By Ray Birch
WASHINGTON — As the state of Washington’s new tax on credit union bank acquisitions officially takes effect, longtime dealmaker Michael Bell says the law is already achieving the opposite of what lawmakers may have intended.
“I don't think the state of Washington will collect one cent of tax with this poorly thought out law,” Bell said, arguing the change effectively shuts Washington state-chartered credit unions out of the bank-buying market while depressing the value of small community banks. “They have simply shut down their state-chartered institutions’ ability to compete in a fair market … and lowered the value of every small bank in Washington state.”
Bell’s comments follow a special notice issued last week by the Washington State Department of Revenue, which formally implemented the law effective Jan. 1, 2026. Under the guidance, any Washington state-chartered credit union that merges with or acquires a bank regulated by the Department of Financial Institutions must now pay a 1.2% business and occupation tax on gross income from the transaction. The notice clarifies that federally chartered credit unions, out-of-state credit unions, and Washington credit unions that filed regulatory applications before Jan. 1 remain exempt.
CUToday.info first reported on the legislation last spring as it moved through the Washington legislature. The measure repealed a long-standing B&O tax exemption for state-chartered credit unions that purchase banks, with supporters framing it as part of a broader effort to close a multibillion-dollar state budget gap. At the time, Bell warned the move would have an immediate chilling effect on in-state credit unions pursuing bank deals.
In earlier CUToday reporting, Bell described the legislation as a “fatal mistake,” predicting it would weaken the Washington state charter and push credit unions toward federal charters. He also cautioned the tax would not reduce overall credit union/bank transactions, but would instead shift deals to federally chartered or out-of-state credit unions that remain unaffected by the tax.
That outcome, Bell said then — and reiterated now — carries broader consequences for community banks. With fewer eligible in-state buyers, the pool of potential acquirers shrinks, reducing competitive tension and ultimately lowering bank valuations. Bell, a partner and chair of the Financial Institutions Practice Group at Honigman LLP, has advised on more than 75 whole-bank transactions and numerous branch purchases.
State officials, for their part, have focused on compliance mechanics rather than policy impacts. In its notice, the Department of Revenue outlined how affected credit unions must report and apportion taxable income under the credit union B&O classification.
But as the law now moves from theory to practice, Bell, the pioneer of CU purchases of banks, maintains the practical effect will be simple: Washington-chartered credit unions will avoid bank acquisitions altogether — and the state will be left with little, if any, new tax revenue to show for it.