Any Washington state-based credit union that merges with or acquires a bank is now subject to the state’s business and occupation tax, the Washington Department of Revenue said last week.
The 1.2% tax applies to gross income generated from such deals, meaning there are no deductions for labor and materials, to deals submitted for regulatory approval after Jan. 1, 2026.
Credit unions organized outside of the Evergreen State are not affected by the law, nor are Washington state-based credit unions that submitted a combination with a bank for approval before Jan. 1.
Washington was a hotbed of credit union-bank deals in 2024, and this type of deal has been growing in number nationwide in recent years. Bank trade groups have long taken issue with credit unions buying banks, arguing that credit unions’ tax-exempt status allows them to offer higher purchase prices than banks.
“[I]t is past time for policymakers to do something about this increasingly concerning trend,” Independent Community Bankers of America CEO Rebeca Romero Rainey said in a prepared statement in 2024. “ICBA and community bankers continue our calls for Congress to hold hearings and to consider an ‘exit fee’ on credit union acquisitions of tax-paying banks to capture lost tax revenue resulting from these deals.”
Washington is the first state to put forth a tax law related to deals between credit unions and banks.
State legislators there “got this one exactly right,” ICBA regulatory counsel Michael Emancipator said Thursday in an emailed statement to Banking Dive. “Community bankers applaud state legislative efforts to mitigate revenue loss each time tax-paying community banks are acquired by a tax-exempt credit union. Ultimately, it should not be taxpayers subsidizing credit union growth.”
However, Michael Bell, an attorney at Honigman who has served as an architect for a number of credit union-bank deals, disagrees, telling CUToday that this “poorly thought out law” won’t yield the state of Washington “one cent of tax.”
“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,” he told CUToday.
Jeffrey Cardone, another credit union-bank deal architect who is a partner at the law firm Luse Gorman, told Tyfone that the law would reshape future dealmaking in Washington state.
“Washington credit unions will either convert to federal charters or mutual banks to circumvent the tax rule, and Washington-chartered banks will likely look for merger partners outside the state of Washington,” he said. “This means Washington bank assets do not stay local following such a merger, which decreases tax revenue and investment in the state.”
Just one credit union-bank deal has been announced in 2026: Livonia, Michigan-based Zeal Credit Union announced that it would purchase Iron River, Michigan-based Miners State Bank last month. But 16 such deals were announced in 2025, and 22 – a record – were announced in 2024. Six of those 22 had ties to Washington state.
