New rules subject some in-state credit unions to a 1.2% business tax on bank acquisitions, a shift that could alter merger strategies and push deals beyond Washington’s borders.

When Washington State quietly revised its tax guidance this month, it sent a jolt through one of the fastest-growing corners of the financial services industry: credit unions buying banks.

In a notice issued Jan. 28, the Washington State Department of Revenue said that beginning Jan. 1, 2026, any credit union organized under Washington law that merges with or acquires a bank regulated by the state’s Department of Financial Institutions will be subject to the state’s business and occupation tax. The levy, which applies to gross receipts rather than profits, would be imposed at a rate of 1.2% under the state’s credit union tax classification.

The policy marks a significant shift for Washington-chartered credit unions pursuing bank acquisitions, a deal structure that has grown rapidly nationwide in recent years. Under the new rule, income generated from such transactions would be taxable without deductions for labor, materials or other costs — a feature of Washington’s broad-based business and occupation tax, which already applies to most businesses operating in the state.

The department outlined several exemptions. Federally chartered credit unions, credit unions organized under the laws of other states, and Washington credit unions that submitted applications for regulatory approval before Jan. 1, 2026, will remain exempt from the tax.

Still, the change could have far-reaching consequences. Jeffrey Cardone, a partner at Luse Gorman, a law firm that has advised many credit unions on bank acquisitions, said the ruling is likely to reshape dealmaking behavior in the state.

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“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,” Cardone told Tyfone. “This means Washington bank assets do not stay local following such a merger, which decreases tax revenue and investment in the state.”

The timing of the move comes as credit union-bank deals remain historically elevated. Sixteen such acquisitions were announced in 2025, according to S&P Global Market Intelligence, slightly below the record 22 announced in 2024. None of last year’s deals involved Washington-based banks, though five Washington community banks were acquired in 2024.

The first credit union-bank deal announced in 2026 involved Zeal Credit Union of Livonia, Mich., which agreed to acquire substantially all of the assets and liabilities of The Miners State Bank of Iron River in an all-cash transaction. The purchase price was not disclosed.

Not everyone views the trend favorably. The Independent Community Bankers of America has long criticized credit union acquisitions of banks, arguing that large credit unions have strayed from their original mission while retaining tax advantages. After the Zeal deal was announced, the group’s president and chief executive, Rebeca Romero Rainey, renewed those concerns.

“With tax-exempt credit unions continuing their troubling pace of acquiring tax-paying community banks into 2026, ICBA and the nation’s community bankers continue our call for policymakers to address the harmful impact these deals have on local communities,” Romero Rainey said.

For Washington lawmakers and regulators, the new tax guidance appears aimed at leveling part of that playing field. For credit unions and banks weighing future mergers, it may be a signal that geography — and tax policy — now matter more than ever.

“This means Washington bank assets do not stay local following such a merger, which decreases tax revenue and investment in the state.”

– Jeffrey Cardone
Partner
Luse Gorman