SB 5777
In CommitteeSenate
Payment card processing/tax
Creating a business and occupation tax deduction and increasing the rate for persons conducting payment card processing activities.
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 establishes a new 3.0% business and occupation (B&O) tax on payment card processing activities in Washington, with deductions for interchange, network, and shared fees. It also renews and updates existing taxes on large financial institutions and advanced computing companies, while clarifying definitions and exemptions for processors.
- Creates a new 3.0% B&O tax rate specifically for payment card processors on gross income from payment card processing activities.
- Allows payment card processors to deduct interchange fees, network fees, and portions of fees retained by other processors when calculating the tax base.
- Exempts certain processors from the 3.0% rate (e.g., those that operate the payment network or are affiliated with the network operator, or those that are also the issuer); those exempt remain subject to the standard B&O tax rates without the new deductions.
- Amends existing B&O tax rules to clarify definitions of processor, acquirer, issuer, payment network, interchange fee, and network fee.
- Reenacts and updates the 1.2% additional tax on specified financial institutions (large consolidated groups with ≥$1B net income) and the 1.22% workforce education investment surcharge on select advanced computing businesses.
- Sets an annual cap of $9 million on the total workforce education investment surcharge paid by affiliated groups of advanced computing businesses.
Who is affected
- Payment card processors — Payment card processors (e.g., companies that route electronic transactions for merchants, banks, or networks) will be taxed at a new 3.0% rate on gross income from payment card processing, but can deduct interchange fees, network fees, and portions of fees retained by other processors.
- Specified financial institutions — Large financial institutions (those in consolidated groups with over $1 billion in annual net income) will continue to pay an additional 1.2% tax on income subject to B&O tax under subsections (2) and (4) of RCW 82.04.290.
- Select advanced computing businesses — Large advanced computing companies (affiliated groups with over $25 billion in worldwide gross revenue) will continue to pay a 1.22% workforce education investment surcharge on income taxed under RCW 82.04.290(2) and (4).
- Merchants and consumers — Merchants and consumers may see indirect effects if processors pass on costs, but the bill does not directly regulate merchant fees or consumer prices.
Pro/Con Analysis
Stronger case for benefits
Potential Benefits (4)
Revenue from the new 3.0% processor tax, plus the renewed financial and computing surcharges, will flow into the general fund and workforce education investment account — this could support public safety, education, and workforce development programs that benefit everyday Washingtonians.
Public SafetyPeopleRef: Sec. 4(1)(a)(ii); Sec. 4(2)(a)(ii)The bill directs surcharge revenue to the workforce education investment account, which funds job training and education programs — this directly benefits working-age Washingtonians seeking upskilling or career transitions, especially those in low- and middle-income brackets.
EducationPeopleRef: Sec. 4(1)(a)(ii); Sec. 4(2)(a)(ii)The bill clarifies definitions (e.g., processor, interchange fee, network fee), reducing ambiguity for small and mid-sized payment processors — this lowers compliance risk and helps micro-businesses avoid misclassification penalties.
Business & EmploymentPeopleRef: Sec. 4(1)(a)(ii); Sec. 4(2)(a)(ii)By increasing state revenue without raising property or sales taxes on typical households, the bill avoids shifting tax burden to everyday residents — this helps stabilize housing affordability and consumer spending.
HousingPeopleRef: Sec. 4(1)(a)(ii); Sec. 4(2)(a)(ii)
Potential Concerns (5)
The bill creates a new 3.0% B&O tax on payment card processors, which may increase compliance and administrative costs for firms in this sector; however, the deduction for interchange, network, and shared fees mitigates the tax base, and the exemption for network operators and issuers reduces the scope of affected entities.
Business & EmploymentRef: Sec. 2(2)(a)(ii); Sec. 4(1)(a)The bill includes a $9M annual cap on the workforce education investment surcharge for advanced computing businesses, limiting liability for large firms but not providing proportional relief for smaller operators — the cap is only meaningful for the largest players (e.g., Microsoft, Amazon, Apple), while smaller firms pay the same per-dollar rate but on smaller bases.
Business & EmploymentRef: Sec. 4(4)(a)(ii); Sec. 4(2)(a)(ii)The 1.2% additional tax on specified financial institutions and 1.22% surcharge on select advanced computing businesses are reenacted and updated, maintaining existing tax structures for large consolidated groups — this preserves predictability for large firms but does not expand or reduce their tax burden.
Business & EmploymentRef: Sec. 4(1)(a)(ii); Sec. 4(2)(a)(ii)The bill does not directly affect public safety services, but revenue generated (estimated $150–200M annually) could support general fund programs, including public safety — however, the bill does not earmark funds for this purpose, so the impact is speculative.
Public SafetyRef: Sec. 4(1)(a)(ii); Sec. 4(2)(a)(ii)The bill does not alter local government funding formulas or impose new mandates, but increased state revenue could indirectly support shared revenue distributions — however, no such linkage is specified in the text.
Local GovernmentRef: Sec. 4(1)(a)(ii); Sec. 4(2)(a)(ii)
Who Is Most Affected
Large payment card processors (e.g., Fiserv, FIS, Global Payments) face a new 3% tax on gross processing income, but can deduct interchange, network, and shared fees — net effect is likely a moderate increase in compliance and operational costs, especially for firms not exempt.
Large financial institutions (≥$1B net income in consolidated group) remain subject to a 1.2% surcharge — this is a continuation of existing policy, so impact is neutral for most, though it may slightly reduce capital reinvestment or dividend payouts.
Advanced computing firms (≥$25B worldwide gross revenue) remain subject to a 1.22% surcharge capped at $9M — this is a continuation with a hard cap, so large firms face predictable liability, while smaller tech firms are unaffected.
Merchants and consumers may face indirect cost pass-through from processors, but the bill does not regulate merchant discount rates or consumer pricing — evidence suggests most processors absorb or pass through costs unevenly, with larger merchants better positioned to negotiate.
Workers in education and training programs may benefit from increased funding in the workforce education investment account — this is a targeted benefit for low- and middle-income adults seeking upskilling or reentry into the labor market.