New Jersey lost its richest resident late last year when billionaire David Tepper decamped to the tax friendly climes of Florida.
Tepper registered to vote in Florida last October, listing his residence as a Miami Beach condominium, and followed up in December by filing a court document declaring that he is now a resident of the state. He also carried out a business reorganization on Jan. 1 that relocated his Appaloosa Management from New Jersey to Florida, which is free of personal income and estate taxes.
The move could save Tepper hundreds of millions of dollars in state taxes several years from now. Florida has been pitching itself as a warm-weather tax haven to hedge fund managers in the Northeast, some of whom face a 2017 deadline to pay taxes on billions of dollars in performance fees that they had kept offshore for years. A Florida residence could offer partial relief to New York and New Jersey money managers who face the prospect of surrendering at least half of the deferred money to federal, state and local taxes.
“Anyone who has a large deferral coming due in 2017” is thinking about ways of reducing the tax hit, said Anthony Tuths, a tax attorney in the New York office of Withum who advises alternative investment funds. “What is easier than packing up your house in New York City and moving down to Miami?”
Tepper, 58, lived in New Jersey for more than two decades, initially as an executive at Goldman Sachs Group Inc., where he helped run junk-bond trading during the late 1980s and early 1990s. He founded Appaloosa in 1993 and now has an estimated fortune of $10.6 billion, according to the Bloomberg Billionaires Index. That ranks him as the wealthiest person in New Jersey.
When Tepper personally relocated to Florida, part of his firm came along. Under a Jan. 1 reorganization, the firm moved what was formerly its main investment advisory unit to Miami from Short Hills, according to a filing with the SEC. Because the previously deferred offshore fees would normally be paid out to this unit, the move could be key to saving money on state taxes in 2017.
As a New Jersey resident, Tepper would have to pay the 9 percent state tax upon reporting his deferred compensation in 2017 on top of a federal tax rate of 39.6 percent. Moving to Florida could at least eliminate the 9 percent tax.
Because Appaloosa Management is now in Miami, the deferred fees that it receives in 2017 from the offshore funds will qualify as Florida-sourced income for tax purposes, Tuths said. So will the future performance fees that Appaloosa Management receives as the general partner for Tepper’s primary onshore vehicle, Thoroughbred Fund LP. As a Florida resident, Tepper won’t have to pay any state income taxes on such fees when they’re passed along by Appaloosa Management.