Antio, LLC v. Dep't of Revenue ( 2024 )

FILE
THIS OPINION WAS FILED
FOR RECORD AT 8 A.M. ON
OCTOBER 24, 2024
IN CLERK’S OFFICE
SUPREME COURT, STATE OF WASHINGTON
OCTOBER 24, 2024 SARAH R. PENDLETON
ACTING SUPREME COURT CLERK
IN THE SUPREME COURT OF THE STATE OF WASHINGTON
ANTIO, LLC; AZUREA I, LLC; BACK ) No. 102223-9
BOWL I, LLC; CANDICA, LLC; )
CERASTES-WTB, LLC; GCG EXCALIBUR, )
LLC; LINDIA, LLC; OAK HARBOR )
CAPITAL, LLC; OAK HARBOR CAPITAL II, ) En Banc
LLC; OAK HARBOR CAPITAL III, LLC; )
OAK HARBOR CAPITAL IV, LLC; OAK )
HARBOR CAPITALVI, LLC; OAK HARBOR )
CAPITALVII, LLC; OAK HARBOR CAPITAL ) Filed: October 24, 2024
X, LLC; OAK HARBOR CAPITAL XI, LLC; )
and VANDA, LLC, )
)
Petitioners, )
)
v. )
)
WASHINGTON STATE DEPARTMENT )
OF REVENUE, )
)
Respondent. )
)
OWENS, J.—Petitioners are 16 related limited liability companies (LLCs) that
generate all of their income from investments. RCW 82.04.4281(a) allows an entity to
deduct “[a]mounts derived from investments” from business and occupation (B&O) taxable
income. This court has previously defined “investments” in RCW 82.04.4281 to mean
“‘incidental investments of surplus funds.’” OʼLeary v. Depʼt of Revenue, 105 Wn.2d 679,
682, 717 P.2d 273 (1986) (quoting John H. Sellen Constr. Co. v. Dep’t of Revenue, 87
Wn.2d 878, 883, 558 P.2d 1342 (1976)). Under that definition, the LLCs would not be
Antio, LLC, et al. v. Dep’t of Revenue
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able to deduct income earned through their primary business activities. However, after we
decided O’Leary, the legislature amended the investment deduction statute. The question
for this court is whether the legislature abrogated O’Leary’s definition of investments
when it amended the statute. We hold that the legislature did not abrogate O’Leary’s
definition of investments because it did not express clear intent to do so.
FACTS
Petitioners are a group of 16 related LLC investment companies that buy and sell
distressed debt instruments such as credit card debt. All of their income comes from
owning or trading in these investments. In 2019, the LLCs paid B&O tax on their income
and then applied for a refund for the previous several years. They claimed that 100 percent
of their income was deductible under RCW 82.04.4281 because it was all “investment
income.” The relevant section of RCW 82.04.4281 states, “(1) In computing tax there may
be deducted from the measure of tax: (a) Amounts derived from investments.” The
statute does not define “investments.” RCW 82.04.4281.
The Department of Revenue (Department) conducted an audit and denied the LLCs’
refund claim. The LLCs brought an original action under RCW 82.32.180 to challenge this
decision. The Department moved for summary judgment, which the LLCs opposed. The
superior court granted summary judgment for the Department, finding that the legislature
did not modify O’Leary’s definition of investment—incidental investment of surplus
funds—when it amended the statute in 2002. Verbatim Rep. of Proc. (July 8, 2022) at 20-
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21. Therefore, the LLCs did not qualify for the deduction. The LLCs filed a motion for
reconsideration, which the superior court denied.
The LLCs appealed and the Court of Appeals affirmed the trial court, finding that
this court had previously defined “investments” in the statute to refer only to “incidental
investments.” Antio, LLC v. Depʼt of Revenue, 26 Wn. App. 2d 129, 137, 527 P.3d 164(2023). Although the legislature amended the statute in 2002, the court found no
evidence that this amendment superseded O’Leary. Id. at 140. Because the LLCs’
income did not meet O’Leary’s definition of investments, the Court of Appeals found that
the LLCs were not entitled to the deduction. Id. The LLCs petitioned for review, which
this court granted. Antio, LLC v. Dep’t of Revenue, 2 Wn.3d 1001 (2023).
History of the Investment Income Deduction
The State of Washington has had some form of investment income deduction since
1935. LAWS OF 1935, ch. 180, §§ 4, 12(a). From 1970 through 2002, the statute read:
In computing tax there may be deducted from the measure of tax
amounts derived by persons, other than those engaging in banking, loan,
security, or other financial businesses, from investments or the use of
money as such, and also amounts derived as dividends by a parent from its
subsidiary corporations.
SUBSTITUTE H.B. 1016, at 2, 46th Leg., Reg. Sess. (Wash. 1980). This court
released several decisions interpreting the statute over that period. In Sellen, the
court interpreted the phrase “other financial businesses.” 87 Wn.2d at 882. In that
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case, five businesses sought to deduct their investment income under the statute. 1
Id. at 879-80. Each business made between 0.2 percent and 3.0 percent of its
gross income from investments. Id. The State opposed the deduction, arguing that
the businesses were “other financial businesses” under the statute and therefore
barred from taking the deduction altogether. Id. at 882. This court found that the
businesses were not “other financial businesses.” Id. at 882-84. It defined “other
financial businesses” as businesses similar to banking, loan, or security businesses
“whose primary purpose and objective is to earn income through the utilization of
significant cash outlays.” Id. at 882. This case concerned who could take the
deduction.
Ten years later, in O’Leary, the court answered the separate question of what
could be deducted under the statute. To do this, it defined the term “investments” in
RCW 82.04.4281. In O’Leary, a company that bought and sold real estate claimed that
the interest payments it received were deductible “investments.” 105 Wn.2d at 680. The
court defined investments under the statute to mean “‘incidental investment of surplus
funds.’” Id. at 682 (quoting Sellen, 87 Wn.2d at 883). It held that “[w]hether an
investment is ‘incidental’ to the main purpose of a business is an appropriate means of
distinguishing those investments whose income should be exempted from the B & O tax
of RCW 82.04.4281.” Id. The O’Leary court relied on Sellen, where the Sellen court
1
These businesses were a construction company, a brewery, two medical nonprofits, and a
cemetery.
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assumed the deduction should be available to taxpayers making incidental investments.
Id. The court also considered the larger statutory scheme in which “[e]xemptions to the
tax laws are to be construed narrowly” and “‘[t]axation is the rule and exemption is the
exception.’” Id. (quoting Budget Rent-a-Car of Wash.-Or., Inc. v. Dep’t of Revenue, 81
Wn.2d 171, 174, 500 P.2d 764 (1972)). Therefore, it decided “investments” should be
construed narrowly to apply only to incidental investments. Because the real estate
contracts held by the company in O’Leary were not incidental investments made with
surplus funds, the company was not entitled to take the deduction. Id. at 682-83.
This court then decided another case that refined the meaning of “other financial
businesses” in the statute, again addressing who could take the deduction. In Simpson,
this court held that a holding company that provided administrative and managerial
services to its subsidiaries was an “other financial business” and therefore ineligible for
the deduction. Simpson Inv. Co. v. Depʼt of Revenue, 141 Wn.2d 139, 142-43, 3 P.3d 741(2000). Even though only a small proportion of the company’s revenue came from
investments, and even though the primary business of the subsidiaries was not
“financial,” the court found that the holding company itself was a financial business. Id.
at 143-44. This is because its primary purpose was to “earn income through the
utilization of significant cash outlays” and it was comparable to a banking, loan, or
security business. Id. at 156. This decision further restricted what types of entities could
claim the deduction.
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The business community of the state reacted strongly to Simpson, and the
legislature took swift action. The following year, the legislature passed a bill that would
have frozen the application of the Simpson decision and reverted to the previous
interpretation of what constituted an “other financial business.” H.B. 1361, at 19, 57th
Leg., Reg. Sess. (Wash. 2001). The bill also directed the Department to work with
affected businesses to propose a potential amendment to the statute. Governor Locke
vetoed the portion of this bill that would have reverted to the previous interpretation of
the statute, noting that it was almost certainly unconstitutional. LAWS OF 2001, ch. 320,
at 1625-26 (Governor Locke’s partial veto message). However, the governor stated that
he would direct the Department to apply the investment income deduction as it had prior
to the Simpson decision and would convene a committee to rewrite the statute. Id.
The following year, the legislature amended the investment income deduction
statute to its current form. The statute reads:
(1) In computing tax there may be deducted from the measure of tax:
(a) Amounts derived from investments;
(b) Amounts derived as dividends or distributions from the capital
account by a parent from its subsidiary entities; and
(c) Amounts derived from interest on loans between subsidiary
entities and a parent entity or between subsidiaries of a common parent
entity, but only if the total investment and loan income is less than five
percent of gross receipts of the business annually.
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(2) The following are not deductible under subsection (1)(a) of this section:
(a) Amounts received from loans, except as provided in subsection
(1)(c) of this section, or the extension of credit to another, revolving credit
arrangements, installment sales, the acceptance of payment over time for
goods or services, or any of the foregoing that have been transferred by the
originator of the same to an affiliate of the transferor; or
(b) Amounts received by a banking, lending, or security business.
RCW 82.04.4281 (emphasis added). The revised statute eliminated the phrase “other
financial businesses.” H.B. 2641, at 2, 57th Leg., Reg. Sess. (Wash. 2002). It goes on to
define “banking business,” “lending business,” “security business,” and “loan and
extension of credit.” Id. at 2-3. It does not define “investments.”
The legislature stated in the intent section of the revised statute that it found the
application of the investment income deduction for “other financial businesses” to be “the
subject of uncertainty, and therefore, disagreement and litigation between taxpayers and
the state.” Id. at 1. This section also stated that the legislature thought this court’s
decision in Simpson “could lead to a restrictive, narrow interpretation of the deductibility
of investment income for business and occupation tax purposes.” Id. Because of this, the
legislature directed the Department to work with affected businesses and revise the
statute in a way that would “provide certainty and stability for taxpayers and the state.”
Id. In adopting that recommended revised statute, the legislature intended “to provide a
positive environment for capital investment in this state, while continuing to treat
similarly situated taxpayers fairly.” Id. at 1-2.
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The LLCs claim that when the legislature revised the investment income statute it
made the court’s definition of investments in O’Leary obsolete. Therefore, they contend
that any business that is not a banking, lending, or security business can deduct income
derived from investments, even if the investment is not incidental to the business’s main
purpose.
ISSUE
Did the legislature abrogate O’Leary’s definition of “investments” when it amended
RCW 82.04.4281?
ANALYSIS
In this tax refund action, we review the trial court's legal conclusions de novo.
Simpson, 141 Wn.2d at 148. Typically, this court begins statutory interpretation by
looking at the plain language of the statute and its context. Five Corners Fam. Farmers
v. State, 173 Wn.2d 296, 305, 268 P.3d 892 (2011). However, in this case, the court has
previously defined the term “investments” in RCW 82.04.4281. “[W]here statutory
language remains unchanged after a court decision the court will not overrule clear
precedent interpreting the same statutory language.” Riehl v. Foodmaker, Inc., 152
Wn.2d 138, 147, 94 P.3d 930 (2004), abrogated on other grounds by Mikkelsen v. Pub.
Util. Dist. No. 1 of Kittitas County, 189 Wn.2d 516, 404 P.3d 464 (2017). Although the
legislature amended the statute in 2002, it did not alter or define the word “investments.”
Therefore, rather than interpreting the statute anew, we must decide whether O’Leary’s
definition is still in effect. We hold that the legislature did not abrogate O’Leary’s
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definition when it revised the statute in 2002 and that “investments” continues to mean
incidental investment of surplus funds.
The LLCs argue that the 2002 amendment changed the structure of the statute so
dramatically that O’Leary’s definition is not relevant. However, a change in the structure of
a statute is not enough. A court must find clear legislative intent to abrogate a binding
judicial decision like O’Leary. Friends of Snoqualmie Valley v. King County Boundary
Rev. Bd., 118 Wn.2d 488, 496, 825 P.2d 300 (1992). We presume that the legislature is
“aware of judicial construction of prior statutes. Absent an indication that the Legislature
intended to overrule the common law, new legislation will be presumed to be consistent
with prior judicial decisions.” In re Marriage of Williams, 115 Wn.2d 202, 208, 796 P.2d
421 (1990) (citation omitted). To find that the legislature abrogated this court’s
definition of investment, we must find clear legislative intent to do so.
Here, the statute contains an intent section that guides our analysis. This section
makes clear that the legislature amended the law in response to Simpson. H.B. 2641, at 1,
57th Leg., Reg. Sess. (Wash. 2002). Specifically, the legislature intended to reduce
“uncertainty” caused by the vague phrase “other financial businesses” in the statute. Id.The legislature was also concerned that the court’s decision in Simpson could lead to a
“restrictive, narrow interpretation of the deductibility of investment income.” Id. Finally,
the amendment was intended to “provide a positive environment for capital investment in
this state, while continuing to treat similarly situated taxpayers fairly.” Id. at 2. The intent
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section does not express a clear legislative intent to abrogate O’Leary’s definition of
“investments.”
Likewise, the body of the statute does not show a clear intent to abrogate O’Leary.
Instead, the changes the legislature made to the body of the statute reflect the stated
purposes of the intent section. The legislature reduced “uncertainty” by defining key terms
and by deleting the phrase “other financial businesses” from the list of entities not eligible
for the deduction. Removing “other financial businesses” from the statute also avoided
Simpson’s “restrictive, narrow interpretation” by expanding the types of businesses eligible
to take the deduction. These changes promote “a positive environment for capital
investment” by increasing transparency, predictability, and by expanding who can take the
deduction. We should not read additional purposes into the clear language of the statute and
its intent section.
The best evidence that the legislature did not intend to abrogate O’Leary is what it
did not do. It did not define “investments” when it amended the statute. It did not indicate
in the intent section that it was dissatisfied with the court’s definition of investments, nor did
it mention O’Leary at all. On the contrary, the legislature did mention Simpson. This
shows that the legislature knows how to clearly indicate it disapproves of a decision of this
court when it wants to. Further, this court decided O’Leary in 1986. Under the principle of
legislative acquiescence, a court takes the legislature’s “failure to amend a statute
following a judicial decision interpreting that statute to indicate legislative acquiescence
in that decision.” City of Federal Way v. Koenig, 167 Wn.2d 341, 348, 217 P.3d 117210
Antio, LLC, et al. v. Dep’t of Revenue
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(2009). The legislature has not redefined “investments” in the statute in the 38 years since
O’Leary, despite revising other portions of the statute in this time. This suggests that the
legislature did not abrogate O’Leary in 2002.
The LLCs and amici argue that the legislature intended to do more in its amendment
than address concerns raised by Simpson. Amicus the Investment Company Institute argues
that the legislature’s definition of “security business” shows intent to broaden the definition
of “investments.” Under the statute, security businesses cannot take the deduction.
However, the definition of “security business” excludes investment companies. RCW
82.04.4281(3)(d). This is because RCW 82.04.4281 incorporates the federal Investment
Company Act of 1940’s definition of broker or dealer, which defines “dealer” to not
include investment companies. 2 Therefore, investment companies are not “security
businesses” under RCW 82.04.4281. Amicus argues this shows the legislature intended
investment companies to be eligible for the deduction. However, if O’Leary’s definition
of “investment” stands, these businesses would not be able to deduct most of their
investment income.
But the exclusion of certain businesses from the definition of “security business”
does not conflict with O’Leary’s definition of “investments.” Amicus combines two
questions that should be separate: who may take the deduction and what they may deduct.
By excluding investment companies from the definition of “security business,” the
2
“The term ‘dealer’ has the same meaning as given in the Securities Exchange Act of 1934, but
does not include an insurance company or investment company.” Investment Company Act of
1940, 15 U.S.C. § 80a-2(11) (emphasis added).
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legislature answered the who question: investment companies may take the deduction,
unlike banking, lending, or security businesses. However, that does not excuse investment
companies from restrictions on what income may be deducted. O’Leary held that
businesses may not deduct income generated by their primary business activities under
RCW 82.04.4281. This is true even if a company’s primary activity is investing.
Nothing in the definition of “security business” conflicts with O’Leary’s definition of
“investments,” and it certainly does not express clear legislative intent to abrogate that
case.
The legislature did not express a clear intent to abrogate O’Leary. Thus, we hold
that “investments” in RCW 82.04.4281 continues to be defined as it was in O’Leary.
Businesses can claim only the deduction for investments that are incidental to the main
purpose of a business. As a result, the LLCs may not deduct income generated by their
main business activities under RCW 82.04.4281.
CONCLUSION
This court has defined “investments” in RCW 82.04.4281 to mean “incidental
investment of surplus funds.” Although the legislature has since amended the statute, it did
not express a clear intent to abrogate this definition. Instead, the legislature’s primary
purpose in amending the statute was to address Simpson and the ambiguous phrase “other
financial businesses.” The court must presume that the legislature is aware of our prior
decisions when it passes a bill, and the fact that this court’s definition of investment has
remained in effect for 38 years suggests the legislature has acquiesced to it. We hold that
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O’Leary’s definition stands and that the LLCs may not deduct income earned from their
main business activities under the investment income deduction. We affirm the trial court
and the Court of Appeals.
_______________________
WE CONCUR:
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Antio, LLC et al. v. Dep’t of Revenue, No. 102223-9
(Gordon McCloud, J., dissenting)
No. 102223-9
GORDON McCLOUD, J. (dissenting)—The legislature allows businesses to
deduct some forms of income from the total upon which business and occupation
(B&O) tax is based. RCW 82.04.4281(1)(a) contains one such deduction—a
deduction for investment income: “In computing tax there may be deducted from
the measure of tax . . . [a]mounts derived from investments . . . .”
The legislature enacted that quoted language—along with several other
material changes—in response to our decisions. In 2000, in the last of those
decisions, Simpson Investment Co. v. Department of Revenue, we interpreted the
types of entities that could take an investment income deduction very narrowly.
141 Wn.2d 139, 3 P.3d 741 (2000). In response, the legislature enacted a new
version of RCW 82.04.4281 in 2002. “‘The legislature . . . finds that the decision
of the state supreme court in Simpson . . . could lead to a restrictive, narrow
interpretation of the deductibility of investment income for business and
occupation tax purposes.’” LAWS OF 2002, ch. 150, § 1. The legislature explicitly
stated, “The legislature intends, by adopting this recommended revision of the
statute, to provide a positive environment for capital investment in this state, while
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Antio, LLC et al. v. Dep’t of Revenue, No. 102223-9
(Gordon McCloud, J., dissenting)
continuing to treat similarly situated taxpayers fairly.” Id. And the legislature then
enacted its extensive revision.
Several LLCs tried to claim an investment income deduction after that
extensive revision of RCW 82.04.4281. But despite the substantial statutory
revision and clear expression of legislative intent to improve the investment
environment, the majority concludes that these LLCs cannot take the investment
income deduction because of a statutory limitation that the statute doesn’t actually
mention: the supposed limitation of the investment income deduction to businesses
that earn only a portion of their income from investments. To reach this
conclusion, the majority skips interpreting the statute altogether. Instead, it asserts
that we restrictively defined the term “investment” in the prior version of the
statute in our 1986 decision O’Leary v. Department of Revenue. 1 Then, it continues
that we are bound to apply O’Leary’s purported definition of “investment” when
interpreting the amended statute unless we find that the legislature “clearly”
intended to abrogate that definition. Majority at 9. Finding no “clear legislative
intent” to abrogate O’Leary’s interpretation of that word in the prior version of the
statute, the majority holds that the old O’Leary case precludes the LLCs from
deducting their investment income under the doctrine of stare decisis. Id.
1
105 Wn.2d 679, 682, 717 P.2d 273 (1986).
2
Antio, LLC et al. v. Dep’t of Revenue, No. 102223-9
(Gordon McCloud, J., dissenting)
But stare decisis does not require us to apply O’Leary’s restrictive
interpretation of “investment income” because O’Leary interpreted an older
version of the statute. One way the legislature shows “clear and unequivocal”
intent to override a prior judicial interpretation of a statute is by “amending the
specific section in question.” Friends of Snoqualmie Valley v. King County
Boundary Rev. Bd., 118 Wn.2d 488, 496, 825 P.2d 300 (1992) (emphasis added).
That’s exactly what happened here: the legislature amended the statute discussed in
O’Leary, and the newer version of the statute contains different language and a
different legislative intent. The new statutory revisions, combined with the new,
express declaration of changed legislative intent, require us to interpret the current
statute, not apply a case analyzing the prior statute.
I therefore begin—as our statutory interpretation rules tell us to begin—with
the plain language of the current statute. Under that language, the LLCs qualify for
the investment income deduction.
Accordingly, I respectfully dissent.
3
Antio, LLC et al. v. Dep’t of Revenue, No. 102223-9
(Gordon McCloud, J., dissenting)
ANALYSIS
I. Stare decisis does not restrict our analysis in statutory interpretation
cases if the legislature has materially revised a statute
Under the doctrine of stare decisis, our prior precedents are binding unless
we conclude that they are “‘incorrect and harmful’” or that “‘the legal
underpinnings of [those] precedent[s] have changed or disappeared altogether.’”
State v. Pierce, 195 Wn.2d 230, 240, 455 P.3d 647 (2020) (plurality opinion)
(internal quotation marks omitted) (quoting Deggs v. Asbestos Corp., 186 Wn.2d
716, 727-28, 729, 381 P.3d 32 (2016)).2
When the legislature makes substantial revisions to a statute, the legislature
is changing “the legal underpinnings” of our prior cases interpreting that statute.
See Darkenwald v. Emp’t Sec. Dep’t, 183 Wn.2d 237, 252, 350 P.3d 647 (2015)
(“‘[A] change in legislative intent is presumed when a material change is made in a
statute.’” (alteration in original) (internal quotation marks omitted) (quoting Davis
v. Dep’t of Licensing, 137 Wn.2d 957, 967, 977 P.2d 554 (1999))). In that
situation, stare decisis is essentially inapplicable. As we have explained, “A
2
W.G. Clark Constr. Co. v. Pac. Nw. Reg’l Council of Carpenters, 180 Wn.2d 54,
66-67, 322 P.3d 1207 (2014) (citing United States v. Gaudin, 515 U.S. 506, 521, 115 S.
Ct. 2310, 132 L. Ed. 2d 444 (1995); Planned Parenthood of Se. Pa. v. Casey, 505 U.S.
833, 854-55, 112 S. Ct. 2791, 120 L. Ed. 2d 674 (1992), overruled on other grounds by
Dobbs v. Jackson Women’s Health Org., 597 U.S. 215, 142 S. Ct. 2228, 213 L. Ed. 2d
545 (2022)).
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(Gordon McCloud, J., dissenting)
legislative enactment, intended to be comprehensive upon a subject, pre-empts [the
judicial] field,” and our function is “thereafter limited to an interpretation of what
the legislature meant by the language used in the statute.” Windust v. Dep’t of Lab.
& Indus., 52 Wn.2d 33, 36, 323 P.2d 241 (1958). In such statutory interpretation
cases—because we are interpreting the actions of another branch of government—
“we advert directly to the language of the statute” instead of turning directly to our
prior case law. Id. at 38.
This is just such a statutory interpretation case, and that is why we must start
with the plain language of the current statute. Id. at 36 (“‘statutory interpretation
[cases] require that we restrict ourselves to a determination of the meaning of the
statutory language in question’” (quoting Petersen v. Dep’t of Lab. & Indus., 40
Wn.2d 635, 637, 245 P.2d 1161 (1952))).
To be sure, this exception to the doctrine of stare decisis is limited. We
assume that the legislature is aware of our statutory interpretations. State v. Blake,
197 Wn.2d 170, 190, 481 P.3d 521 (2021) (quoting Riehl v. Foodmaker, Inc., 152
Wn.2d 138, 147, 94 P.3d 930 (2004), overruled on other grounds by Mikkelsen v.
Pub. Util. Dist. No. 1 of Kittitas County, 189 Wn.2d 516, 404 P.3d 464 (2017)). So
if we interpret a statute, and the legislature does not change the statute in response,
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(Gordon McCloud, J., dissenting)
then we assume that the legislature has acquiesced in our interpretation. City of
Federal Way v. Koenig, 167 Wn.2d 341, 352, 217 P.3d 1172 (2009).
But the legislature did change the statute dramatically since our decisions in
O’Leary and Simpson. It responded by revising and reorganizing the entire statute.
Compare former RCW 82.04.4281 (1980), with current RCW 82.04.4281. That
means that the legislature broke any possible assumption of legislative
acquiescence in our prior restrictive interpretations of the availability of the
investment income deduction and replaced it with an explicit statement of a new
legislative intent to broaden the availability of that deduction. Thus, as discussed
above, we are now bound by the legislature’s explicit statement that it intends to
broaden the availability of that deduction. And even if the legislature had not said
that explicitly, we would have to presume it. Darkenwald, 183 Wn.2d at 252 (“‘[A]
change in legislative intent is presumed when a material change is made in a
statute.’” (alteration original) (internal quotation marks omitted) (quoting Davis,
137 Wn.2d at 967); see also State v. Varga, 151 Wn.2d 179, 191-92, 86 P.3d 139(2004) (“It is well-established that the legislature may effectively overrule our
decisions interpreting statutory terms by prospectively amending a statute.” (citing
State v. Dunaway, 109 Wn.2d 207, 215-16, 216 n.6, 743 P.2d 1237 (1987);
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Antio, LLC et al. v. Dep’t of Revenue, No. 102223-9
(Gordon McCloud, J., dissenting)
Windust, 52 Wn.2d at 37-38; State v. Dolson, 138 Wn.2d 773, 779, 982 P.2d 100(1999))).
We must therefore interpret the statute de novo to derive the legislature’s
intent from the plain language of the revised statute. See Associated Gen.
Contractors of Wash. v. State, 2 Wn.3d 846, 857, 544 P.3d 486 (2024)
(interpreting amendments as part of statute’s plain language (quoting Columbia
Riverkeeper v. Port of Vancouver USA, 188 Wn.2d 421, 440, 395 P.3d 1031(2017))); Darkenwald, 183 Wn.2d at 252.3
We took exactly this path when conducting statutory analysis in the face of a
statutory revision over 60 years ago in Windust. In that case, a worker died of a
myocardial infarction on the work site due to years of arterial hardening, and his
estate sued his employer. 52 Wn.2d at 35. The estate claimed that the employer
was responsible for the worker’s death because it assigned him tasks too strenuous
for his heart condition. Id. This claim satisfied our previously established common
3
See also Detillier v. Kenner Reg’l Med. Ctr., 2003-3259, p. 8 (La. 7/6/04), 877
So. 2d 100, 106 (“‘[W]hen the Legislature amends a statute that has been subject to
interpretation by the courts, a court interpreting the amended statute must take into
consideration the entire history of the amended statute, including its original form, the
court decisions interpreting the statute in its original and amended forms, and any
subsequent amendments.’” (quoting Lockett v. Dep’t of Transp. & Dev., 2003-1767, p. 5
(La. 2/25/04), 869 So. 2d 87, 91)).
7
Antio, LLC et al. v. Dep’t of Revenue, No. 102223-9
(Gordon McCloud, J., dissenting)
law standard for workplace injuries. Id. (quoting McCormick Lumber Co. v. Dep’t
of Lab. & Indus., 7 Wn.2d 40, 59, 108 P.2d 807 (1941), overruled by Windust, 52
Wn.2d 33). But we did not stop there. We acknowledged that our common law
standard conflicted with the more recently adopted statutory standard for
workplace injury compensation. Id. And under the statutory standard, which
provided payment for sudden injuries but not cumulative injuries, the worker’s
estate would lose. Id.To be sure, we agreed with the worker’s estate that stare decisis would
usually require us to apply our common law standard. Id. But we recognized that
that standard conflicts with the applicable statutory standard. Id. at 38-39. We
therefore concluded that the new statutory standard must apply, not the old
common law standard. Id. at 39.
That rule about which standard to apply—our court’s older standard or the
legislature’s more recently enacted statutory standard—still applies. I therefore
disagree with the majority’s decision to rely on the standard from our case law
(O’Leary).
Instead, “we advert directly to the language of the statute”—to give effect to
the legislature’s intent and resolve the case. Windust, 52 Wn.2d at 38.
8
Antio, LLC et al. v. Dep’t of Revenue, No. 102223-9
(Gordon McCloud, J., dissenting)
The majority appears to believe a different approach applies when this court
has previously interpreted a different version of the statute. It cites two different
standards that purportedly apply in this context. First, the majority states that
“clear” legislative intent is required in order to override a prior judicial
interpretation of a statute. Majority at 9. It claims that “a change in the structure of
a statute is not enough” to show that clear intent. Id.
But the case the majority cites to support this claim actually says the exact
opposite: in Friends of Snoqualmie Valley, 118 Wn.2d at 496, we explained that
one way the legislature can show its “clear and unequivocal” intent to override a
prior judicial interpretation is by “amending the specific section in question.”
(Emphasis added.) As stated, that is exactly what happened in this case: the
legislature completely restructured the statute, including amending the section in
which the word “investments” appeared, and it paired that amendment with a new
statement of legislative intent specifically expressing its intent “to provide a
positive environment for capital investment in this state, while continuing to treat
similarly situated taxpayers fairly.” LAWS OF 2002, ch. 150 § 1. Thus, even if the
majority’s “clear intent” standard did apply in order to justify interpreting the
statute anew, that standard has been amply met in this case.
9
Antio, LLC et al. v. Dep’t of Revenue, No. 102223-9
(Gordon McCloud, J., dissenting)
The majority goes on to state a second standard that it says applies before
this court may interpret an amended statute. It quotes In re Marriage of Williams
for the proposition that “[a]bsent an indication that the Legislature intended to
overrule the common law, new legislation will be presumed to be consistent with
prior judicial decisions.” Id. (quoting 115 Wn.2d 202, 208, 796 P.2d 421 (1990)).
But the principle stated in Williams just means that we will not interpret a
statute to override prior decisional law unless there is some indication that the
legislature intended the statute to override prior decisional law. 4 And the way we
determine whether there is some indication of the legislature’s intent to override
prior decisional law is through statutory interpretation—i.e., by beginning with the
“plain language of the statute, considering the text of the provision, the context of
the statute, related provisions, amendments, and the statutory scheme as a whole.”
PeaceHealth St. Joseph Med. Ctr. v. Dep’t of Revenue, 196 Wn.2d 1, 7-8, 468 P.3d
4See Williams, 115 Wn.2d at 208 (citing State v. Calderon, 102 Wn.2d 348, 351,
684 P.2d 1293 (1984); State v. McCullum, 98 Wn.2d 484, 493, 656 P.2d 1064 (1983)
(plurality opinion); Glass v. Stahl Specialty Co., 97 Wn.2d 880, 887-88, 652 P.2d 948(1982); Green Mt. Sch. Dist. 103 v. Durkee, 56 Wn.2d 154, 161, 351 P.2d 525 (1960)).
These cases cite back to Neil F. Lampson Equipment Rental & Sales, Inc. v. West Pasco
Water System, Inc., 68 Wn.2d 172, 176, 412 P.2d 106 (1966), where we held that because
there was “not the slightest indication that the legislature intended to overrule the cases
holding that an operator with a machine was labor as far as the lien laws are concerned[,]
. . . we must assume that the new legislation is in line with our prior decisions.”
10
Antio, LLC et al. v. Dep’t of Revenue, No. 102223-9
(Gordon McCloud, J., dissenting)
1056 (2020) (citing First Student, Inc. v. Dep’t of Revenue, 194 Wn.2d 707, 710,
451 P.3d 1094 (2019)).
Thus, under either of these purported standards, our precedent compels us to
begin by looking at the plain language of the statute in context—in other words, by
engaging in statutory interpretation.
II. The statute’s plain language bars only banks, lenders, and security
businesses from deducting investment income, not these LLCs
We therefore start, as our cases direct us to start, with “the language of the
statute.” Our objective in statutory interpretation is to determine the legislature’s
intent. Associated Gen. Contractors, 2 Wn.3d at 855 (citing Dep’t of Ecology v.
Campbell & Gwinn, LLC, 146 Wn.2d 1, 9-10, 43 P.3d 4 (2002)). We derive
“legislative intent solely from the plain language of the statute, considering the text
of the provision, the context of the statute, related provisions, amendments, and the
statutory scheme as a whole.” PeaceHealth, 196 Wn.2d at 7-8 (citing First Student,
Inc., 194 Wn.2d at 710). Amendments and revisions like we have in this case are
part of the statute’s plain language. Associated Gen. Contractors, 2 Wn.3d at 857
(citing Columbia Riverkeeper, 188 Wn.2d at 440).
A. The statute’s plain language, before and after the major 2002 revision
The now-defunct version of former RCW 82.04.4281 that we interpreted in
Simpson and O’Leary said:
11
Antio, LLC et al. v. Dep’t of Revenue, No. 102223-9
(Gordon McCloud, J., dissenting)
In computing tax there may be deducted from the measure of tax amounts
derived by persons, other than those engaging in banking, loan, security, or
other financial businesses, from investments or the use of money as such,
and also amounts derived as dividends by a parent from its subsidiary
corporations.
(Emphasis added.)
The business community sharply criticized Simpson’s expansive definition
of “other financial business.” In 2001, in response, the legislature began exploring
potential amendments to the statute to address not just Simpson but other decisions
of our court interpreting the old version of the investment income deduction
statute:
The legislature finds that the application of the business and occupation tax
deduction provided in RCW 82.04.4281 for investment income of persons
other than those engaging in banking, loan, security, or other financial
businesses has been the subject of disagreement between taxpayers and the
state. Decisions of the supreme court have provided some broad guidelines
and principles for interpretation of the deduction provided in RCW
82.04.4281, but these decisions have not provided the certainty and clarity
that is desired by taxpayers and the state. Therefore, it is the intent of the
legislature to delay change in the manner or extent of taxation of the
investment income until definitions or standards can be developed and
enacted by the legislature.
LAWS OF 2001, ch. 320, § 18 (emphasis added). The governor vetoed 2001
legislation that would have revised the statute. LAWS OF 2001, ch. 320, at 1625-26
(Governor Locke’s partial veto message).
12
Antio, LLC et al. v. Dep’t of Revenue, No. 102223-9
(Gordon McCloud, J., dissenting)
But the legislature did require the Department of Revenue (Department) to
report to the legislature’s fiscal committees on its work with the business
community regarding the application of the “other financial businesses” exclusion
to investment income deduction eligibility. LAWS OF 2001, ch. 320, § 20.
Finally, in 2002, the legislature substantially revised the statute. First, the
legislature struck the term “financial business” from the statute completely.
Compare former RCW 82.04.4281, with RCW 82.04.4281(1)(a). Second, it limited
the entities barred from taking the deduction to banks, lenders, and security
businesses in a brand new subsection of the statute. RCW 82.04.4281(2)(b). Third,
it amended the deduction itself to broadly say, “In computing tax there may be
deducted from the measure of tax . . . [a]mounts derived from investments . . . .”
RCW 82.04.4281(1)(a). The statute reads in full:
(1) In computing tax there may be deducted from the measure of tax:
(a) Amounts derived from investments;
(b) Amounts derived as dividends or distributions from the
capital account by a parent from its subsidiary entities; and
(c) Amounts derived from interest on loans between subsidiary
entities and a parent entity or between subsidiaries of a common
parent entity, but only if the total investment and loan income is less
than five percent of gross receipts of the business annually.
(2) The following are not deductible under subsection (1)(a) of
this section:
13
Antio, LLC et al. v. Dep’t of Revenue, No. 102223-9
(Gordon McCloud, J., dissenting)
(a) Amounts received from loans, except as provided in
subsection (1)(c) of this section, or the extension of credit to another,
revolving credit arrangements, installment sales, the acceptance of
payment over time for goods or services, or any of the foregoing that
have been transferred by the originator of the same to an affiliate of
the transferor; or
(b) Amounts received by a banking, lending, or security
business.
(3) The definitions in this subsection apply only to this section.
(a) “Banking business” means a person engaging in business as
a national or state-chartered bank, a mutual savings bank, a savings
and loan association, a trust company, an alien bank, a foreign bank, a
credit union, a stock savings bank, or a similar entity that is chartered
under Title *30, 31, 32, or 33 RCW, or organized under Title 12
U.S.C.
(b) “Lending business” means a person engaged in the business
of making secured or unsecured loans of money, or extending credit,
and (i) more than one-half of the person's gross income is earned from
such activities and (ii) more than one-half of the person's total
expenditures are incurred in support of such activities.
(c) The terms “loan” and “extension of credit” do not include
ownership of or trading in publicly traded debt instruments, or
substantially equivalent instruments offered in a private placement.
(d) “Security business” means a person, other than an issuer,
who is engaged in the business of effecting transactions in securities
as a broker, dealer, or broker-dealer, as those terms are defined in the
securities act of Washington, chapter 21.20 RCW, or the federal
securities act of 1933. “Security business” does not include any
company excluded from the definition of broker or dealer under the
federal investment company act of 1940 or any entity that is not an
investment company by reason of sections 3(c)(1) and 3(c)(3) through
3(c)(14) thereof.
14
Antio, LLC et al. v. Dep’t of Revenue, No. 102223-9
(Gordon McCloud, J., dissenting)
RCW 82.04.4281. The legislature did not define “investment.” But it clarified its
intent for the statute, explicitly abrogating Simpson and declaring an intent to
provide a more “positive environment for capital investment in this state”:
The legislature finds that the application of the business and
occupation tax deductions provided in RCW 82.04.4281 for
investment income of persons deemed to be “other financial
businesses” has been the subject of uncertainty, and therefore,
disagreement and litigation between taxpayers and the state. The
legislature further finds that the decision of the state supreme court in
Simpson . . . could lead to a restrictive, narrow interpretation of the
deductibility of investment income for business and occupation tax
purposes. As a result, the legislature directed the department of
revenue to work with affected businesses to develop a revision of the
statute that would provide certainty and stability for taxpayers and the
state. The legislature intends, by adopting this recommended revision
of the statute, to provide a positive environment for capital investment
in this state, while continuing to treat similarly situated taxpayers
fairly.
LAWS OF 2002, ch. 150, § 1.
B. Defining “investment” in context with the 2002 amendments
When interpreting a statute’s plain language, we read all words “‘in the
context of the statute in which they appear, not in isolation or subject to all
possible meanings found in a dictionary.’” Associated Gen. Contractors, 2 Wn.3d
at 855 (quoting State v. Lilyblad, 163 Wn.2d 1, 9, 177 P.3d 686 (2008)); see also
Green v. Pierce County, 197 Wn.2d 841, 853, 487 P.3d 499 (2021). We consider
the meaning of words that naturally attach to them from the context and “‘adopt
15
Antio, LLC et al. v. Dep’t of Revenue, No. 102223-9
(Gordon McCloud, J., dissenting)
the sense of the words which best harmonizes with the context.’” Id. at 855-56
(internal quotation marks omitted) (quoting State v. Roggenkamp, 153 Wn.2d 614,
623, 106 P.3d 196 (2005)). Where the legislature has not defined a term, we “‘will
give the term its plain and ordinary meaning ascertained from a standard
dictionary.’” Cornu-Labat v. Hosp. Dist. No. 2, 177 Wn.2d 221, 231, 298 P.3d 741(2013) (quoting State v. Watson, 146 Wn.2d 947, 954, 51 P.3d 66 (2002)).
We must therefore define the word “investment” as used in the investment
tax deduction statute using those rules. As mentioned, the current statute states, “In
computing tax there may be deducted from the measure of tax . . . [a]mounts
derived from investments . . . .” RCW 82.04.4281(1)(a). The statute does not
define the term “investment.”
The majority does not start with those words or that statutory context.
Instead, it relies exclusively on O’Leary’s purported definition of “investment,”
which is the “incidental investment of surplus funds.” Majority at 8.
The first problem with the majority’s analysis is that it does not start from
the plain language of the statute in context, as discussed above.
The next problem with the majority’s analysis is that it uses the word
“investment” to define “investment,” thus producing a meaningless circular
definition. See State v. Weatherwax, 188 Wn.2d 139, 148, 392 P.3d 1054 (2017)
16
Antio, LLC et al. v. Dep’t of Revenue, No. 102223-9
(Gordon McCloud, J., dissenting)
(“‘we presume the legislature did not intend absurd results’ and thus avoid them
where possible” (quoting State v. Eaton, 168 Wn.2d 476, 480, 229 P.3d 704(2010))).
The third problem with the majority’s analysis is that O’Leary did not
actually define “investment.” This requires some background to explain, and I get
to that in Part III, below.
The fourth problem with the majority’s analysis is that it ignores the 2002
legislature’s clear intent to broaden the investment income deduction and to narrow
the entities barred from claiming that deduction. The 2002 amendments barred
three types of entities from taking the investment income deduction:
• A “Banking business,” which includes “a national or state-
chartered bank, a mutual savings bank, a savings and loan
association, a trust company, an alien bank, a foreign bank, a
credit union, a stock savings bank, or a similar entity that is
chartered under Title *30, 31, 32, or 33 RCW, or organized
under Title 12 U.S.C.”;
• A “Lending business,” which includes “a person engaged in the
business of making secured or unsecured loans of money, or
extending credit, and (i) more than one-half of the person's
gross income is earned from such activities and (ii) more than
one-half of the person's total expenditures are incurred in
support of such activities,” excluding loans and extensions of
credit that involve “ownership of or trading in publicly traded
debt instruments, or substantially equivalent instruments
offered in a private placement”;
• And a “Security business,” which includes “a person, other than
an issuer, who is engaged in the business of effecting
17
Antio, LLC et al. v. Dep’t of Revenue, No. 102223-9
(Gordon McCloud, J., dissenting)
transactions in securities as a broker, dealer, or broker-dealer, as
those terms are defined in the securities act of Washington,
chapter 21.20 RCW, or the federal securities act of 1933.
‘Security business’ does not include any company excluded
from the definition of broker or dealer under the federal
investment company act of 1940 or any entity that is not an
investment company by reason of sections 3(c)(1) and 3(c)(3)
through 3(c)(14) thereof.”
RCW 82.04.4281(3)(a)-(d).
The previous version of the statute excluded far more businesses. It did bar
the businesses on the list above. But it also barred “other financial businesses” in
an interjectory list (with far less detail) inserted directly into the deduction
language itself: “there may be deducted from the measure of tax amounts derived
by persons, other than those engaging in banking, loan, security, or other financial
businesses, from investments or the use of money as such . . . .” Former RCW
82.04.4281.
But the 2002 legislature struck “financial businesses” from the current list of
excluded entities completely. The exclusion of a vague, catch-all term like
“financial business” from the current, detailed list of excluded entities shows the
legislature intended to exclude only the listed entities from taking the deduction
and no others. See State v. LG Elecs., Inc., 186 Wn.2d 1, 9, 375 P.3d 636 (2016)
(“Under . . . expressio unius est exclusio alterius, “‘[w]here a statute specifically
designates the things upon which it operates, there is an inference that the
18
Antio, LLC et al. v. Dep’t of Revenue, No. 102223-9
(Gordon McCloud, J., dissenting)
Legislature intended all omissions.”’” (second alteration in original) (quoting In re
Pers. Restraint of Hopkins, 137 Wn.2d 897, 901, 976 P.2d 616 (1999) (quoting
Queets Band of Indians v. State, 102 Wn.2d 1, 5, 682 P.2d 909 (1984)))); Wash.
Nat. Gas Co. v. Pub. Util. Dist. No. 1 of Snohomish County, 77 Wn.2d 94, 98, 459
P.2d 633 (1969).
The surest sign of the legislature’s intent to create a broadly accessible
deduction with a finite list of excluded entities comes from the legislature’s own
explicit findings:
[T]he legislature directed the department of revenue to work with affected
businesses to develop a revision of the statute that would provide certainty
and stability for taxpayers and the state. The legislature intends, by adopting
this recommended revision of the statute, to provide a positive environment
for capital investment in this state, while continuing to treat similarly
situated taxpayers fairly.
LAWS OF 2002, ch. 150, § 1.
The majority says that under O’Leary, “businesses may not deduct income
generated by their primary business activities under RCW 82.04.4281.” Majority at
12. Because investing is the LLCs’ primary business, the majority denies the LLCs
the investment income deduction. But the problems identified above show what’s
wrong with that approach.
Our precedent demands that we take a different approach. Because the
statute does not define the term “investments,” we use a dictionary to define the
19
Antio, LLC et al. v. Dep’t of Revenue, No. 102223-9
(Gordon McCloud, J., dissenting)
term. Cornu-Labat, 177 Wn.2d at 231. Black’s Law Dictionary gives “investment”
the following relevant, detailed definitions: “1. An expenditure to acquire property
or assets to produce revenue; a capital outlay,” or “2. The asset acquired or the sum
invested.” BLACK’S LAW DICTIONARY 988 (12th ed. 2024). It then goes on to list
types of investments including “fixed-dollar investment[s],” “fixed-income
investment[s],” “inward investment[s],” and “net investment[s].” Id. These listings
are all examples of expenditures of capital that will either preserve the value of the
capital in a stable form or (hopefully) lead to a future return on the initial
expenditure through dividends or appreciation.
Webster’s Dictionary gives more straightforward definitions. An
“investment” is “an expenditure of money for income or profit or to purchase
something of intrinsic value : capital outlay,” “the sum invested or the property
purchased,” or “the commitment of funds with a view to minimizing risk and
safeguarding capital while earning a return . . . .” WEBSTER’S THIRD NEW
INTERNATIONAL DICTIONARY 1190 (2002).
These dictionary definitions show that “investments” are expenditures of
capital by a business to either safeguard it or (hopefully) earn a return on it. While
this encompasses a broad category of activity from which a business might earn
income, the legislature included no qualifiers on the deduction in this portion of the
20
Antio, LLC et al. v. Dep’t of Revenue, No. 102223-9
(Gordon McCloud, J., dissenting)
statute. The statute simply exempts from B&O taxation “[a]mounts derived from
investments.” RCW 82.04.4281(1)(a).
When viewed in the context of the other 2002 amendments, interpreting
“investment” to allow businesses to deduct income from capital expenditures that
safeguard money or make money from interest or dividends makes the most sense.
C. Applying the statutory test for the investment income deduction
To access RCW 82.04.4281’s deduction, the question—under the plain
language of the statute—is whether the entity claiming the deduction earned
investment income and, if so, whether it is one of the entities barred by the statute
from deducting that income. RCW 82.04.4281(1)(a), (3)(a)-(d).
Here, all the LLCs at issue are investment companies that buy and sell
distressed debt instruments. All of their income comes from owning or trading in
these investments, making it all investment income. As the majority acknowledges,
investment companies like these LLCs are not among the entities barred from
taking the deduction. Majority at 11 (“investment companies are not ‘security
businesses’ under RCW 82.04.4281”). So under the plain language of the statute,
the LLCs can deduct “[a]mounts derived from investments.” RCW
82.04.4281(1)(a). The fact that investment income is all their income is immaterial
under the statutory language and context.
21
Antio, LLC et al. v. Dep’t of Revenue, No. 102223-9
(Gordon McCloud, J., dissenting)
I would therefore hold that the statute allows these LLCs to claim the
investment income deduction, reverse the Court of Appeals, and remand the case
for further proceedings.
III. O’Leary’s incidental investment test cannot survive the legislature’s
elimination of the “financial business” exclusion
The majority relies mainly on O’Leary’s “incidental investment test” to
reach its contrary conclusion. But the statute does not contain the words “incidental
investment” or any other comparable words. And O’Leary’s creation of that
“incidental investment test” did not just precede the major, 2002 statutory
revision—its “incidental investment test” was also inextricably tied to the now
eliminated “financial businesses” exclusion. That means that the legislative rewrite
of the “financial businesses” exclusion changed not just the “financial business”
exclusion but also the “incidental investment test” limitation.
The majority reasons that we defined the term “investments” in O’Leary,
and that O’Leary’s definition remains binding on this court. Majority at 4-5.
But we did not define the term “investments” in O’Leary. We listed types of
business investments (investments “incidental” to the main purpose of business)
that could qualify for the deduction. O’Leary, 105 Wn.2d at 682. And to create that
test for qualifying “investment income,” we relied heavily on John H. Sellen
Construction Co. v. Department of Revenue where we defined the term “financial
22
Antio, LLC et al. v. Dep’t of Revenue, No. 102223-9
(Gordon McCloud, J., dissenting)
business”—the term that the legislature has since stricken from the statute. 87
Wn.2d 878, 883, 558 P.2d 1342 (1976).
Let’s look at the history of that stricken term. In Sellen, several businesses
claimed the investment income tax deduction because they received income from
various investments such as interest bearing savings accounts, stocks, and bonds.
87 Wn.2d at 879. These businesses included a construction company, a brewery,
two health care companies, and a charity. Id. at 879-880. We held that former
RCW 82.04.4281 allowed these businesses to take the deduction unless they
constituted “financial businesses,” so the question for the court was whether these
businesses were “financial businesses” under the statute. Id. at 882.
The Department argued that all the businesses were “financial businesses”
and thus barred from taking the deduction. Id. We noted that the Department
equated “investing any income”—including “incidental investments of surplus
funds”—“with being a financial business,” thus “render[ing] the statute a nullity.”
Id. at 883 (emphasis added). Relying on the canon that “we should not nullify any
portion of the statute,” we rejected the Department’s argument. Id. (citing Pub.
Hosp. Dist. No. 2 v. Taxpayers of Pub. Hosp. Dist. No. 2, 44 Wn.2d 623, 269 P.2d
594 (1954); Grp. Health Coop. v. King County Med. Soc’y, 39 Wn.2d 586, 237
P.2d 737 (1951)).
23
Antio, LLC et al. v. Dep’t of Revenue, No. 102223-9
(Gordon McCloud, J., dissenting)
Instead, we noted that the legislature had barred banking, loan, and security
companies from deducting their investment income. Id. And so—under the
ejusdem generis principle that “‘general terms suggest items or things similar to
those designated by the precise or specific terms’”—a “financial business” must
resemble those other financial entities to be disqualified. Id. at 883-84 (quoting
State v. Thompson, 38 Wn.2d 774, 777, 232 P.2d 87 (1951)). We held that the
businesses at issue were not “financial businesses” because they were not like
banking, lending, or security businesses. Id. at 884. Thus, they could claim the
deduction. Id.
The majority claims that O’Leary, decided 10 years after Sellen and heavily
dependent on Sellen, defined the term investment. Majority at 12. But a close
examination of O’Leary shows that it did no such thing. In O’Leary, an investment
partnership sold several apartment complexes using contracts that required the
purchaser to make “periodic payments of principal and interest.” O’Leary, 105
Wn.2d at 680. The partnership claimed that the contracts were “investments” and
that the payments constituted deduction investment income under RCW
82.04.4281. Id. at 681. We said that for the partnership “to qualify for the
deduction, they must show both (1) the real estate contracts from which they
24
Antio, LLC et al. v. Dep’t of Revenue, No. 102223-9
(Gordon McCloud, J., dissenting)
received interest constituted investments, and (2) [the partnership] is not engaged
in a financial business.” Id. at 681-82.
To decide whether the real estate contracts were “investments,” we changed
Sellen’s “incidental investment” language into a test for whether a business could
deduct income gained from a particular investment under RCW 82.04.4281. Id. at
682 (“In Sellen we allowed a deduction for income from a business’s ‘incidental
investments of surplus funds’” (quoting Sellen, 87 Wn.2d at 883)). We held that
“[w]hether an investment is ‘incidental’ to the main purpose of a business is an
appropriate means of distinguishing those investments whose income should be
exempted from the B&O tax of RCW 82.04.4281.” Id. Because the real estate
contracts were not “incidental” to the landlord’s business, the contracts were not
investments on which the business could deduct any income earned. Id.So contrary to the majority’s assertion, O’Leary did not define what an
investment is. Instead, O’Leary described some types of income-creating
investments that a business could deduct from its B&O tax liability—investments
“incidental” to a business’s main purpose.
But O’Leary’s incidental investment distinction is inextricably bound to
Sellen’s (now defunct) definition of a financial business. In Sellen, the Department
argued that essentially any investment by a business turned that business into a
25
Antio, LLC et al. v. Dep’t of Revenue, No. 102223-9
(Gordon McCloud, J., dissenting)
“financial business” that was barred from claiming the deduction. 87 Wn.2d at 882.
We disagreed because, under that interpretation, “few taxpayers, if any, making
incidental investments of surplus funds could receive the deduction,” which would
render the statute null. Id. at 883 (emphasis added). To avoid that result, we held
that for a business to be considered a “financial business,” it must materially
resemble one of the other barred entities on the statutory list—a bank, lender, or
security company.
Essentially, we approved the deduction for businesses that made only
“incidental investments” in Sellen because those businesses could not possibly
constitute financial businesses. O’Leary’s incidental investment test—not
definition—is merely another way of describing what does not constitute a
“financial business” under the former statute.5
5
We also held in O’Leary that the real estate contracts at issue were not
investments. 105 Wn.2d at 682-83. But that had nothing to do with whether the contracts
were “incidental” to the partnership’s main line of business. We said the real estate
contracts weren’t investments because they weren’t loans, and “vendor[s] of a real estate
contract may be treated differently than other holders of debt investments”:
“Making a loan and taking a land contract as security is not the same . . . as
selling a piece of land and accepting the payment in installments. In one
activity, money is advanced. In the other, no money is advanced by the
seller; rather he relinquishes the right to immediate payment.”
Id. at 682 (quoting Clifford v. State, 78 Wn.2d 4, 8, 469 P.2d 549 (1970)). On that basis
we concluded that the real estate contracts were not investments and so did not need to
determine if the partnership was a financial business. Id. at 683.
26
Antio, LLC et al. v. Dep’t of Revenue, No. 102223-9
(Gordon McCloud, J., dissenting)
As stated, the legislature eliminated the term “financial business” from the
statute completely after Simpson. Laws OF 2002, ch. 150, § 1 (“The legislature . . .
finds that the decision of the state supreme court in Simpson . . . could lead to a
restrictive, narrow interpretation of the deductibility of investment income for
business and occupation tax purposes.”). Thus, the majority errs in reading
O’Leary’s “incidental investment test” as surviving the legislature’s 2002
elimination of the term “financial businesses.” The incidental investment test is too
closely tethered to the meaning of “financial business” to survive that term’s
elimination.
CONCLUSION
Stare decisis is vital to our common law system, especially for common law
cases. But it does not apply when the statute that the prior decision interpreted has
been substantially revised. That’s the situation we have here.
We must therefore determine the meaning of the current statute from the
language of the current statute, not from a decision of this court interpreting a prior
version of the statute. The current statute creates a broadly accessible deduction for
all investment income and a narrow, finite list of entities barred from claiming the
deduction. The current statute eliminates the exception from eligibility for the
deduction for other “financial businesses,” thus undermining the entire basis for
27
Antio, LLC et al. v. Dep’t of Revenue, No. 102223-9
(Gordon McCloud, J., dissenting)
O’Leary’s incidental investment exception. And the current statute comes with an
explicit statement of legislative intent to expand the availability of the investment
income deduction to create a welcoming investment landscape.
It necessarily follows that the LLCs are entitled to claim the statutory
investment income deduction. I would therefore reverse the Court of Appeals.
I respectfully dissent.
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