The Washington Supreme Court held in Antio, LLC v. Dep’t of Revenue that investment companies may not deduct amounts derived from investments from their measure of business and occupation (B&O) tax. The court concluded such income was not deductible because it was not incidental to the taxpayers' main business operations, but rather generated by their primary business activities. In reaching its decision, the court relied on its prior ruling in O'Leary v. Dept of Revenue, 105 Wn.2d 679, 682, 717 P.2d 273 (1986), which held that “whether an investment is ‘incidental’ to the main purpose of a business is an appropriate means of distinguishing those investments whose income should be exempted from the B&O tax of RCW 82.04.4281.” The court held that the Washington State Legislature did not abrogate the court's definition of “investments,” for purposes of RCW 82.04.4281, in O’Leary when it amended RCW 82.04.4281 in 2002.

As a result, the service and other activities B&O tax (1.50% or 1.75%) applies to amounts derived from non-incidental investments.

The decision may adversely impact family trusts and offices, investment funds, special purpose investment entities, as well as individual investors, businesses, estates, and trusts that derive income from investing activity. Taxpayers may also face uncertainty determining whether and to what extent investing activity is incidental to the primary business activities.

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