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6 Reasons Employers Are Moving From California to Texas - Employer Attorney Los Angeles and Orange County

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Posted on October 2nd, 2017

Why Are Businesses Moving From California to Texas?

We hear about it constantly. Yet another headline about a business packing it up and leaving California, but why is that?

Find out the real reason why businesses are moving from California to Texas, and other similar business and employer friendly states.

 

I love, love, love California. I remember as a kid watching television dreaming of one day moving here and walking along these beautiful LA beaches, basking in the warm sun.

In many ways Southern California and Los Angeles have exceeded many of my expectations as a kid on what it is like to live in a place where most people pay to vacation.

But after living here for 20 years as an adult I’ve had to face some harsh realities as well when it comes to the Golden State. For business owners like me and you, its not all palm trees and days at the beach. There are some harsh realities to running a business and having employees here.

I’ve had many of my clients ask me.

Is California truly the place to grow businesses?

Should I move my operations to a state that is more business/employer friendly?

 

Its not just my clients who are asking. It is something hundreds of business owners in this state are considering. California has some stiff competition lately for its business dollars. And their biggest competitor is Texas.

Over the last few years, 9,000 businesses fled California and one of the most likely destinations is Texas. Businesses first started the mass migration from California to Texas between 2004-2008 when the recession hit.

In addition to the recession, the housing market also crashed during this time. This put the pressure on many local business owners making California unlivable for some.

But even after the economy slowly recovered from those dark days many California business owners continue to flock to Texas. And this trend is still continuing today in 2017.

Why are businesses leaving California? And what’s so attractive about Texas?

The answers could surprise you.

Read on to find out why the Lone Star state is stealing the business thunder from the Golden State when it comes businesses.

 

Businesses Are Moving From California To Texas Due To State Tax Costs

One of the biggest factors behind businesses moving from California to Texas is the fact that Texas has great state business tax.

The tax rate for franchise businesses is 1% and qualifying businesses have taxes as low as .5%. Businesses that make $10 million or less have an average tax rate of .575%.

Compare this to California state corporate tax: depending on the amount you make, your taxes can be anywhere between 4-9%. This is why it’s estimated California businesses owners can lose as much as 29.9% of their revenue to the state.

 

 

California State Taxes Are Even Higher for Individuals

If you thought the California state business taxes were bad, lets talk about the individual taxes for California residents.

California’s top tier income tax rate is the highest in the nation at 13.3 percent.  This is for those who earn over a million. This tax percentage is the highest in the nation.

While individual taxes rest on the income of each individual, you can imagine wealthy business owners are losing a lot of their income to our state.

Lets compare this to Texas, the Lone Star state is one of the seven states with no state income tax. That’s a ton of dollars business owners are giving up just based on what state they are in.

It’s pretty obvious that personal income tax is one huge incentive wealthy business owners have to move from California to Texas.

 

Small Companies Can’t Afford the Fees

While many mega-corporations might still have their headquarters in California, a lot of smaller businesses are moving from California to Texas. Its all over the news when Carl’s Jr or Toyota move out of California but looking at the stats the majority of business that have moved from our state to Texas are small companies we have never heard of.

When it comes to the taxes, the crazy labor laws and other strict regulations and requirements its tougher for a small business to succeed in California.

For entrepreneurs who have startups and small businesses it can be a huge burden to afford those state costs, especially when a new business has employees, office and other business startup costs to be concerned with.

But to be clear, small businesses are not the only companies to leave California.

Here is a small sample of major companies that have left recently:

Toyota migrated from Torrance, CA to Plano, Texas

Carls Jr from Carpinteria, CA to Nashville, Tennessee

Nestle from Glendale, CA to Rosslyn Virginia.

 

 

California has More Workplace Laws

And each year, these laws keep increasing.

Even in 2017, one restrictive labor law after another gets passed in California.

This includes more wage laws, additional discrimination and retaliatory regulations, the fair pay act, gender neutral restrooms, sick leave, family leave and much more.

The minimum wage was approved to be increased for the state overall and can be different depending on whether you operate in Los Angeles, Santa Monica, San Diego or other cities with their own set minimum wage.

 

Texas on the other hand has a much lower cost of living and a lower minimum wage: $7.25 an hour. This is set to the minimum federal level. The state of Texas also has much less restrictive laws in regards to overtime as well.

 

While California businesses are dealing with yet another recent avalanche of new regulations, including proving equal pay, requirement for all-gender bathrooms, and time off due to violence and assault.

What does this mean for businesses? When businesses are moving from California to Texas, they receive cheaper labor, they are not bound by strict standards, and they are less likely to get hit by business debilitating employee lawsuits.

If this trend continues it is only going to get tougher for California employers in the future. We have to reverse this trend so that our state is still a great attraction for business owners to employ our citizens.

But for now, Texas has a great job market, low housing costs, and a growing economy, so its sad to say but both corporations and employees benefit more from operating in Texas than California.

 

Texas Has Lower Sales Tax

But not by much. Usually, a state with no income tax has a higher sales tax. This is true: Texas has an 8.19% average tax rate. And this is just the maximum; some businesses can get away with charging 6.25% tax.

While not the worst in the country, California has high state tax in addition to the income tax. California’s tax rate averages at 7.25% with the maximum at 8.25%. These rates are still much higher than Texas’ rates.

What does that mean for businesses? Since businesses aren’t the ones paying sales tax on their own goods, their customers pay that sales tax when they purchase products.

Texas wins again on this measurement. Texas residents don’t have to worry as much during tax time, so they have more spending money. And since the sales taxes are lower than they are in California, it means Texans won’t mind spending a little more.

So, the lower sales tax rate is yet another reason we see businesses are moving from California to Texas.

 

Texas Has a Better Economy

Texas boasts having one of the best economies in the whole country. While the economy fluctuates with each passing year, the recent numbers are in Texas’ favor.

But, Texas does NOT produce the highest economic output in the country: Texas averages at 1.6 trillion, compared to California where we average about $2.6 trillion. Could you imagine what we could do if we had the same empowerment and freedom they have?

So if we are still #1 why are people so pumped about the economy in Texas?

There are a few different reasons.

Texas also hosts several different markets including two of the largest sellers in the country: mining and oil. So they can sell and even export a lot of products.

Texas also has cheap living costs and a great job market, which attracts more workers.

Texas also has three of the most major profitable cities in the United States: Austin, Houston, and San Antonio.

While California also has a great job market, the cost of living in California is much higher.

Since the average person can make a lot of money and live in an affordable area in Texas, they are more likely to move there. As more people move to Texas, their local economy will continue to grow.

 

Businesses are Moving from California to Texas, Will You?

Because of high taxes, a better economy and lenient workforce laws, businesses of all sizes are migrating from California to Texas.

California is only becoming stricter on laws and taxes, so businesses are finding it more beneficial to pack up for the Lone Star state.

But should we just give up? Should we just throw up our hands and move? Give up this amazing weather, beautiful beaches and great state?

I don’t know about you but I’m not going anywhere. I am not going to be chased out of this great state just to make or save more money. I am going to stay and fight and do everything in my power to make California a great place to own a business again!

My part in this fight is to represent employers against these crazy one side labor laws. I am going to continue doing what I am doing and give a voice to the business owners and entrepreneurs here who employ people and help drive our massive econmony.

If you’re staying put in California and you have any issues with employees be sure to contact us. 

We offer a FREE Consultation to California Employers and can help your business succeed in California’s increasing difficult environment.

 


 

employer defense attorneyHi I’m John Fagerholm, the founding partner of DefendMyBiz. My mission is to defend employers like you from California’s unfair labor laws.

Book a FREE 15 Minute Consultation with me today so I can listen to your story and tell you exactly what you need to do to get rid of your employee problems.

 


 

Download My Free Ebook: ‘6 Tips To Protect Your California Business From an Employee Lawsuit’

 


 

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