As if 2020 didn’t bring enough drama to the state of California, one of the new trends that emerged at the end of the year was a sudden departure of a number of major businesses looking for greener pastures in other states.
During the last quarter of 2020, we learned that Hewlett Packard and Oracle are going to be joining Tesla and SpaceX in fleeing the state of California and expanding into brand new facilities in the state of Texas.
With many states like Texas being viewed as more business-friendly than California, the big question heading into 2021 is whether this is the beginning of a mass-exodus from California or simply an isolated incident involving three prominent companies.
To better understand the motivations behind these moves, let’s take a closer look at some of the reasons driving these business relocations.
The state of California is notorious for having some of the highest tax rates in the country for both corporate and personal income. And while this has never stopped businesses from enjoying all that the Golden State has to offer, it has become more of an issue in the past year.
Contrast those high California tax rates with what those same companies can find in business-friendly states like Texas and it isn’t hard to see the benefits of making a move. And when you add in the state income tax savings many high-paid executives will enjoy in Texas, the move becomes a no-brainer.
High Operating Costs
Not only are the taxes higher in California, so is the cost of just about every level of operations. Everything from renting office space to stocking that office space with toilet paper costs businesses more in California than it does in the Lone State state.
High Living Costs
Those same property and basic operating costs flow through to the lifestyles of virtually every individual employee living and working in the state. Where buying a home is virtually unaffordable for the average employee in Silicon Valley, there are plenty of great options to choose from outside of Houston.
As the country continues to become more and more polarized with respect to politics, California is likely going to lead the charge for the left, and that will almost certainly make operating a business in the state more difficult.
Whether we are talking about higher taxes, higher minimum wages, or greater restrictions, operating a business in California is going to get more and more difficult compared to more business-friendly states like Texas.
Covid-Related Shifts to Remote Work
Another reason that businesses are likely to continue this trend of relocating to more business-friendly states is the huge increase in remote working arrangement that were necessitated by the COVID-19 pandemic in 2020.
With a large number of companies across the country becoming more and more accustomed to remote working agreements, it is less critical than ever for those countries to be located in California to benefit from the talent pool available in Silicon Valley.
There is still plenty of time for California to make changes that would discourage additional business relocations in the years to come, but whether or not they are willing to put those changes into action remains to be seen. Keep a close eye out for more businesses to make the move in 2021, and we will see what happens when they do!