March 29 (Bloomberg) -- Ken Fisher, founder of a $44 billion investment firm in Woodside, California, left employees bewildered when he told them their next office would be in Vancouver. Why move them to Canada?
Not that Vancouver, he assured them. Fisher Investments in November opened a campus near the city’s lesser-known namesake, Vancouver, Washington. Residents of the town of about 161,800 enjoy the double benefit of no state income tax in Washington while living close to sales-tax free Oregon.
Those perks have lured businesses and wealthy retirees alike, creating pockets of prosperity in a place sometimes labeled “Vantucky” by Portland sophisticates who live just across the Columbia River. At a time of rising U.S. income inequality, the lost tax revenue pits states against each other and leaves some long-time Vancouver residents resentful.
“When I buy a refrigerator, I buy here,” Robin Tomko, 50, said from behind the counter of Lucky Loan pawn shop 10 minutes from Portland. “Washington ends up giving away sales tax to Oregon residents. I don’t like it.”
Both states are still dealing with budget gaps left by the longest recession since the Great Depression. Oregon’s latest budget delayed opening new state hospital wards. Washington, one of nine states that don’t tax wages, said in January that it needed $1.5 billion to close a deficit and replenish reserves. In Clark County, where Vancouver is the seat, health inspectors have warned that any further cuts may make it hard to spot the next deadly disease outbreak.
Nation’s Highest Tax
Oregon voters in 2010 endorsed an income-tax increase that took the top rate to 11 percent, highest in the nation, before dropping to 9.9 percent this year. A proposed measure that may appear on the state’s November ballot would boost the rate to 13.6 percent on personal income greater than $500,000.
“Every time they raise their tax base, we see a lot more inquiries over here,” said Vancouver realty agent Linda Horowitz, who added that buyers are surprised to find that $1 million-plus homes, some with sweeping river or lake views, have been built there. “People have a perception that Vancouver is more blue-collar.”
The Portland-area Multnomah County was the biggest source of people moving to Clark County from 2005 to 2009, according to U.S. Census Bureau data released yesterday. Some 4,345 people moved from the Portland area to the Vancouver area -- double the 2,187 who moved in the opposite direction.
Bill Hale, a retired commercial real-estate investor, said he and his wife sold their west Portland home and bought a nicer one on a golf course in Vancouver, saving around $10,000 in annual income taxes.
“I tell people we’re tax-and-equity refugees from the Soviet State of Oregon and the People’s Republic of Portland,” said Hale, 73.
Navigating his Dodge sport-utility vehicle past new glass-walled offices in nearby Camas, Washington, last month, former Camas Mayor Paul Dennis said the combination of business-friendly tax and permitting policies, quality schools and light traffic is bringing jobs.
The exercise company StairMaster last year chose Vancouver over Irvine, California, for its headquarters, creating 100 positions. Sharp Electronics Corp. moved a solar panel research lab to Camas from Huntington Beach, California. As many as three dozen employers ranging from a microbrewer to a software company may create 300 jobs in Camas over the next 18 months -- no small number for a city with only 6,000 jobs, Dennis said.
“If we have economic growth, it’s going to benefit everybody,” he said.
Wells Fargo & Co. wealth managers in Vancouver report about one migrant from Oregon a month, said Tom Unger, a spokesman. Portland tax attorney John Whearty estimated he fielded inquiries from two dozen Oregon residents about relocating last year, double the 12 from a year earlier.
“The people with money can move,” Whearty said. “It’s the rest of us who are stuck.”
In Camas, a new roadway winds through evergreen trees to Fisher’s five-story building, where more than 450 sales and support staff talk to clients and monitor markets at rows of identical desks. The building will eventually host 600 employees, and a second may accommodate 600 more, he said.
“The property could hold literally thousands of people,” said Fisher, adding that California’s tax policies helped drive away these workers, who make about $75,000 to $200,000 a year.
The state’s top income-tax rate is 10.3 percent, and California Governor Jerry Brown, a Democrat, wants voters to pass a temporary increase to 13.3 percent in November.
Quality of Life
“California doesn’t like my employees; I like my employees,” said Fisher, whose company headquarters sit on the edge of Silicon Valley. “They get a better quality of life in Clark County than they would get in the Bay Area.”
The firm first leased offices in Vancouver in 2007 and Fisher later purchased 170 acres for its Camas campus, which he has said may be its next headquarters. Fisher, 61, threatened in 2010 to rule out Washington as a base if the state’s voters approved a proposed tax on upper-income earners that year. The measure failed.
His own firm is a so-called S corporation, a type that avoids double taxation by treating shareholders’ profits as personal income. While he owns a Camas home, he remains a California resident -- paying a state tax that he believes holds back growth.
“If you compare the states with no income tax to the states with high income-tax rates and you look at their historic growth over the last 20 or 30 years, the no income-tax states have prospered much more mightily,” Fisher said.
Downtown Impact Muted
The benefits of Fisher’s growth aren’t as evident to Vancouver’s retailers, according to Lee Rafferty, executive director of its downtown association.
“It’s powerful that he’s here, but in terms of what it means for downtown Vancouver, not a whole lot,” she said.
Rafferty owns a building that has been empty since 2007, though she’s negotiating with a potential buyer. It sits near three consignment stores and two pawn shops. The Vancouver area each year loses about $915 million in annual sales and $75 million in state and local taxes to Oregon -- money that would help maintain parks and fix potholes, Rafferty said.
“I’ve always thought the best money we could spend as a community is to lobby Oregon to put in a sales tax,” she said.
To contact the reporter on this story: Peter Robison in Seattle at email@example.com.
To contact the editor responsible for this story: Flynn McRoberts in Chicago at Fmcroberts1@bloomberg.net.