At a Christmas party last year in Las Vegas, nearly a dozen wealthy former residents of Washington state compared notes on their transition to the desert.
They agreed that the sunshine was nice. Even better was the feeling that the state of Nevada wanted them to be there.
Some rich people say that’s increasingly not the case in Washington, where Democratic state lawmakers are barreling toward a first-in-the-nation wealth tax on financial holdings to help close a roughly $13 billion budget deficit over the next four years.
The measure is all but certain to face a legal challenge if it passes. Yet it comes as wealthy Washingtonians are just now accepting that the state’s capital-gains tax is here to stay — and are deciding whether they should, too.
Las Vegas realtor Ryan Tsui has been watching the exodus unfold. The Evergreen State ex-pats he has helped move to his city are almost exclusively wealthy, he said, with many looking for houses worth $8 million or more. Some families are arriving with savings amassed from working for and investing in storied Washington companies like Amazon.com and Microsoft Corp.
“Some of these high-net-worth people are liquidating a career of stock options from the ’90s to now,” said Tsui. “That starts to add up.”
Such portfolios are now a target in Washington. Senate Democrats included a 1% tax on the stocks, bonds, exchange-traded funds and mutual funds of people with more than $50 million of such holdings in a budget proposal that is drawing growing support. The measure would also raise property taxes and put a new statewide payroll tax on large employers.
Microsoft President Brad Smith warned that the new taxes would do “lasting damage” to the state.
“I have, frankly, never been more worried about the future of the tech sector in Washington state as I am today,” Smith said at a GeekWire event last week.
Washington’s wealthy had already been watching their tax burdens rise. The state’s 7% tax on capital gains over $270,000, which survived legal challenges and a repeal effort, has only been collected since 2023.
This year, some business investors could face an additional tax obligation for the first time. State officials said in new guidance that a gross receipts tax should be applied to investment returns that make up more than 5% of an entity’s income. That could expose some nonprofits, as well as family offices and other vehicles that the wealthy use to manage their fortunes, to new levies.
Nevada, which has no capital-gains tax and no estate tax, isn’t the only place Washingtonians are looking. There is Arizona, where income and capital gains are taxed at 2.5% and there is no estate tax. Florida and Texas are also attractive, but farther geographically and culturally from Washington.
Some of the Pacific Northwest’s most recognizable business names have already left. Investment magnate Ken Fisher blamed a state supreme court decision upholding Washington’s capital-gains tax for his move to Texas in 2023.
Amazon founder Jeff Bezos didn’t cite taxes as factor in his move from Seattle to Miami in 2023, though he likely saved $288 million when he sold $4 billion in Amazon stock less than four months after he relocated.
Even some smaller entrepreneurs, who are an important part of Washington’s economic ecosystem, have also departed.
Michael Fraser-Vuur poured everything he had into Refactr, a security-automation software company he started in 2017. He sold his house near Seattle to fund the company without having to rely on venture capital, keeping control — and the potential rewards — for himself.
The bet paid off. Within four years, Fraser-Vuur was in talks to sell Refactr to cybersecurity company Sophos. At the same time, Washington’s state Legislature was debating the capital-gains tax.
Fraser-Vuur took no chances. He packed up and moved to Nevada in 2021 just before he sold his company.
“We wanted to make sure we were absolutely Nevada residents before the transaction happened,” Fraser-Vuur said. “It’s the best state from a tax perspective” in the western U.S.
The number of Washington residents affected by the capital-gains tax has been tiny, which was part of its popular appeal. Fewer than 4,000 filed returns the first year the tax was collected, bringing in nearly $848 million in fiscal year 2023, according to the Department of Revenue.
The first $500 million collected each year is earmarked for education, including early-childhood care. Any additional funds are set aside for school construction. Yet with a small number of payers, collections have been volatile. In fiscal 2024, with roughly the same number of returns filed, revenue from the tax plummeted to less than $361 million.
Many of the well-heeled in Washington say they are willing to pay higher taxes. Some even campaigned for the capital-gains measure. There are others though who fear that a rising tax burden could limit their ability to invest in new businesses.
Rahul Sood moved to the Seattle area in 2010 to work at Microsoft. Eventually, he left the Redmond-based software giant and co-founded an esports betting company that was sold to UK-based Entain in 2021. He saw Seattle as a vibrant city with a culture of innovation and he didn’t want to leave.
Last year, he moved to Nevada, where he attended the Christmas party with fellow Washington transplants.
“We have to make a choice on where we invest our money,” said Sood, who in 2021 co-founded the AI company Irreverent Labs. “Do we invest our money in more government spending, or do we invest it in the people and the technology that we’re trying to build?”
The northwest corner of the U.S. hasn’t seen the same population outflows as fellow blue states like California, New York and New Jersey. Washington, while politically liberal, has comparatively low taxes. Now the budget debate in Olympia, the state capital, is raising questions about the unintended consequences of vowing to soak the rich.
Washington Gov. Bob Ferguson has focused on spending cuts before looking for more revenue, proposing $4 billion in savings from the biennial budget. He said in January he was “deeply skeptical” of a wealth tax, but he has declined to say publicly whether he would veto it.
If the state Legislature doesn’t have a balanced budget by April 27, Ferguson can call special sessions, which would have until June 30 to find a solution before the state government risks shutting down.
State Sen. Noel Frame, a Democrat whose district includes upscale Seattle neighborhoods that overlook the Space Needle, said a wealth tax is popular among her constituents. She said evidence of wealthy people leaving the state is anecdotal.
“We have a very strong economy and a tax code that does not capture that economic growth in an appropriate way,” Frame said in an interview.
It also looks as if the Legislature isn’t going to step in to shield investment income from the state’s business and occupation tax, a levy of as much as 1.75%, after court rulings could allow it to be collected from family offices and the holdings of some big corporations.
A thousand miles away from Olympia, Las Vegas is embracing the opportunity to diversify its tourism-focused economy. The city is still far behind the concentration of engineering talent in Silicon Valley and Seattle, which is investing in hubs for artificial intelligence. But Las Vegas is also trying to nurture its own web of startup accelerators, venture capital and networking events.
To pump more money into fledgling businesses, the state’s venture capital fund will match private investment. Last year, a new law lowered the bar for more Nevadans at lower incomes to invest in startups, expanding the pool for funding.
After COVID-19 shook Las Vegas’s hospitality industry, Heather Brown, who leads entrepreneurship at the development agency Las Vegas Global Economic Alliance, said the city is trying to nurture homegrown technology businesses and attract those from other states.
Brown is preparing to host the fourth Vegas Tech Summit, an invitation-only event in October. She said attendees last year toured a home in The Summit, a gated community where casino CEOs, actor Mark Wahlberg, Vegas Golden Knights owner Bill Foley and San Francisco transplant and venture capitalist Marc Andreesen have purchased property.
Rachel Smith, head of the Seattle Metropolitan Chamber of Commerce, said the state’s business climate is strong and diverse, but it is also shifting in a way that policymakers need to closely examine.
“The business environment needs to be one where businesses want to start and they want to grow and they want to stay,” Smith said. “To that end, we have some real challenges.”
That’s been troubling Hadi Partovi, an early Microsoft employee, startup founder and investor who has tried to foster a sense of community in the Seattle-area tech scene. He said he worries about what these policies will do to Washington’s reputation for innovation.
“For folks who want to start new companies, if they are aiming to become the next Jeff Bezos or the next Bill Gates, they’re going to wonder, is this the right place?” Partovi said. “Once that company becomes big, how much of it am I going to have to give up?”