Washington Amends B&O Tax Apportionment Rules for Financial Institutions

Washington state has revised its rules for how financial institutions must apportion their income for business and occupation (B&O) tax purposes, following a revision by the Multistate Tax Commission.

This apportionment rule is covered by Washington Administrative Code 458-20-19404 (Rule 19404). The Washington Department of Revenue is required by statute, to the extent feasible, to adopt a rule consistent with the Multistate Tax Commission’s model for the apportionment and allocation of financial institutions’ net income.

The Multistate Tax Commission approved amendments to its recommended formula for the apportionment and allocation of net income of financial institutions on July 29, 2015, making them effective for tax years starting on or after January 1, 2016. On December 28, 2015, the Washington Department of Revenue adopted its own amendments to Rule 19404 on an emergency basis. The emergency rule is effective January 1, 2016, and effective for 120 days after the filing date (until April 26, 2016) unless the Washington Department of Revenue adopts a permanent rule before then.


Several key amendments to Rule 19404 will affect financial institutions engaged in business in Washington.

Previously, service income that wasn’t specifically attributed by a provision of Rule 19404 was attributed to the location where the service was performed, based on the cost of performance. The emergency rule removes this language and attributes this type of revenue—along with all other apportionable receipts not specifically attributed—to a market according to the provisions of Washington Administrative Code 458-20-19402. This amendment will significantly impact the calculation of taxable income for financial institutions deriving this type of revenue.

Prior to these amendments, based on the definition of apportionable income, the receipts factor was calculated on the gross income of the business less deductions. However, the emergency rule removes the use of the term apportionable income for the receipts factor. Instead, it redefines the receipts factor to be calculated on gross income without consideration for exemptions and deductions. It’s unclear at this time whether this is a change in policy or a clarification to address an unintended consequence of the previously used wording.

Other Changes

The amendments to Rule 19404 also contain several other wording changes and clarifications,  including changes related to:

  • Fees and penalties in connection with loans
  • Card issuer reimbursement fees
  • Merchant discounts
  • ATM fees

We're Here to Help

If you have questions about how Rule 19404 applies to your financial institution’s revenue or want to know more about the amendments, contact your Moss Adams professional.

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