Interim guidance statement regarding collective investment vehicles and investment income

April 16, 2025

Purpose

The Department of Revenue (“Department”) is issuing this interim guidance statement to provide interim guidance concerning how collective investment vehicles (CIV) are treated for business and occupation (B&O) tax purposes.

Background

The Washington Supreme Court recently held in Antio that the deduction in RCW 82.04.4281 is limited to the gross income of the business that is earned through investments that are incidental to the main purpose of the taxpayer’s business. This means that a taxpayer cannot deduct investment income if the investment activity generating the income is the main business activity of the taxpayer.

The Antio decision has raised questions as to the taxability of CIVs, and whether CIVs are subject to the service and other B&O tax classification of Washington’s B&O tax.

CIVs are entities that meet the following criteria:

• The person’s total gross income derived from its investments is at least 90% of the person’s total worldwide gross income of the business annually; and
• The person holds title to passive investment assets for the benefit of its investors, and the investment decisions are made by another person who serves as the CIV’s manager or advisor.
• The person accepts unrelated persons as its investors.

A CIV may take the form of a mutual fund, collective fund, or any similar investment vehicle whether structured as a limited or general partnership, limited liability company, corporation, trust or otherwise.

The Department has examined whether CIVs are subject to service and other B&O tax. There are facts and circumstances that suggest CIVs may be subject to B&O tax, while there are others suggesting they may not. The Antio decision did not directly address CIVs.

The goal of statutory interpretation is to carry out the legislature’s intent. Burns v. City of Seattle, 161 Wn.2d 129, 164 P.3d 475 (2007). The Department will, consistent with its understanding of RCW 82.04.4281’s legislative intent, treat the investment income of a CIV as not taxable. The Department’s position will be effective on an interim basis. However, amounts received by a CIV from non-investment sources are taxable. Further, amounts received by investors in a CIV are taxable, unless a deduction or exemption otherwise applies to such investors, or unless the investors are considered to not be engaging in business with respect to the investment activity.

The position in this interim guidance is based on the Department’s review of the language in RCW 82.04.4281 and its related legislative history. It is also informed by the meaning of “engaging in business” for B&O tax purposes, the Department’s prior guidance on this topic, and stakeholder feedback indicating confusion among taxpayers.

Taxpayer Instructions

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 final guidance, which we anticipate no later than June 30, 2026.

If you have questions about this guidance, please contact the Department at rulings@dor.wa.gov.