Washington State Finds Out the Hard Way That Taxes Matter to Taxpayers

NTUF recently released our annual report analyzing the latest available IRS migration data, which describes residency changes between tax year 2020 and tax year 2021. While Washington state benefited very slightly between those years from net migration changes, gaining 3,718 returns and $178 million on net between those years, those positive figures may be far less rosy in future years.

That’s because the state’s wealthiest resident, billionaire Jeff Bezos, recently announced his intention to move from Seattle to Miami. Though he cited his desire to be closer to parents, it’s hard to believe that taxes were not a driving factor behind the timing of Bezos’s decision.

Prior to 2022, Bezos’s state income tax obligations would have been the same in Washington as in Florida — not only did Washington not have an income tax, but Washington’s constitutional law actually forbids the state from imposing one. The state does impose an enormous top estate tax rate of 20 percent, but Bezos had every reason to expect plenty of time before that became a concern.

But in 2022, Washington implemented a state-level capital gains tax, seemingly in direct defiance to the state constitution. The state argued that the new 7 percent tax on capital gains represented an excise tax rather than an income tax, a wholly inaccurate characterization in conflict with how other states and even the IRS view capital gains taxation.

Given the flimsiness of the argument, Bezos had every reason to expect that the tax would be struck down. But when the state Supreme Court upheld the tax in a 7-2 decision earlier this year, Washington became just another state looking to tax his main source of income. It’s no coincidence that Bezos decided to pack up and leave to a state that truly does not tax income just several months after the Washington capital gains tax gained the blessing of the courts.

And while that’s a major shift in the Washington tax landscape, even more significant ones may have been coming down the pipe. State lawmakers have been considering wealth tax proposals — the latest iteration of which would have taxed tradeable wealth (such as, for example, shares of Amazon) over $250 million at an annual rate of 1 percent. 

The Tax Foundation estimates that, should this tax become law, Bezos would have been on the hook for $1.44 billion a year — or 45 percent of the tax’s projected revenue — by staying in Washington. 

By moving to Florida, he not only escapes these specific taxes, but he also moves to a state that has not signaled an interest in taxing its wealthiest residents for all they can get. There’s a good reason that Florida gained $39.2 billion in adjusted gross income between 2020 and 2021 alone from net migration — more than three times more than the next-highest state. Florida legislators are smart enough not to endanger this pipeline of new wealthy residents by scaring them away.

Washington should take this stinging rebuke for what it is, while other states considering similar tax hikes and wealth tax proposals should likewise take note. As states around the country cut their taxes to make themselves more attractive targets for domestic migration, states choosing to try and bleed their current residents dry are only going to end up enriching Florida and Texas.