Chris Dudley's taxes
The kids on BlueOregon are speculating about, among other things, the tax planning that Republican gubernatorial candidate Chris Dudley may have engaged in years ago when he was playing pro basketball. At one point in the discussion, one of them notes that I might actually be able to contribute something to it. That invitation seemed to have vanished overnight and reappeared this morning -- maybe I somehow missed it -- but in any event, here's what I think about the fact (as asserted on BlueOregon, at least) that Dudley lived in Camas, Washington while he was a Blazer.
It probably did save him a fair amount of state income tax overall, and it certainly resulted in Oregon collecting a lot less tax from him during those years than it would have if he had lived in, say, the Dunthorpe section of Portland. Washington, of course, has no income tax. But there was nothing "evasive" about it. Situating one's residence to avoid taxes is perfectly legal.
Here is the long version of the story:
If Dudley had lived in Oregon: Oregon taxes Oregon residents on their worldwide income. If another state actually collects tax from an Oregonian on the same income that Oregon taxes, Oregon gives credit for the tax that the other state got. But (a) few, if any states, have higher income taxes than Oregon, and thus Oregon virtually always gets a piece; and (b) Arizona, California, Indiana, and Virginia would not collect tax from an Oregon resident on income earned in those states -- Oregon would get its full pound of flesh there. (The Blazers play many games each year in California.)
And so if Dudley had resided in Oregon, he would have paid state income tax, to some state or other, at Oregon's high rates, on all of his income. Oregon would have gotten by far the lion's share of the tax, but not all of it. Some of it would have gone to places like Utah, Colorado, New Jersey, etc. But with its high rates, Oregon would likely have gotten a piece of the income Dudley earned from every game.
So what happened with Dudley (reportedly) as a Washington resident? He would clearly have been taxed in Oregon on more than half of his salary as a Blazer. On the income he earned in other states (less than half), however, Oregon probably would not have touched it. Oregon taxes nonresidents only on their Oregon-source income, and for road games outside Oregon, that's most likely considered non-Oregon-source. The Oregon nonresident tax form instructions explain:
If you have wages from an Oregon employer and you performed services for your employer in Oregon and another state while you were a nonresident, and your Oregon wages are not stated separately on your W-2, compute your Oregon source income using the following formula:Other states that have an income tax doubtlessly taxed some of Dudley's income, attributable to the games he played (and days he practiced) in those states. But as noted earlier, their rates are lower than Oregon's. And some NBA states besides Washington have no income tax at all -- Texas, Florida, and Tennessee.
(Days actually worked in Oregon / Days actually worked everywhere) × Total wages = Oregon wages
Income from investments: As an Oregon resident, Dudley would have been taxed in Oregon on all of his investment income. One can only assume that a guy at his income level has a fair amount of investment income. As a Washington resident, he probably wasn't taxed by any state on any of it.
Sales tax: Dudley probably paid quite a bit of sales tax, mostly in Washington but also a little in other states, during his years as an NBA player. Had he lived in Oregon, he probably would not have paid anywhere near as much sales tax.
The bottom line: Dudley probably saved a lot of state income tax by living in Washington State. His salary in his Blazer years ranged from $790,000 to $7.2 million, and so even a savings of 2 or 3 percent would dwarf most people's gross salaries for some of those years.
But of course, there are tradeoffs -- to be taxed as a Camas resident, you have to live in Camas! Head up there on I-205 some weekday afternoon at 5 and you'll see what I mean.
I don't hold smart tax planning against Dudley. I doubt I'll vote for him, but at least he has some common sense about money -- more so than fully two-thirds of the bobbleheads currently serving in the state legislature.