Tax Changes Result in Business Migrations

FORT LAUDERDALE, FL—Changes in corporate real estate taxes and deductions of state and local taxes (SALT) have created a challenging dichotomy between high-tax states such as New York, New Jersey, and Illinois, and low-tax states like Florida and Texas.

Florida received more moves than any other state last year, and New York’s outflows to Florida were the highest with 63,773 people migrating, according to data from the US Census Bureau. Texas has also been the recipient of recent corporate moves with Toyota, opening its North American headquarters in Plano in 2017, McKesson Corp., the US’ largest pharmaceutical distributor, relocating its headquarters from San Francisco to Irving in April 2019 and Altair Global, a provider of relocation and assignment program services, planning to move its global headquarters to Frisco by Fall 2019.

“The changes in SALT deductions have absolutely led to a major influx of people and businesses to Florida from high-tax states, especially from New York,” says Eric Rapkin, Real Estate Practice Group Chair with Akerman LLP, who is based in Fort Lauderdale. “This has led to an uptick in transactions for all property types,” he tells GlobeSt.com. “There is no doubt that at least at this point, Florida is a major winner from the 2017 Tax Cuts and Jobs Act.”

Even if a corporation or organization in a high-tax state is unsure of making a headquarters move, due to the disparity in cost of living and income tax variables as a result of the 2017 Tax Cuts and Jobs Act, it is incumbent upon the leadership of these corporations and organizations to meaningfully examine the financial benefits that would accrue to its constituents (shareholders, employees, etc.) from a relocation to low- or no-income tax states like Florida and Texas, Rapkin adds.

“While there certainly are many other factors involved, besides financial, that must be examined in any type of headquarters move (climate, education, proximity to airports, etc.), the disparity in cost of living and income tax variables as a result of the 2017 Tax Cuts and Jobs Act cannot be ignored,” explains Rapkin.

In response, high-tax states have been challenging the 2017 Tax Cuts and Jobs Act in court. For example in 2018, New York, Connecticut, Maryland, and New Jersey filed a lawsuit against the Trump administration challenging the constitutionality of the cap on SALT deductions. More recently, a lawsuit was filed by New York, New Jersey, and Connecticut in connection with “workarounds” that these states tried to enact but were blocked by the federal government.

“Anecdotally, I have also heard that if a wealthy person elects to relocate from a high-tax state to Florida, it is virtually guaranteed that the high-tax state will audit the taxpayer, presumably in an effort to have the resident re-think any sort of move,” says Rapkin.

In Rapkin’s opinion, unless there is further change to the tax laws relating to SALT deductions, whether due to court decisions or due to change of control in Congress, this migration trend will continue for the foreseeable future.