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Washington Appellate Court Agrees that Investment Funds are Ineligible for Investment Income Deduction
Case No. 57312-1-II, Wash. Ct. App. (4/11/23). In a published opinion involving sixteen investment funds (i.e., “the LLCs”), a Washington Court of Appeals (Court) affirmed the trial court’s order granting summary judgment in favor of the Washington Department of Revenue (Department) that the LLCs’ investment income did not qualify for a former deduction from the measure of Washington business and occupation (B&O) taxes because pursuant to a 1986 Washington Supreme Court decision, the term “investments” for purposes of this former investment income deduction is limited to investments that are incidental to the main purpose of a B&O taxpayer’s business. In this case, the Court agreed with the Department that the LLCs’ investment in debt instruments is not “incidental” to the main purpose of their businesses; rather, “investment is the only purpose of their businesses” as 100% of the LLCs’ income is investment income. Accordingly, they were deemed ineligible for the B&O tax deduction. Please contact us with any questions.
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