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Guest Editorial

We're starting to pay a penalty for the death tax

BY DON C. BRUNELL

In 2005, Gov. Chris Gregoire and her fellow Democrats who controlled the Washington Legislature reinstated the state's estate tax to balance the budget. The tax had been invalidated earlier in the year by the State Supreme Court.

On a party-line vote, Democrats imposed the new tax on dead people's "assets," not just money, ranging from 10 to 19 percent beginning in 2006. Ironically, Congress is working in the opposite direction. Federal lawmakers reduced the federal estate tax and are debating whether to permanently abolish it by 2011.

State lawmakers attempted to carve out family farms from our new death tax, but some argued that unless the family actually works the ground, they would have to pay when the family proprietor dies.

Now our state is starting to pay the price.

For example, Services Group of America (SGA), a second-generation company started in Seattle by the Stewart family, is moving its headquarters from West Seattle to Scottsdale to escape the tax. Arizona is phasing out its estate tax.

SGA is the state's second-largest private company according to the Puget Sound Business Journal's Book of Lists. The company employs 4,000 people and reported approximately $2.2 billion in revenues in 2004. Like Boeing's headquarters move to Chicago, only the corporate staff will relocate; the main body of SGA workers will remain in our state processing and distributing food.

Nevertheless, it is a significant loss when a company decides an out-of-state zip code is preferable.

SGA made it clear that it is moving because of the state's new inheritance tax. "With the Legislature and governor electing to impose the highest state inheritance tax in the nation on family-owned companies, it has left us with little choice but to move," said Gary Odegard, vice president of corporate communications, in a prepared statement.

It's interesting to note that SGA is moving to Arizona, even though that state has both a corporate and an individual income tax. Apparently, the cost of Washington's death tax was so onerous that the move made sense.

What will this mean to us? Tax collectors may say that since SGA will still pay tens of millions of dollars a year in B&O taxes, the headquarters move means little.

Not so.

First, the SGA people moving to Arizona are the company's top executives. Many in Washington bemoan the dwindling ranks of the top business executives and pine for the days when they worked with political and community leaders to pull off the world fairs in Seattle (1962) and Spokane (1974). Where will that leadership and its accompanying clout come from if the exodus continues?

Secondly, the move will be a loss to charities as the company and its executives refocus their individual and corporate giving on their new "home" state and communities. Phoenix also has a symphony, opera, theatre and arts community which can gain from a headquarters moving to a nearby city.

While many other companies may move with little public attention, SGA's announcement points directly to the problem affecting families who risk everything to go into business.

The death or estate tax is not about getting rich people to pay their fair share. Family-owned businesses have their money tied up in equipment, inventory and property that far too often have to be sold to come up with the cash to pay Uncle Sam and General George (state of Washington).

How does that help them compete in the global market place? It doesn't.

But the problem with the death tax goes deeper than that. SGA has paid tens of millions of dollars in taxes to the state of Washington each year for decades, but apparently, that's not enough. Now, our state will receive less.

It is too late for Services Group of America. Like Boeing, the company said its decision to move its headquarters is not reversible. The question elected officials should ask before it is too late: "Who is next?"

Don C. Brunell is president of the Association of Washington Business.

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