October 2, 2019
The Department is issuing this interim guidance to explain the application of the insurance business exemption provided by RCW 82.04.320.
In 1990, the Department published Determination 88-311A, 9 WTD 293. That Determination included analysis that was inconsistent with the plain language of RCW 82.04.320 and has been withdrawn. Refer to ETA 3133.2019 Withdrawal of Published Determinations.1
RCW 82.04.320 provides an exemption from business and occupation (B&O) tax for:
“…any person in respect to insurance business upon which a tax based on gross premiums is paid to the state…”
Who may claim the exemption?
The exemption is limited to persons engaged in the insurance business that receive gross income that is taxed under a gross premium tax paid to Washington.
What income is exempt?
The exemption only applies to amounts received in respect to insurance business upon which a gross premium tax is paid to Washington. Amounts received in respect to other activities are not exempt.
The statute does not define the term “insurance business.” Determining whether a person’s activities are in respect to the insurance business is a fact-specific inquiry. The Department typically considers 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
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
The Department typically considers the following non-exclusive list of activities as not essential to or directly related to the insurance business:
Premium tax payment
The person claiming the exemption must show proof of payment of Washington premium tax with respect to the gross income the person is claiming to be exempt from B&O tax.
The Department will continue to review this issue for purposes of developing final guidance. This interim statement will remain in effect until the Department issues its final guidance or cancels the interim statement.
If you have any questions about this guidance, please contact the Department at (360) 705-6705.
1 The Department finds that RCW 82.04.320 does not support the functionally related analysis in 9 WTD 293 and has withdrawn this determination from publication. Any subsequently published determination or Department guidance that relies on 9 WTD 293 should be disregarded to the extent that it also uses the functionally related analysis.