Finance

Why Jeff Bezos’s move to Miami is a great ‘tax play’ for the billionaire

3 Mins read

Seattle will always have a piece of Jeff Bezos’s heart, according to the billionaire founder of Amazon. But Washington state’s tax coffers will not always have a piece of Bezos’s wealth.

After some three decades in Seattle, Bezos said in an Instagram
META,
+1.20%
post that he’s moving to be closer to his aging parents and to the Cape Canaveral, Fla., operations of Blue Origin, his space-travel company.

Florida’s state tax regulations are probably also a draw for Bezos, especially when compared with Washington’s rules, according to tax experts.

At the Florida-based law firm Comiter, Singer, Baseman & Braun LLP, the news of Bezos’s planned move came as no surprise to tax attorney Brad Gould.

Gould, senior counsel at the firm, said well-heeled people have been moving to Florida from other states “by the droves.” He added: “In my firm, there are many, many ultra-high-net-worth clients who have done this exact same thing, and it is mostly a tax play.”

“Ultra-high net worth” in this case means clients worth at least $50 million, Gould noted.

There are also other reasons that people move to Florida, he noted, including business-friendly regulations and favorable laws on the protection of assets like homes. The beaches and the weather help, too, he said.

Also read: Even Jeff Bezos is part of the ‘sandwich generation,’ as he relocates to be closer to aging parents

And if low or no state income tax is what a person is looking for, Washington does have its appeal. Florida and Washington are two of nine states without their own income tax.

Internal Revenue Service statistics on household wealth flowing into and out of states show that Florida added $39.2 billion in adjusted gross income from 2020 to 2021. In the same time period, Washington added $178 million in adjusted gross income. By contrast, California lost a net $29 billion in adjusted gross income, the numbers show.

“The real benefit of Florida over Washington for Jeff Bezos is the lack of a tax on capital-gains income,” said Jared Walczak, vice president of state projects at the Tax Foundation, a right-leaning think tank.

Washington has a 7% capital-gains tax that applies on capital gains above $250,000. The tax took effect in 2022.

Washington also has an estate tax that currently applies to estates worth more than $2.19 million. The estate-tax rate goes from 10% to 20%. “Of course, when you are Jeff Bezos, it’s the top rate that matters,” Walczak added.

Bezos is currently worth an estimated $161 billion, according to the Bloomberg Billionaires Index.

Billionaires tend to move out of states with estate taxes as they grow older, according to a 2019 study from researchers at the University of California, Berkeley, and the Federal Reserve Bank of San Francisco.

Bezos is leaving Washington state as lawmakers have proposed a wealth tax that would affect billionaires like him. The proposed tax on “extreme wealth” would apply on assessed value beyond the $250 million mark.

“By moving now, Bezos is getting out in front of any potential Washington state wealth tax — and he also took a large bite out of any revenue projections,” Walczak said.

Bezos’s real-estate portfolio includes a $79 million mansion on a private island in Florida’s Biscayne Bay — a home that’s next door to another $68 million mansion he owns.

By pulling up stakes, he’s joining a crowd of tony new denizens of the Sunshine State.

Those include Ken Griffin, CEO and founder of the hedge firm Citadel and the market maker Citadel Securities, who moved to Florida from Illinois. Griffin is worth an estimated $35.6 billion, according to the Bloomberg Billionaires Index.

People further down the income ladder have also been following the same pattern of moving to Florida and other lower-tax locales. Florida and Texas had the highest inflows of young and affluent households in 2021, according to a SmartAsset analysis of IRS statistics. Texas also has no state income tax.

You can count Tyreek Hill, a wide receiver for the Miami Dolphins, among that crowd. Hill said he was seriously considering playing for the New York Jets, which would have meant living in New York or New Jersey. “Just those state taxes, man. I had to make a grown-up decision,” said Hill, who is under a $120 million contract.

There are, of course, all sorts of reasons people decide to move. Family, weather and job opportunities are all in the mix. And relocating to the Sun Belt has been a trend for decades.

“People move for a variety of reasons,” Walczak said. “When billionaires move for whatever reason, they usually land in low-tax states.”

What’s also in the background is the coming expiration of major parts of the 2017 Tax Cuts and Jobs Act. Without congressional action, five of seven federal income-tax rates will increase in 2026. That would mean the top federal income-tax bracket would return to 39.6%, up from 37%.

It also would mean that the federal estate tax would kick in a lot sooner. The 2017 law doubled the size of the exemption, with the tax currently applying to estates worth at least $12.9 million.

If rich taxpayers don’t know where federal tax rules are going next, they can at least focus on their state taxes, Walczak said. “Very few are going to become expats to avoid taxes. But they can move [to different] states,” he said.

Amazon
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+0.38%,
where Bezos stepped down as CEO in 2021, did not respond to a request for comment.

Read the full article here

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