Archive for the ‘Texas’ Category

Texas’s Gain Is California’s Loss

Sunday, February 16th, 2014

Today a client asked me about where to relocate her company headquarters. Her computer engineers aren’t thrilled with the current location, and would like to move to either California or Texas. I explained the decision has a cost difference of $165,000.

Currently, there’s a small office in California with one employee. The business, which is an S-Corporation, is taxed on the personal level (as almost all S-Corporations are). The business is profitable.

California uses a one-factor sales test to determine the percentage of income attributable to the state. Most of the sales of the company are not to California; she only owes a small amount of tax to California based on the income. Her California tax bill today is more of an annoyance than anything else.

However, if the company’s headquarters moved to California, then all sales not attributable to a state the company does business in would be attributable to California. In running an estimate for 2014, that amounts to an additional $170,000 she would owe in California tax.

On the other hand, Texas doesn’t have a state income tax. If the company’s headquarters moves to Dallas, her tax bill won’t change. Her engineers may like the Bronze Golden State slightly more than the Lone Star State; however, my client is a businesswoman who understands math.


This is a true story, and there’s no doubt in my mind that what I told my client has been duplicated by hundreds of accountants throughout the country. Taxes matter, as always.

The Flow of AGI from One State to Another

Saturday, July 20th, 2013

From watchdog.org comes an interesting interactive map showing how money has flowed from state to state. Back when I moved to Nevada from California, I noted this issue. Here’s yet more verification that this is real.

The five biggest losers were:
1. New York ($68.10 billion in annual Adjusted Gross Income (AGI))
2. California ($45.27 billion in annual AGI)
3. Illinois ($29.27 billion in annual AGI)
4. New Jersey ($20.62 billion in annual AGI)
5. Ohio ($18.39 billion in annual AGI)

The five biggest winners were:
1. Florida ($95.61 billion in annual AGI)
2. Arizona ($28.30 billion in annual AGI)
3. North Carolina ($25.12 billion in annual AGI)
4. Texas ($24.94 billion in annual AGI)
5. Nevada ($18.17 billion in annual AGI)

Sure, some of this is retirees moving from the snow belt to the sun belt. But California is anything but part of the snow belt; it’s clear that successful individuals are fleeing high tax states for low tax states. We here in Nevada are appreciative of the $9.59 billion in annual AGI that has moved from the Bronze Golden State to the Silver State.

Interestingly, the interactive map allows you to look county-by-county. The areas that one would think would show AGI growth are losing AGI. The area around Silicon Valley has lost AGI; so have Los Angeles and Orange County. Sure, some of this is retirees moving to the desert (Riverside County, which includes Palm Springs, showed an increase in AGI). However, there is no chance that this is just caused by retirees.

Taxes matter, and individuals absolutely do relocate because of taxes.

California Leads the Way (as Worst State for Business)

Tuesday, May 7th, 2013

If anyone wonders why I left the Bronze Golden State, yet another survey has come out regarding places to do business. Chief Executive Magazine rated all 50 states from top to bottom. Before focusing on the dismal state of California’s business climate, let’s highlight the top ten states:

1. Texas
2. Florida
3. North Carolina
4. Tennessee
5. Indiana
6. Arizona
7. Virginia
8. South Carolina
9. Nevada
10. Georgia

At the bottom was California:

41. Maryland
42. Pennsylvania
43. Hawaii
44. Michigan
45. Connecticut
46. New Jersey
47. Massachusetts
48. Illinois
49. New York
50. California

Looking at why California ranks where it does, one can see the problems are taxation and regulations. The comments note that the regulations and taxation is unreasonably and “…getting worse, if that is even possible.” Compare these to the comments regarding Texas: “Texas is the clear leader because of taxes and pro-business attitudes.”

Do I expect anything to change in California? No — I think the state will have to hit bottom (be broke) in order for real change to happen.

Phil Mickelson Yells “Fore” to California

Tuesday, January 22nd, 2013

Phil Mickelson has overcome a chronic illness (psoriatic arthritis) and continues to be one of the best golfers in the world. However, Mr. Mickelson golf game may be felled by something that his home state of California and the US government have implemented: taxes.

From the Golf Blog (from Sports Illustrated), Mr. Mickelson is quoted as saying,

There are going to be some drastic changes for me because I happen to be in that zone that has been targeted both federally and by the state and, you know, it doesn’t work for me right now…so I’m going to have to make some changes…

If you add up all the federal and you look at t he disability and the unemployment and the Social Security and the state, my tax rate’s 62, 63 percent. So I’ve got to make some decisions on what I’m going to do.

Ouch: A 62% marginal tax rate is quite high. His income tax rate is likely a bit less; Joe Kristan calculates it at 52%. Whether it’s 52% or 62%, it’s a lot, and when you earn $61 million a year before taxes, you don’t want to see your pay reduced by over half.

Mr. Mickelson could move to Nevada or Florida, and his tax rate would drop by about 8%; still high, but not astronomically high. I suspect Mr. Mickelson is torn between living in one of the most beautiful areas of the world (he resides in suburban San Diego) versus keeping more of his hard-earned income.

Now let’s consider entrepreneurs who call Silicon Valley home. They’ve been building up businesses, and let’s assume they see an opportunity to go “public” (issue stock on a stock market) and cash in. Let’s look at what would happen if they are in California versus Texas (or Nevada):

1. In California, they’ll face the highest state income tax in the country (13.3%) versus no income tax in Texas.
2. In California, capital gains are taxed as ordinary income for state taxes. There is no tax in Texas. (Many states with state income taxes have preferential capital gains treatments, too…but not California.)
3. In California, there is no Qualified Small Business Stock exemption. Not an issue in Texas; there’s no state income tax.
4. California has one of the worst business climates in the country (especially with regulations). Texas is among the best in the country.

So assume you are the president of HighTechCo, a Silicon Valley start-up. You can go public in California, or you can move your business to Texas. If you end up in Texas, you will make more money off your initial public offering (IPO), you will end up in a better regulatory climate, and you can hire employees at generally lower wages than in the Bay Area. Sure, the weather isn’t as good as California, but there are no earthquakes either. I suspect a lot of business owners will elect to use moving vans prior to their IPOs.

As Alan Greenspan said, “Whatever you tax you get less of.” California is going to find out that their tax increases will not be the long-term savior of their budgets. The only solution is cutting expenditures. Business owners can move, and many individuals (such as Mr. Mickelson) and businesses (such as the hypothetical HighTechCo) are going to choose that route.

Another Survey, Another Bad Result for California

Wednesday, May 30th, 2012

Yet another survey puts California among the worst three states from a tax perspective. Alvarez & Marsal Taxand, a consulting and tax advisory firm, surveyed 800 financial executives (302 responded). Among the questions asked was Which states do you view as most competitive from a tax perspective? The usual suspects finished on the bottom: California, New York, and New Jersey. As Alvarez & Marsal Taxand noted, “…the states generally viewed as having complex tax systems and high tax rates are the three states listed (by a wide margin) as the least competitive states.” Alvaraz & Marsal Taxand Managing Director Don Roverto told the the Orange County Register, “The feedback from clients who do business in California is that it has one of the highest combinations of high rates and complex systems and that’s why it’s at the bottom.”

It’s also not a surprise which states finished at the top: Texas, Florida, and Nevada. These states all feature a tax exclusion or non-income tax based system.

Perhaps California will consider tax simplification, lowering rates, and making businesses feel wanted. Of course not–the Bronze Golden State will have one or two tax hike proposals on the November ballot.

Another Survey, Another “F” for California

Thursday, May 10th, 2012

While Governor Brown and others in the Bronze Golden State continue to debate how to increase taxes, perhaps they’ll look at yet another survey which shows that California is at the bottom for business (among US states). With thanks to the TaxProfBlog for noting this, Thumbtack.com, in partnership with the Ewing Marion Kauffman Foundation released a survey of small business owners of which states were the best for business.

Receiving “A+” grades were Idaho, Oklahoma, Texas, and Utah; receiving “F” grades were California, Hawaii, Rhode Island, and Vermont. The three worst performing cities were all in California: Los Angeles, Sacramento, and San Diego. The top three cities were Oklahoma City, Dallas/Fort Worth, and San Antonio. Nevada received a “B+” while Maryland received a “C-”. Las Vegas ranked 10th of the 40 cities surveyed.

The interactive map is available here while the full survey can be found here. A press release on the results is also available.

Texas #1, California #50 in Business Location Survey

Thursday, May 3rd, 2012

Another week, another survey of which state is best for business. For the eighth straight year, Chief Executive magazine ranked Texas as the best state in the union as to where to conduct business. Unsurprisingly, California is at the bottom. My state, Nevada, is at #12; Aaron’s home of Maryland is #40. Here are the top ten and bottom ten states:

1. Texas
2. Florida
3. North Carolina
4. Tennessee
5. Indiana
6. Virginia
7. South Carolina
8. Georgia
9. Utah
10. Arizona

41. Hawaii
42. Oregon
43. Pennsylvania
44. Connecticut
45. New Jersey
46. Michigan
47. Massachusetts
48. Illinois
49. New York
50. California

The two states that made the biggest moves were Oregon and Louisiana. Oregon fell nine spots in the ranking, likely due to their income tax increase that passed last year. On the other end of the spectrum is Louisiana, which was ranked 47th in 2006 but is now ranked 13th (up 27 spots from 2011).

Meanwhile, Chief Executive describes California as having slipped deeper into the ninth circle of business hell. Perhaps this section of the report will enlighten Sacramento:

The following is a representative sample of comments from participating CEOs:

  • California is the worst! They are doing everything possible to drive a business out of their state. If it were not for the climate, they would have lost half their population.
  • California regulations, taxes and costs will leave only tech, life sciences and entertainment as viable. If you aren’t an elitist, no room here for the middle or working classes.
  • California treats business owners like criminals. California has different overtime policies for its own employees vs. private sector.
  • California’s labor regulation is a job killer. We will be moving our business out of the state, which will lose hundreds of jobs simply due to the poor regulatory environment.
  • California should secede from the union—it is like doing business in a foreign country, it has its own exchange rate, and its regulation is crazy.

Meanwhile, the budget deficit in California grows (the Legislative Analyst says it’s at $3 billion and will grow from that number). Perhaps the idea of cutting regulations and spending just what the state takes in might garner some support in Sacramento. Well, one can always dream….

When Buying a Business in Texas…

Wednesday, March 14th, 2012

…ask for the Certificate of No Tax Due from the Texas Comptroller of Public Accounts. Alan Sherman of the Texas State & Local Tax Law Blog explains why.

California Leads the Way: Worst State for Business

Wednesday, September 21st, 2011

Another survey, another “winner” for California. Every three years Development Counsellors International publishes a survey: A View from Corporate America: Winning Strategies in Economic Development Marketing. Among the many results in the survey are the five best and worst states for business.

Here are the five best states for businesses:

1. Texas
2. North Carolina
3. South Carolina
4. Tennessee
5. Florida

And here are the five worst states for businesses:

50. California
49. New York
48. Illinois
47. New Jersey
46. Michigan

This survey shouldn’t shock anyone. The five worst states are known for high taxes, high regulations, and a miserable business climate. Meanwhile, the five best states are known for low taxes, low regulations, and a favorable business climate. Shocking, no?

Knocked Out From New York

Wednesday, November 18th, 2009

I’m not a boxing fan. For those of you who are, you’ll recognize Manny Pacquiao and Floyd Mayweather Jr. as big names in the sport. Those two boxers will fight in the Spring of 2010.

Newsday asked boxing promoter Bob Arum if Yankee Stadium was being looked at for the fight. “No chance,” Arum told Newsday. “Nothing would please me more than to have it at Yankee Stadium, but the way the tax structure in New York is set up, it’s impossible.”

Taxes matter. Apparently the prime candidate for the match is the new Cowboys Stadium in Arlington, Texas. Texas, of course, doesn’t have a state income tax.

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