In late 2024, the Washington Supreme Court issued a significant ruling in Antio, LLC v. Washington State Department of Revenue, clarifying how investment income is treated under the state’s Business & Occupation (B&O) tax reporting requirements.

Key Highlights of the Decision

Incidental Investment Deduction Narrowed

The Court held that the B&O tax deduction for incidental investments applies only to income earned from investments that are incidental to the taxpayer’s primary business purpose. If investment activity is the main business activity, the deduction does not apply.

  • Safe Harbor: investment income generating less than 5% of annual gross receipts is presumed incidental.
  • Burden of Proof: taxpayers exceeding the 5% threshold must demonstrate that the income came from surplus funds and was not part of their core business activity.

Special Cases

  • Endowments: Investment income from bona fide endowment funds remains fully deductible.
  • Non-Business Individuals: Individuals investing personal assets are not subject to B&O tax.
  • Financial Institutions & Security Businesses: Banks, lending businesses, and security businesses cannot claim the incidental investment deduction. Their gross income includes gains from trading, interest, commissions, and dividends.

Temporary Voluntary Disclosure Program

Effective July 1, 2025, Washington’s expanded Voluntary Disclosure Program lets businesses report unreported investment income subject to B&O tax without penalties or interest. Relief extends to other excise-tax income, but only for unreported investment income. Penalties still apply for collected but unremitted sales tax.

What’s Next?

The Department of Revenue is reviewing the decision and will issue updated guidance. Taxpayers with questions should request a ruling or consult the Department’s resources on apportionment and investment income. The complexities mean that proactive tax planning and consulting with a qualified tax professional are essential to ensure compliance and avoid potential retroactive assessment. Please reach our office with any questions.