On the eve of the Facebook IPO, the big news is that Eduardo Saverin moved to Singapore and renounced his United States Citizenship in order to reduce the capital gains tax on his shares of the popular social media company. You can read the story at http://e.businessinsider.com/4fad8ad790658cce4aae11b24fad8aa46763d9655400047b/T61FmnSIy4be-fvzAbc9f. He will pay some tax on his unrealized gain, but this will be far less than the tens of millions of dollars that he would pay had he remained a United States Citizen. Who knew that Mr. Saverin was a fan of this blog and is heeding my warnings about Taxmageddon?
Singapore does not tax capital gains. So, the move by Mr. Saverin appears to be for purely economic reasons, though I am sure that his new home is a fine place to live in its own right.
Obviously, not everyone has the means or desire to move to Singapore. However, those that live in high tax states such as California can save up to 10.3% on their tax bill if they move to states like Texas, Nevada, or Florida that do not have state income tax. For example, suppose a California resident, upon the sale of their business, will realize $1.5 million in capital gains. If they are California residents at the time of the sale, their love of the Golden State will cost them $154,500 in state income tax. If Governor Brown gets his way, the top rate in California will increase to 13.3%. This means that the total bill could be as high as $199,500. Those saying that they would never leave California may want to reconsider their position, especially if they are close to a liquidity event that will inflate their income.
Justice Learned Hand once said, “Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one’s taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands.” Mr. Saverin is taking this message to heart. I wonder how many people this year will be following his path toward the exit?