Washington State Credit Unions Facing New Tax Laws
Washington state-based credit unions looking to merge with or acquire banks are now facing a new challenge in the form of the state’s business and occupation tax, as reported by the Washington Department of Revenue. This tax, set at 1.2%, applies to the gross income generated from such deals, with no deductions allowed for labor and materials. The law applies to deals submitted for regulatory approval after January 1, 2026.
Growing Trend of Credit Union-Bank Deals
In recent years, the trend of credit unions acquiring banks has been on the rise, with Washington state being a hotbed of such deals in 2024. However, this trend has not gone unnoticed by bank trade groups, who argue that the tax-exempt status of credit unions gives them an unfair advantage in offering higher purchase prices compared to banks.
The Independent Community Bankers of America (ICBA) has been vocal in calling for policy responses to address this issue. ICBA CEO Rebeca Romero Rainey highlighted the need for Congress to consider implementing an ‘exit fee’ on credit union acquisitions of tax-paying banks to capture lost tax revenue.
Impact of Washington’s Tax Law
Washington is the first state to enact a tax law specifically targeting deals between credit unions and banks. While ICBA regulatory counsel Michael Emancipator praised the legislation for mitigating revenue loss for tax-paying community banks, not everyone shares the same sentiment.
Attorney Michael Bell, who has been involved in credit union-bank deals, criticized the law, stating that it would not generate any tax revenue for the state. He argued that the law would hinder the ability of state-chartered institutions to compete fairly in the market and diminish the value of small banks in Washington.
Reshaping the Future of Deal Making
The introduction of this tax law is expected to reshape the landscape of credit union-bank dealmaking in Washington state. Jeffrey Cardone, another expert in this field, predicted that Washington credit unions may explore converting to federal charters or mutual banks to avoid the tax rule. Similarly, Washington-chartered banks may seek merger partners outside the state, leading to a potential decrease in tax revenue and local investment.
While only one credit union-bank deal has been announced in 2026, the trend of such deals has been significant in previous years. In 2025, 16 deals were announced, and in 2024, a record-breaking 22 deals took place, with six having ties to Washington state.
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