Now that the state legislature has approved a bill imposing a new tax on financial institutions, Washington bankers are scrambling to find out what’s in it, and whether it’s legal. Within a roughly 50-hour period, HB 2167 went from an April 27 public hearing in the House Finance Committee to clearing the legislature on April 28 after a narrow 25-24 Senate vote. The legislation remained a title-only bill until the afternoon of April 26.
HB 2167 adds an additional 1.2 percent business and occupation (B&O) tax on certain financial institutions, though its legality and the hasty process by which it moved through the legislature has come under fire by some state lawmakers and banking industry members.
Washington Bankers Association President & CEO Glen Simecek told Lens that the proposal came “completely out of left field. We didn’t have anything like this on our radar screen. This all happened sort of in the dark of the night. I don’t believe there’s been anything like this that’s been attempted in the past.”
He added that “for any business or any industry to have a tax applied to it with 72 hours left in the legislative session, it sends a really chilling message to business that we’re (lawmakers) potentially going to ambush you when it’s on a Friday and too late to really marshal your advocates or do your research.”
Similar criticism was leveled at the bill by Senate Financial Institutions, Economic Development & Trade Committee Chair Mark Mullet (D-5). Prior to the April 28 vote, he told colleagues on the Senate floor: “I can 100 percent guarantee to every person in this body that not at one point has this committee looked at this issue (HB 2167) that was presented on Friday out of the blue from nowhere, in any way, shape or form.”
Mullet and others argue that the bill’s provision taxing in-state banks at a separate rate than out-of-state banks violates the Commerce Clause.
“This is what happens when you come (up) with an idea that has not been in front of the banking committee that I’ve sat on the entire seven years I’ve been here, on the 103rd day of the session,” Mullet said.
Sen. Steve O’Ban (R-28) warned colleagues that “we’re buying a lawsuit, so we ought to calculate whatever funds we may receive from this tax and subtract what we’re going to have to pay in legal fees, because you can’t have a differential tax scheme like we’re proposing here that so clearly, so obviously differentiates between…in-state and out-of-state banks without failing the smell test.”
As the association reviews the bill to determine its effects and which institutions are subject to the new tax, Simecek says the public input process would have allowed problems with the bill language to be addressed. “We were there basically around the clock from Saturday morning to Sunday night trying to reach lawmakers and share our concerns with them. We have a system that’s designed specifically to enable stakeholders to have a say. The approach the legislature took, it seems, was intended to completely circumvent the opportunity of stakeholders to weigh in.”
Although lawmakers such as Mullet and O’Ban are convinced the bill is unconstitutional, Simecek says the association is holding judgement for now. “It’s too early to say what steps we’ll take, but (we’re) certainly looking at the constitutionality of the bill. I think we’d be getting out over our skis if we were to say there will or won’t be a court fight.”
HB 2167 was delivered to Governor Jay Inslee on April 28, but has yet to be signed into law.