Washington State Bill Aims to End Tax Break for Large Digital Lenders

Proposed legislation would redirect funds to wildfire mitigation efforts

Published on Feb. 23, 2026

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A proposed Washington State bill, introduced by Democratic Rep. Shaun Scott, aims to redefine existing regulations and limit the types of companies that can take advantage of a favorable tax preference for mortgage loan interest. The bill targets large digital lenders, like Rocket Mortgage, that have been using a tax break intended for community banks. If passed, the legislation would eliminate the tax preference for "high-volume mortgage lenders" with annual origination volume of $10 billion or more, redirecting the resulting revenue to wildfire mitigation efforts.

Why it matters

The bill highlights concerns about large digital lenders exploiting a tax break meant to support smaller, community-based financial institutions. It also underscores the growing threat of wildfires in Washington State and the need for increased funding for prevention and mitigation efforts.

The details

The current state regulation allows community banks to take a business- and occupation-related deduction for the interest received on mortgage loans. However, a 2024 report found that 65% of the savings, representing $91.6 million, went to national digital lenders, rather than the smaller businesses the legislation intended to support. The proposed bill, named the Wildfire Alleviation Support Act, would change the wording in existing rules to effectively eliminate the tax preference for "high-volume mortgage lenders."

  • In 2024, a report from the Washington Department of Revenue found that 65% of the savings from the tax break went to national digital lenders.
  • The proposed bill recently passed largely along party lines in the Democratic-led House of Representatives and currently sits in committee within the Senate.

The players

Rep. Shaun Scott

A Democratic state representative from the Seattle area who introduced the bill to redefine existing regulations and limit the types of companies that can take advantage of the tax preference.

Rocket Mortgage

A large digital lender that has been taking advantage of the tax break intended for community banks, according to the bill's sponsor.

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What they’re saying

“Last summer I learned that big banks like Rocket Mortgage were taking advantage of a tax break intended for community banks.”

— Rep. Shaun Scott, Bill Sponsor (Facebook)

“Big placeless banks conduct a greater share of their business via data centers that exacerbate warming trends that lead to forest fires. We shouldn't be subsidizing them.”

— Rep. Shaun Scott, Bill Sponsor (Facebook)

What’s next

The proposed legislation, which was named the Wildfire Alleviation Support Act, currently sits in committee within the Washington State Senate after passing the Democratic-led House of Representatives.

The takeaway

This bill highlights the ongoing debate over the use of tax breaks and the need to ensure they benefit the intended recipients, rather than being exploited by larger companies. It also underscores the growing importance of addressing the threat of wildfires in Washington State and the role that funding for mitigation efforts can play in protecting communities.