Alert
Washington Supreme Court Decision Could Impact Some Washington State Taxpayers
On October 24, 2024, the Washington Supreme Court decided Antio LLC et. al. v. Department of Revenue, which could impact Washington taxpayers with investment income or that receive passive income from investments. Learn more about this ruling and how it could impact your tax planning and compliance.
Who Is Affected by the Antio Ruling?
This ruling may significantly impact Washington taxpayers, particularly those with investment income or passive income derived from investments, including limited liability companies (LLCs) and other entities structured primarily for investment activities.
Background of Antio
In Antio, 16 related LLCs generated all their income from investments. RCW 82.04.4281(1)(a) allows a person, which is a taxpayer under Washington law, to deduct “amounts derived from investments” from its gross income.
In 1986, the Washington Supreme Court in O’Leary v. Department of Revenue determined that investments for purposes of the deduction statute meant amounts incidental to the main purpose of their business. This meant that companies couldn’t take the investment income deduction if investing constitutes their primary business, or at least wasn’t merely incidental to the main purpose of their business. In Antio, this meant the LLCs couldn’t deduct any amounts under the statute, because investing was the primary businesses.
After O’Leary was decided, and in 2002, the Washington Legislature amended the deduction statute. The amendment changed the statute such that there was a question remaining as to whether the amendment abrogated O’Leary to allow those with investment income as their primary revenue stream or those who receive investment income that’s not merely incidental to the main purpose of their business a deduction under the statute.
Therefore, the issue in Antio was if the Washington legislature intended to overrule O’Leary with the amendment such that even businesses who derive all their income from investments, like the 16 related LLCs, can take advantage of the deduction.
What Changes with the Antio Ruling
The Washington Supreme Court didn’t overrule O’Leary and found that if the legislature intended to abrogate O’Leary’s holding, then they would have explicitly done so.
For example, the legislative amendment didn’t define investments when it amended the statute. Therefore, O’Leary is still good law, and those that receive all their income from investments cannot use RCW 82.04.4281(1)(a) to deduct the entirety of their income.
In summary, the Washington Supreme Court's ruling in Antio LLC v. Department of Revenue reinforces the precedent set by O’Leary regarding the treatment of investment income for business and occupation (B&O) tax purposes.
The decision clarifies that entities whose primary revenue stream comes from investments cannot deduct this income under RCW 82.04.4281(1)(a), as it doesn’t meet the definition of incidental income.
We’re Here to Help
To learn more about this ruling and how it could impact your tax planning and compliance, contact your Moss Adams professional.