Washington lawmakers pass tax increase impacting insurers

Since returning in January, Washington lawmakers have been busy advancing a variety of tax increases to help manage significant budget shortfalls and introduce new revenue streams. One new source of revenue approved by both the Senate and House and included in the state’s budget is HB 2487, which removes a tax exemption for health plan-affiliated businesses. 

While most Washington business activities are subject to the Business and Occupation (B&O) tax, the state imposes a separate health plan premium tax. As a result, insurers are exempt from paying the B&O tax on the gross revenue received as premium. Although there has been a long-running dispute on what taxes an insurer’s affiliates are subject to, the WA State Supreme Court concluded in Envolve Pharmacy Solutions v. Dept of Revenue that any entity providing goods and services related to the carrier’s insurance business, such as a PBM, is not subject to a separate B&O tax. HB 2487 declares the B&O tax exemption for insurance businesses only applies to the insurer directly paying premium tax on premium revenues, not affiliated businesses such as PBMs.

The bill was signed into law by Gov. Bob Ferguson (D) and applies retroactively to Jan. 1, 2022.