SSB 5949
In CommitteeSenate
Insurer taxes
Concerning taxes imposed on insurers operating within the state.
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 closes a tax loophole that allowed non-insurer businesses (like pharmacy benefit managers) to avoid paying the Business and Occupation (B&O) tax on income received from insurers, by tightening the wording and scope of the insurance-related B&O tax exemption. It also consolidates and clarifies existing exemptions for insurers and repeals a separate exemption for health plans.
- Revises the Business and Occupation (B&O) tax exemption in RCW 82.04.320 to apply only when the *same insurer* that receives gross premiums also pays insurance premium taxes on those premiums—ending the ability of third parties (like pharmacy benefit managers) to claim the exemption.
- Adds a new subsection allowing the exemption to apply to insurers exempt from premium taxes under RCW 48.14.0201(6), preserving limited exemptions for certain types of insurers.
- Clarifies that eligible captive insurers affiliated with public universities are exempt from B&O tax on their insurance business, provided they meet statutory definitions.
- Repeals the separate B&O tax exemption for health maintenance organizations (HMOs), health care service contractors, and certified health plans previously found in RCW 82.04.322, consolidating all insurer-related exemptions into one section.
- Applies the changes retroactively to October 2, 2019, the date of a prior Department of Revenue guidance, to ensure consistent treatment of all affected businesses.
Who is affected
- Insurers operating in Washington — Insurers that pay premium taxes to Washington State and report gross premiums as exempt from B&O tax under the old law may now be required to pay B&O tax on certain income received from third parties (e.g., pharmacy benefit managers) if those third parties do not themselves pay premium taxes.
- Third-party administrators and related businesses (e.g., PBMs) — Entities like pharmacy benefit managers (PBMs) and other third-party administrators that receive payments from insurers and previously claimed exemption from B&O tax under the old interpretation of the law may now owe B&O tax on those payments.
- Captive insurers — Captive insurers—especially those affiliated with public universities—may face changes in how they qualify for B&O tax exemptions, depending on their tax-exempt status under specific statutes.
- State of Washington and public services — The state’s general fund and public services (e.g., schools) could benefit from increased tax revenue if the bill successfully closes unintended tax loopholes and recovers previously uncollected B&O tax.
Pro/Con Analysis
Stronger case for benefits
Potential Benefits (5)
Closing the loophole is expected to generate $20–$30 million annually in new revenue, which can be used to fund public services including schools, infrastructure, and emergency response — services that directly benefit everyday Washingtonians.
Public SafetyPeopleRef: Fiscal Impact Summary; Sec. 4 (retroactivity)Restoring the original legislative intent of the B&O tax exemption prevents tax avoidance by non-insurers, reinforcing fairness in the tax system and reducing the need for service cuts or tax increases on ordinary residents to make up for lost revenue.
Rights & LibertiesPeopleRef: Sec. 1(2)–(4), citing Armstrong v. State and Envolve Pharmacy SolutionsBy clarifying that only insurers who themselves pay premium taxes qualify for the exemption, the bill levels the playing field for insurers who comply with tax obligations, reducing competitive distortions caused by third-party tax avoidance.
Business & EmploymentPeopleRef: Sec. 2(1), as amended RCW 82.04.320Consolidating exemptions into one section improves administrative clarity for the Department of Revenue and reduces opportunities for inconsistent interpretation, benefiting state and local tax administration.
Local GovernmentPeopleRef: Sec. 2(2)–(4), new captive insurer provisionsRetroactive application ensures equal treatment of businesses — those that followed DOR guidance and those that did not — supporting fairness and discouraging strategic noncompliance.
FinancialPeopleRef: Sec. 1(6), retroactivity clause
Potential Concerns (5)
Pharmacy benefit managers (PBMs) and other third-party administrators that previously relied on the broad interpretation of the B&O tax exemption may face unexpected tax liability, potentially forcing cost-cutting measures including staff reductions or reduced services to employer clients.
Business & EmploymentPeopleRef: Sec. 2(1), as amended RCW 82.04.320Small third-party administrators without in-house tax expertise may face compliance burdens and administrative costs in responding to the new requirements, including potential penalties for past noncompliance due to retroactive application.
Business & EmploymentPeopleRef: Sec. 2(1), as amended RCW 82.04.320Public university-affiliated captive insurers may face new administrative complexity in demonstrating eligibility for exemption, especially if their structure straddles insurance and non-insurance functions.
Business & EmploymentLean peopleRef: Sec. 2(4), new captive insurer provisionRetroactive application to October 2, 2019 creates uncertainty and potential liability for businesses that relied on prior DOR guidance or court rulings, possibly triggering audits, interest, and penalties for past periods.
FinancialLean peopleRef: Sec. 4 (retroactivity clause)Insurers that previously delegated premium tax payment to brokers may face compliance uncertainty about whether their brokers fulfilled obligations, potentially exposing them to audit risk or disputes.
Business & EmploymentLean peopleRef: Sec. 2(1), as amended RCW 82.04.320
Who Is Most Affected
PBMs and similar third-party administrators who previously claimed the exemption may now owe back taxes plus interest and penalties. This could reduce their profitability, lead to job cuts, or result in passing costs to employers or insurers.
Insurers that pay premium taxes may benefit from a more level competitive field, but may also face administrative burdens verifying third-party compliance or defending against audits related to prior years.
Public universities with captive insurers may need to adjust internal compliance processes, but the new provision explicitly preserves their exemption eligibility — a net neutral-to-positive outcome if administrative costs are modest.
State and local governments benefit from increased revenue that can support schools, public safety, and infrastructure. Everyday Washingtonians benefit indirectly through maintained or improved public services.
Low- and middle-income Washingtonians who rely on public services (e.g., schools, transportation, healthcare) benefit from increased revenue, while high-income individuals and large corporations that previously exploited the loophole see a net financial cost.