benefit is not available to those without business structures, creating inequity.
Union pension funds and nonprofit arts organizations gain a formal voice in tax policy development, potentially influencing outcomes that affect their funding and operations — but their advisory role limits direct control over final policy.
The state loses no revenue now, but risks future revenue if the work group delays or watered-down recommendations — while DOR and OFM gain clarity on implementation timelines but face added administrative burden.
Average wage earners and retirees with modest investment accounts (e.g., in 401(k)s or IRAs) are unaffected — the policy applies only to business entities, not individuals — so they face no direct impact, positive or negative.