By Ray Birch
WASHINGTON— A new Washington state tax aimed at credit union purchases of banks is already becoming a flashpoint far beyond this state’s capitol, with bankers cheering it as a long-overdue correction to what they call an uneven playing field and credit union advocates warning it could become a template for similar efforts in other states—while longtime dealmaker Michael Bell argues the law may end up hurting the very community banks its supporters say they want to protect.
The law, which took effect Jan. 1, repealed a longstanding business and occupation tax exemption for Washington state-chartered credit unions that acquire or merge with a bank regulated by the Washington Department of Financial Institutions. Under guidance issued by the Washington State Department of Revenue, those institutions now face a 1.2% B&O tax on gross income tied to such deals, while federally chartered credit unions, out-of-state credit unions and Washington credit unions that filed applications before Jan. 1 remain exempt.
That carveout is central to Bell’s argument that the measure will not slow credit union-bank transactions overall, but instead will push meaningfully Washington-chartered CUs out of the market and redirect deals to federal or out-of-state buyers.
“I don't think the state of Washington will collect one cent of tax with this poorly thought out law,” Bell told CUToday.info earlier this year. “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.”
In Bell’s view, the state has effectively created a system in which the path of least resistance for Washington-chartered credit unions is either to avoid bank acquisitions altogether or rethink their charter if they want to remain active buyers.
Broader Implications
Bell, partner and chair of the Financial Institutions Practice Group at Honigman LLP and a lawyer who has advised on more than 75 whole-bank transactions and numerous branch buys, has been even blunter in describing the policy’s broader implications. In CUToday.info’s initial reporting as the measure moved through Olympia last spring, Bell called it a “fatal mistake,” warning it weakens the Washington state charter by giving credit unions a clear incentive to convert to federal charters if they want to remain active bank buyers.
Michael Bell
“First, Washington state-chartered credit unions are going to analyze if they should remain in Washington under a state charter or should switch to a federal charter,” Bell said at the time, adding that in the days after passage he had already fielded calls from credit unions exploring that option. “More banks in Washington, when they sell, are going to be selling to federal or out-of-state credit unions.”
Bell has also stressed that he does not believe the law will actually reduce the total number of CU/bank deals in the state in the long run—only change who gets to do them. What it does, he argues, is weaken Washington’s own state charter while shrinking the buyer pool for in-state community banks and reducing competitive tension around sale prices.
“I guess if bankers want the value of their banks to decrease, that’s what the bankers get,” he said.
That stands in sharp contrast to the banker perspective now being shared in Tyfone’s recent coverage. Josh Deck, president and CEO of Olympia Federal Savings and Loan, used a recent Puget Sound Business Journal opinion piece to praise the law as “a first step toward leveling the financial playing field,” arguing credit unions’ tax-exempt status has allowed them to outbid traditional banks for community-bank acquisitions.
Deck said when a tax-paying local bank is absorbed by a tax-exempt credit union, communities lose both tax revenue and a civic institution, and he cast the new law as a way to preserve public funding while still permitting consolidation. He also broadened the argument by addressing mutual savings banks—customer-owned institutions that, unlike credit unions, still pay taxes—contending they face a particularly uneven competitive dynamic when bidding against tax-exempt buyers.
Credit union advocates, however, see something more strategic and potentially more dangerous than a one-off state tax change. America’s Credit Unions previously told CUToday.info when the bill surfaced in 2025 that the group had been “watching for and fighting bills like SB5794 that have popped up in states for a while,” including a similar push in West Virginia, and warned that state budget stress can make legislatures especially susceptible to banker arguments.
CUToday.info also quoted Richard White, SVP chief risk officer of America First Credit Union, calling the measure concerning because it “could set precedent for related efforts at the federal level,” while DCUC Chief Advocacy Officer Jason Stverak described it as “another clear sign that the credit union tax status is under coordinated attack at both the state and federal levels.”
That’s why analysts and advocates have warned the Washington episode could become a blueprint: not necessarily because it raises meaningful new revenue, but because it shows how a targeted anti-CU-bank-buy provision can be inserted into a broader tax package and sold as “fairness” during a budget crunch.
GoWest Credit Union Association EVP and Chief Advocacy Officer Jennifer Wagner, said, “Unfortunately, this policy change—while generating little to no additional revenue for the state, risks causing the greatest harm to consumers, who may see reduced access to financial services, as well as to community banks, which lose a rarely used but important tool to keep their operations focused on their local community. Furthermore, it is surprising to see banks' support for the overall tax package that also increased taxes on community banks by 20%, regional banks by 48%, and positioned large Wall Street banks as the most heavily taxed sector in the state.”
Practical Impact
Bell has made a similar point from a dealmaker’s perspective, arguing the practical impact is less about tax collection than market distortion: Washington may have found a politically appealing way to look tough on credit unions without actually stopping transactions, while still discouraging in-state buyers and reshaping the field in ways lawmakers may not have fully anticipated.
For both sides of the CU/bank-buy debate, that may be the real significance of the Washington law. Analysts have stated that for bankers, it is now a political proof point—evidence that at least one state was willing to narrow what they view as a tax-driven acquisition advantage. For credit unions, it is a warning that the battle over bank acquisitions is no longer confined to op-eds and congressional tax fights, but is moving into statehouses where budget gaps can create openings for narrow, last-minute policy changes.
And for sellers—especially smaller community banks—the practical effect may be the one Bell keeps returning to: if the universe of eligible local buyers shrinks while exempt federal and out-of-state buyers remain free to bid, the law may end up reshuffling who can buy, rather than stopping deals, while reducing competitiveness in the process.