Bank groups sue Washington state over tax increase

A law taking effect Jan. 1 will increase taxes on large, out-of-state financial institutions.

By Rachel La Corte / Associated Press

OLYMPIA — Two bank association groups have sued the Washington Department of Revenue over a measure passed by the Legislature that will increase business taxes on large, out-of-state financial institutions.

The Washington Bankers Association and American Bankers Association filed the lawsuit in King County Superior Court on Nov. 5.

They want the court to invalidate House Bill 2167, which increases the business and occupation tax on financial institutions with an annual net income of at least $1 billion, which currently affects 20 institutions, all based outside the state.

The tax increase, which takes effect Jan. 1, was part of lawmakers’ two-year state budget plan and is expected to bring in about $133 million for the current budget cycle.

The groups argue that the measure — expected to bring the state about $1 billion over the next decade — violates the state constitution and the commerce clause of the U.S. Constitution.

The initial bill included only a vague title related to revenue and was then amended and fast-tracked in the final two days of the legislative session.

The 16-page lawsuit argues that the bill “suffered from a flawed legislative process and created an unconstitutional differential tax rate for in-state and out-of-state financial institutions.”

The groups say the fact that the content of the bill was not available until the last 48 hours of the session violates a section of the state constitution that requires legislation to be introduced at least 10 days before the adjournment of a legislative session.

They also argue that the measure violates the U.S. Constitution by discriminating against out-of-state groups “while simultaneously providing a home-court advantage to local businesses.”

Messages left with the bank groups were not immediately returned and officials with the Department of Revenue declined comment, citing the pending litigation.

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