Antio, LLC v. Department of Revenue – Deducting Investment Income

Dec 30, 2024

The Washington Supreme Court, in a recent 7-2 decision, upheld a trial court’s ruling in favor of the Department of Revenue (“DOR”), denying deductions for investment income claimed by 16 related LLCs. Antio, LLC v. Dep’t of Revenue, 557 P.3d 672 (Wash. 2024). Antio highlights the complexities of tax law and the importance of statutory interpretation in determining tax liabilities.

Background

The LLCs in this case generated all their income from investments, such as buying and selling distressed debt, like credit card debt. They paid Business and Occupation (“B&O”) taxes but applied for a 100% refund of their investment income under RCW 82.04.4281. While the statute allows deductions for amounts derived from investments, it does not clearly define the term “investments.” As a result, the Department of Revenue (“DOR”) denied the application for the refund.

The definition of “investments” was originally clarified in O’Leary v. Dep’t of Revenue, 105 Wn.2d 679, 717 P.2d 273 (1986), where it was limited to incidental investments not central to the taxpayer’s main business. Subsequent legislative amendments to the investment deduction statute aimed to provide clearer guidelines on what qualifies as deductible investment income. Despite these changes, the fundamental interpretation of the term “investment” as established in O’Leary remains in force today.

The Trial Court’s Decision

The trial court granted summary judgment in favor of the DOR, concluding that the LLCs were not entitled to the deduction. The court relied on the precedent set in O’Leary, as the investments in question were the main purpose of the taxpayer’s business.

The Washington Supreme Court Ruling

The Washington Supreme Court in Antio upheld the trial court’s decision. It stated that investment companies could not deduct income earned through their primary business activities under RCW 82.04.4281(1)(a) because the legislature had not changed O’Leary’s definition of “investments” when amending the statute. It further held that “[b]usinesses can claim only the deduction for investments that are incidental to the main purpose of a business.” Antio, at 678.

Implications for Businesses

The Antio case serves as a critical reminder that not all investment income may qualify for deductions under Washington’s B&O tax laws, especially when such income is central to the taxpayer’s business operations. This decision underscores the importance of statutory interpretation in tax law and the need for businesses to stay informed about legal precedents like O’Leary and Antio that may affect their tax liabilities.

By partnering with Beresford Booth, businesses can ensure they are well-prepared to navigate their tax obligations and stay compliant with legal requirements, ultimately achieving peace of mind and avoiding potential legal complications.

For any questions regarding LOIs for Business Transactions, please contact Beresford Booth at info@beresfordlaw.com or by phone at  (425) 776-4100.

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