Major employer quitting state - Tom Stewart to move 5 firms, citing estate tax

Saturday, April 1, 2006

By BILL VIRGIN
P-I REPORTER

Services Group of America Inc. plans to move its headquarters, and 90 jobs, from West Seattle to Scottsdale, Ariz., by the end of this year, and the once-politically prominent owner of the company says Washington's estate tax is to blame for the shift.

The parent company of Food Services of America and four other firms also plans to lease its five-story building just south of the West Seattle Bridge and eventually sell it, the company said Friday.

Tom Stewart, 61, is the sole owner of Services Group, one of the state's largest privately held companies, with $2.5 billion in annual revenue, 4,000 employees nationally and 1,100 in the state. Its subsidiaries, including Food Services of America, distribute food to schools, hospitals, restaurants and government and military facilities.

"With the Legislature and the governor electing to impose the highest state inheritance tax in the nation on family-owned companies, it has left us with little choice but to move," the company said in a statement. "Among other long-term financial considerations, this one threatens the long-term future of the company."

Washington's current estate-tax law was enacted by the Legislature last year after the state Supreme Court threw out an earlier version. The tax applies to estates of at least $2 million and has a graduated rate; estates of more than $9 million are assessed $1.44 million and 19 percent of the amount above $9 million, according to the Department of Revenue.

Stewart, who wasn't available for comment, has had a home in Arizona for 27 years and last year officially changed his residency to that state, the company said. Had Stewart and the company remained in Washington, the state would have taxed his estate at 19 percent, said Gary Odegard, vice president of corporate communications. "He's not going to do that."

Arizona has phased out its estate tax. A Washington Department of Revenue spokesman noted that any tangible property or real estate remaining in this state would still be subject to the tax.

The move to Scottsdale would start around Aug. 1 and be completed by the end of the year, Odegard said.

SGA has 160 employees at its headquarters; 90 of those will move to Scottsdale. Some of the remaining employees handle information technology tasks and can work from anywhere. A "very small number," he said, have decided not to move or have had their positions eliminated through consolidation.

The move won't affect SGA's food distribution operations in 19 states, including Washington.

Stewart will continue to own his Misty Isle Farm on Vashon Island as a vacation home (the Misty Isle brand of beef, which can be found in local grocery stores, is a separate company with its operations in Eastern Washington).

Odegard said SGA is negotiating on the purchase of a building in Scottsdale.

Stewart's food distribution and service businesses were spun off from Stevedoring Services of America, in which he also had an ownership stake, in 1987.

Aside from Food Services of America, SGA's other subsidiaries are Amerifresh, McCabe's Quality Foods, S&P Meats and Development Services of America, which manages the company's real estate holdings.

For years, Stewart was a major figure in Republican politics, as a financial contributor and as host of an annual picnic for the party at his Vashon property. But in recent years, Stewart has had little involvement with the party, those active in the political scene say.

Stewart also figured in several controversies. In 1998, Stewart pleaded guilty to federal election-finance charges. In 1997, Food Services of America signed a plea agreement and was fined over allegations from federal authorities that one of its distributorships had sold tainted meat.

And in 1995, Stewart battled with the Seattle City Council over placing a helipad at SGA headquarters; the city turned him down.

The estate tax has been a major issue at both the state and federal levels, with opponents arguing that the tax burden can force the sale of family businesses and that it might discourage development or location of entrepreneurial enterprises here.

Michelle Zahrly, a spokeswoman for the state Department of Community, Trade and Economic Development, said the effect of the estate tax is "not something we're discounting at all," but said so far the tax has not prompted a large number of businesses to leave Washington.

Although the estate tax is a concern to some business owners, that is often offset by other factors, such as the fact that Washington doesn't have an income tax, she added. "Obviously it's important to have headquarters here," she said. "We understand that it's a personal decision by the CEO."

P-I reporter Bill Virgin can be reached at 206-448-8319 or billvirgin@seattlepi.com.