SB 5949 Washington Senate · 2025-2026 Regular Session

Concerning taxes imposed on insurers operating within the state.

SB 5949 clarifies a tax exemption for insurers to close a loophole allowing non-insurance businesses (like pharmacy benefit managers) to avoid state business taxes. It amends RCW 82.04.320 to require that only insurers who pay premium taxes to the state can claim the exemption, reversing a 2024 court decision that broadly interpreted the exemption. The bill applies retroactively to tax periods starting October 2, 2019, ensuring businesses that previously avoided taxes under the broad interpretation now comply. It repeals an outdated exemption section (RCW 82.04.322) to streamline tax administration. This change directly affects insurers and businesses previously using the loophole to avoid paying business and occupation taxes.

Issues: ✓ Budget & Taxes

Bill status in committee 1 of 4 stages cleared

Introduction

Dec 2025

Committee Review

Floor Vote

Governor

Introduced Dec 29, 2025 Last action Mar 10, 2026

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What changed between versions

Bill → Substitute Bill · 7 edits

MODERATE

This bill clarifies and tightens a tax exemption for insurance-related income to prevent non-insurers from avoiding taxes. It removes ambiguity that allowed pharmacy benefit managers to avoid paying business and occupation tax on payments from insurers, ensuring they pay taxes on the same income as the insurers themselves. The bill also adds specific rules for captive insurers and updates the definition of who counts as an 'insurer' for tax purposes.

Scope change

The bill expands the scope of the business and occupation tax exemption to explicitly include 'prepayments' alongside 'gross premiums' and clarifies that the exemption applies only to the 'same person' who paid the premium tax, closing a loophole for third-party administrators.

ELIGIBILITY

Removed the passive voice language that allowed businesses not paying premium taxes to claim exemptions, requiring the recipient of the income to be the same entity that paid the premium tax.

Explicitly added 'prepayments' to the list of income types covered by the tax exemption, ensuring consistency with how insurers report income.

DEFINITION

Added a specific definition for 'person' to include surplus line insurance brokers who pay premium taxes, clarifying their status under the exemption.

Simplified the definition of 'insurer' by removing the inclusion of insurance brokers, while compensating for this by explicitly defining 'person' to cover them.

REQUIREMENT

Added a new finding that the clarification does not affect income received by insurers for granting annuities, which are already excluded from premium definitions.

SCOPE

Removed a specific exemption clause for captive insurers affiliated with public institutions of higher education, likely because it was consolidated or addressed elsewhere.

TECHNICAL

Deleted the original finding regarding the 2024 court case and the need to restore parity, as this is now addressed by the substantive changes to the law itself.

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Full legislative history

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Key actions

Committee

Feb 19, 2026

Upper · Passed

Minority; do not pass.

upper

Feb 19, 2026

Upper · Passed

Executive action taken in the Senate Committee on Ways & Means at 4:00 PM.

upper

Jan 19, 2026

Upper · Passed

Public hearing in the Senate Committee on Ways & Means at 4:00 PM.

upper

1 primary · 1 co-sponsor