Washington Legal Decision Clarifies Insurance B&O Tax Exemption Opportunity
By Shane Griffiths
Senior Manager
Moss Adams
Original Publish Date: April 11, 2023
The Washington State Court of Appeals issued a decision on February 27, 2023, in Envolve Pharmacy Solutions, Inc. v. Department of Revenue, that provides clarity on activities functionally related to insurance, that are exempt from business and occupation (B&O) tax pursuant to RCW 82.04.320.
The case clarified that a separate legal entity that doesn’t directly report premiums or pay premiums tax to the Washington Office of the Insurance Commissioner can also potentially qualify for the insurance B&O tax exemption—provided its activities are functionally related to an insurance business who files and pays Washington premium tax.
What This Means for Non-Carrier Entities Performing Insurance Business Activities
This means administrative entities performing insurance business activities—which are discussed further below—for insurance carriers, health maintenance organizations (HMO), and other entities that report Washington gross premiums tax could be exempt from B&O tax.
As this is a clarification of an existing law, there are potential refund opportunities if taxpayers overpaid B&O tax on their activities. A refund claim can be filed to recover overpaid B&O tax in the last four years plus the current calendar year.
Performing Insurance Business Activities
RCW 82.04.320 provides a B&O tax exemption for “any person in respect to insurance business upon which a tax based on gross premiums is paid to the state.” The Washington Department of Revenue (DOR) previously published an Interim Guidance Statement that provides the following non-exclusive list of activities as directly relating to the insurance business:
- Inspecting, evaluating, and testing insured—or prospective insured—property for risk of fire and other property loss
- Loss prevention engineering
- Appraising insured property
- Setting rates for, and underwriting insurance policies
- Investigating claims
- Determining cause
- Recommending changes to prevent recurrence
- Negotiating settlements of such claims
- Defending contested claims
- Handling subrogation proceedings
- Making advance, partial, and final payments to the insured
Functionally related services means activities associated and necessary to accomplishing the insurance function. Services performed are considered functionally related if they relate exclusively to the insurance business that pays the premium taxes.
For more information or questions about the WA B&O insurance business exemption, contact a Moss Adams professional. You can also visit Moss Adams State & Local Tax Services page.
Shane Griffiths, JD, LLM, CPA, is a Senior Manager at Moss Adams. Shane has practiced public accounting since 2011. He primarily assists public and privately held clients with state and local tax matters—audits, refund requests, tax planning and structuring, and letter rulings—and provides insight on multistate income and franchise tax. He can be reached at shane.griffiths@mossadams.com or (206) 302-6200.
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