Today, the Washington Supreme Court ruled in favor of the Department of Revenue in Antio LLC v. Department of Revenue regarding its interpretation of the deduction for investment income. Specifically, the court upheld the appeal court’s ruling that a group of investment funds organized as limited liability companies (LLCs) could not deduct “amounts derived from investments” when calculating their business and occupation (B&O) taxes.
In its ruling, the court adopted the definition of “investments” from the Washington Supreme Court’s earlier decision in O’Leary v. Department of Revenue. This definition restricts “investments” to those that are incidental to the primary purpose of the taxpayer’s business. Consequently, the court determined that the LLCs were ineligible for the deduction, as their investment income constituted 100% of their gross income, rather than being incidental.
Many companies have been deducting or excluding investment income from their taxable receipts in Washington under the Rev. Code of Wash. 82.04.4281. With this recent ruling, companies should review their investment income to see if it surpasses the court’s definition of “incidental,” which is set at 5% of total gross receipts.
If a company finds that its investment income exceeded this threshold at any time over the last four years, it should evaluate its method of attribution and consider whether this income should be sourced to Washington. Typically, investment income would be attributed to the company’s primary place of business. However, even if that location is outside Washington, there are instances where the Department has applied methods to attribute income back to Washington.
At Perkins, we are committed to staying abreast of the evolving tax landscape to assist you in making informed decisions for your business, whether it be accurately sourcing your income or determining the primary location of your operations. For further information or assistance in managing these transitions, please contact our state and local tax (SALT) Shareholder, Sonjia Barker, or your Perkins advisor.