OLYMPIA, Wash. — Effective in 2026, credit unions in Washington State that merge with or acquire a bank now face a new tax on the income from those transactions, marking a significant change in state policy that could reshape how financial cooperatives pursue expansions through bank acquisitions, according to analysts.
Under the new law, any Washington state-chartered credit union that acquires or merges with a bank regulated by the state is subject to the state’s business and occupation (B&O) tax on gross income tied to the transaction, the Washington Department of Revenue said.
The tax classification applies specifically to the income of the credit union after an acquisition, with the B&O rate set at 1.2% on gross income under the credit union tax category. Previously, state-chartered credit unions were exempt from the B&O tax even when acquiring banks.
As the CU Daily reported earlier, the change stems from House Bill 1506, enacted by the Washington Legislature in 2025, which removed the longstanding exemption for state-chartered credit unions that merge with or take over commercial banks. Under the bill’s language, the exemption ends when those credit unions complete such transactions, and the resulting entity is obligated to report and pay the tax.
At the time the legislation was passed proponents said it closed a loophole that was costing the state revenue and that it would also create a fairer environment for community banks.
Some Exemptions
Exemptions from the new tax include Washington credit unions that filed regulatory applications for bank acquisitions before Jan. 1, 2026, federally chartered credit unions, and credit unions organized under the laws of other states, according to state guidance.
State officials have issued technical guidance for compliance, requiring affected credit unions to report gross income under the credit union B&O tax classification and apportion taxable income appropriately.
