B&O Tax Ruling for Banks and Financial Institutions

In Cashmere Valley Bank vs State of Washington Department of Revenue on September 25, 2014 the Washington Supreme Court came down with a new ruling on the scope of the exclusion of B&O tax of income from interest earned on mortgages for banks and financial institutions.  The interest earned on the mortgages is not taxed as income if the mortgages are secured by a first mortgages on residential property.  Cashmere Valley Bank received income from investments it held in Real Estate Mortgage Interest Conduits (REMICs) and Collateralized Mortgage Obligations (CMOs).  The bank argues that the income they received from these investments should be excluded from the B&O tax.   The court held that REMICs and CMOs represent a right to income from mortgages, but that owners of these investments do not themselves hold the mortgages and thus are not qualified to exclude their income from these investments from the B&O Tax.  In light of this ruling, banks and financial institutions may want to review and potentially restructure their investment portfolio.

Dianna Caley 
Partner

Wong Fleming | Washington 

Washington State Condominium Owners May Have Less Restrictions

Division One of the Washington Appellate courts may have just increased the number of rental units on the market in the Seattle/Bellevue area.  The division came down with a decision of interest to both condo owners and condo associations.  The case was Centre Pointe Condo Association vs. Fillmore and it may have a big impact on whether or not condominium association rules restricting the use of the unit are valid.  In this case the condominium association had passed an amendment with multiple restrictions on the “use” of the condominiums including a prohibition on renting the units.  The court held that under the Washington Condominium Act this type of prohibition requires a vote of 90% of the current owners in favor of the restriction.  Condominium associations should be reviewing any amendments to the rules and covenants they have made that impact on the use of the unit.  Condominium owners who have been restricted from renting their unit should review the rules of the association and if the use restriction was a later amendment or addition to the original covenants then check to make sure 90% of the owners voted for it.  If they didn’t then you may be able to rent that unit.

Dianna Caley 
Partner

Wong Fleming | Washington