Tax savings lure big names across river

With Oregon’s rate rising, will even more make the move?

By steve law

The Portland Tribune, Oct 8, 2009, Updated Oct 30, 2009 (18 Reader comments)

L.E. BASKOW / TRIBUNE PHOTO

Numerous Portland corporate chieftains have moved to Vancouver just before cashing out lucrative stock options or selling their companies. Many says it's to avoid Oregon's highest-in-the nation income and capital gains tax. The Legislature boosted the tax to 11 percent for high-income people this year. Washington charges no income or capital gains tax.

Over the years, a steady stream of Portland corporate titans have shifted from being movers and shakers to mere movers – across the river to Vancouver – before cashing in multimillion-dollar stock options or business sales.

No less than five past chairmen of Portland’s top chamber of commerce quietly relocated to Clark County upon leaving their companies. The migrants include CEOs of U S Bank, Northwest Natural Gas, Standard Insurance and Liberty Northwest, plus numerous high-profile and lesser-known business owners.

Vancouver’s main draw?

Many cite Washington’s lack of income and capital gains taxes, while Oregon has long levied a 9 percent tax on income and capital gains – the nation’s second-highest rate. Now that the 2009 Oregon Legislature has bumped that tax rate up to 11 percent for high rollers, tops in the nation, the corporate exodus to Vancouver figures to get more attention. This is especially true as a slugfest ensues over two referenda destined for the Jan. 26 ballot, when Oregonians will decide to uphold or overturn much of the Legislature’s tax package.

Portland business leaders say the increased income and capital gains taxes, plus higher corporate taxes, will cause more defections of top managerial talent and entrepreneurs to Vancouver.

Supporters of the tax package say the migration of Portland business leaders is exaggerated and has minimal impact. They argue that overturning $733 million in tax hikes carefully targeted at corporations and the well-off will cripple public schools, universities and social services already reeling from recent cuts.

If nothing else, the defections of Portland’s business and corporate elite highlight a potential revenue and brain drain due to sharp differences in Oregon and Washington tax policy.

“The dollars are staggering for some of these guys, for how much they save,” says Roger Qualman, who manages Vancouver’s largest commercial real estate office for Norris, Beggs & Simpson.

The stream of migrants also raises issues of ethics and community.

Is it a matter of morality?

“There’s a moral issue” concerning civic leaders who make their fortunes in Oregon and then shift their assets to Washington to escape taxes, says Randy Miller, himself a former Portland Chamber of Commerce chairman. Miller sold his business, The Moore Co., but remains active in civic affairs here and resides in Portland Heights.

“As soon as they have one big capital gain, they leave,” Miller says of some of his peers. “That is so hypocritical.”

Miller also questions whether some are merely buying Vancouver condos to establish residence, while not really residing there.

“I know several that have pretended to move,” Miller says.

Scott Campbell, owner and publisher of Vancouver’s daily newspaper, The Columbian, says Oregon’s recent tax increases could bring more wealthy migrants to his city. Yet it’s a mixed blessing, he says.

Many former Portland corporate leaders don’t get involved in Clark County and move back to Oregon in a few years, Campbell says. It’s unfortunate to see Clark County used as a temporary “tax haven,” he says. “I think it erodes our community identity a little bit.”

Some of those who move cite family, business or other reasons for shifting their homes and lives to Clark County. Some say they’re drawn to the public schools, lower housing prices or spiffy views from Vancouver’s waterfront and the Prune Hill neighborhood in Camas.

But there’s a pattern of ex-Portland business leaders trickling back to Portland, says Clayton Hering, CEO of Norris, Beggs & Simpson in Portland, and a longtime downtown business leader.

“What it tells you is that they’re really moving for tax reasons,” Hering says. “They’re not moving to live in Vancouver.”

TRIBUNE PHOTO: L.E. BASKOW • Randy Miller, who lives in the Portland Heights neighborhood, is a former Portland Chamber of Commerce chairman who resents peers who defected to Vancouver to avoid Oregon's 9 percent income and capital gains tax. The Legislature raised the tax up to 11 percent for high-income people this year, and the brain drain of corporate leaders could be a campaign issue for an upcoming tax referenda election.

Tax savings loom large

Someone expecting a $10 million gain from a business sale or from exercising stock options could avoid upwards of $900,000 in Oregon taxes by moving to Washington, although the net savings would be less after accounting for reduced federal tax deductions. Someone living off stock dividends would get annual tax savings. Such moves are legal, if timed properly.

Stu Hall moved to Vancouver in 2002, after retiring as CEO of workers’ compensation insurer Liberty Northwest, but he moved back to the Portland area last year. He recalls being one of five former Portland chamber of commerce chairmen there at one time.

“There’s no question about it; money was an aspect” of his move to Vancouver, Hall says. Often corporate executives get large chunks of deferred income when they retire, “coming in a short bunch of time,” he says.

“I looked at the tax money I could save,” Hall says – as well as at the different charities he could support with the savings.

Hall predicts the 2009 Oregon tax increases could be a “gigantic factor” in convincing more individuals and employers to relocate to Clark County.

“I do think it’s a problem and I think it’s something Portland has to address. And I say that for the best interests of Portland, Oregon.”

Impact negligible?

Jody Wiser, a former Irvington Elementary School teacher who retired to form the grassroots group Tax Fairness Oregon, is one of many progressives who pooh-pooh the impact of wealthy Oregonians fleeing to Washington to escape taxes.

There’s only a “handful” who do it now, Wiser says, and some would do it anyway if voters force the income and capital gains tax rate back to 9 percent.

“There’s businesses sold all the time in Oregon where the people didn’t move to Vancouver,” says Chuck Sheketoff, director of the Oregon Center for Public Policy, a Silverton think tank that advocates for low-income people.

People citing a major loss of Portland business people are relying on personal anecdotes they hear among friends at the Multnomah Athletic Club, he says. “The data doesn’t show a flight to Washington.”

Paul Warner, the nonpartisan legislative revenue officer who advises Oregon lawmakers on tax policies, says wealthy individuals tend to be mobile, and more are likely to relocate because of the 2009 tax increases.

“We would expect some response and some movement to Clark County,” Warner says. “We think the effect will be marginal.”

Oregon is among many states that raised taxes to survive the recession, Warner says. The National Conference of State Legislatures reported that the states collectively raised income taxes by $10 billion for this year, and $24 billion from all new taxes.

Oregon moved from having the second-highest income tax, as a percentage of income, to the highest under the 2009 tax package, Warner says. Oregon remained fifth-highest on a per-capita basis.

Though Oregon income taxes are high, it’s largely because voters won’t accept a general sales tax. Overall, Oregon is a low-tax state.

Oregonians’ total state tax payments, per person, ranked eighth-lowest among the states in 2008, according to the Federation of Tax Administrators.

Critics of the recent tax increases point out that they’ll require money-losing companies to pay state taxes. That’s true. But supporters of the tax increases note that a majority of Oregon corporations have been escaping any state corporate tax, and paying the token $10 corporate minimum tax.

Even with the higher corporate and corporate minimum taxes passed this year, Oregon will have the fifth-lowest business taxes among the states, up slightly from third-lowest, Warner says. That’s based on a Council on State Taxation study conducted by the Ernst & Young accounting firm.

Warner concludes that the increased tax revenue passed this year, if well-deployed, can do more to help the Oregon economy than hurt it.

Understating the impacts?

Oregon Business Association leader Ryan Deckert, a former Democratic state senator, says some of his liberal friends are understating the number of business leaders who leave, and the full impact.

“It’s not anecdotal,” he says. “You just have to drive through Camas and you can pick out the house and the car of a former Oregonian.”

Upper-income people targeted by the 2009 tax increase pay the bulk of income taxes in Oregon, Deckert says. Losing some of those folks means Oregon loses revenue plus potential board members of non-profits, civic leaders and university boosters, he and others note.

When Nike Chairman Phil Knight sold a bloc of stock several years ago, the unexpected surge of capital gains taxes paid to Oregon was enough to throw off the accuracy of Warner’s quarterly revenue forecast. Those forecasts are used to build the state budget and set “kicker” income tax rebates.

Fortunately for Oregon, Knight stayed in Oregon and keeps investing or donating his money locally.

In contrast, it’s unclear if state coffers benefited from one of the state’s biggest business deals ever, the early-2007 sale of Holiday Retirement Corp., a huge senior housing company based in Salem. Fortress Investment Group of New York reported buying Holiday for $6.8 billion in the first quarter of 2007.

The prior year, longtime company principal William Colson relocated to Seattle, where he received cancer treatment and passed away. Bradley and Bart Colson, his sons, both bought homes costing more than $1 million each in Vancouver in late-2006, according to county real estate records. Neither could be reached for comment.

Individual tax payments are confidential. But the Portland Business Journal reported in 2007 that William Colson cleared more than $2 billion from the sale after investors and partners were paid. If that amount reflected the capital gains on the deal, the Oregon tax would be more than $180 million.

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