On April 19, 2025, Washington State lawmakers introduced Senate Bill 5797, a legislative measure aimed at curbing tax avoidance practices that exploit loopholes in the tax code. The bill seeks to address transactions and arrangements that are designed to unfairly evade taxes, particularly in the construction and business sectors.

The primary focus of Senate Bill 5797 is to empower the Washington Department of Revenue to disregard certain tax avoidance transactions for tax purposes. This includes arrangements that, while appearing to be legitimate joint ventures or partnerships, essentially guarantee payments for construction services without allowing contractors to share in profits or bear risks. The bill also targets practices where taxpayers disguise income or transactions to avoid taxation, particularly by shifting income to entities not subject to Washington taxes.

Key provisions of the bill outline criteria for determining whether a transaction should be disregarded. These criteria include assessing whether the arrangement meaningfully alters the economic positions of the parties involved, the existence of substantial non-tax reasons for the transaction, and the overall reasonableness of the arrangement in achieving a significant non-tax purpose.

The introduction of Senate Bill 5797 has sparked discussions among lawmakers and stakeholders. Proponents argue that the bill is essential for ensuring tax fairness and protecting state revenue, while opponents express concerns about the potential for overreach and the impact on legitimate business practices. Some critics worry that the bill could inadvertently penalize businesses that engage in standard tax planning strategies.

The implications of this bill are significant, as it could reshape how businesses operate within Washington State, particularly in the construction industry. By tightening regulations around tax avoidance, the state aims to enhance its revenue collection and ensure that all entities contribute fairly to public resources.

As the legislative process unfolds, stakeholders will be closely monitoring amendments and debates surrounding Senate Bill 5797, which could influence its final form and effectiveness in addressing tax avoidance in Washington.