Archive for the ‘Texas’ Category

IRS Extends Tax Deadlines for Victims of Iowa Derecho & California Wildfires

Tuesday, August 25th, 2020

The IRS announced yesterday that they have extended tax deadlines for victims of both the derecho that hit Iowa and the ongoing California wildfires. The specific counties impacted can be found on the Federal Emergency Management Agency (FEMA) website.

For both disasters, tax deadlines are extended that began on August 10th for the derecho and August 14th for the wildfires until December 15th. This impacts 2019 personal tax returns on extension, business returns on extension, payroll tax filings, and estimated tax payments. California’s Franchise Tax Board automatically extends deadlines for federal disasters, so those impacted have identical extensions for California taxes. I assume the Iowa Department of Revenue will similarly extend Iowa deadlines.

Unfortunately, it looks like we’ll also be looking at victims of Hurricane Laura in Texas and/or Louisiana later this week. The IRS recently posted information on safeguarding records for natural disasters; your insurance company likely has additional information available. The cliche is that an ounce of prevention beats a pound of cure–but it is good advice.

2020 Best States for Business: Bring Me (mostly) the Usual Suspects

Thursday, June 18th, 2020

Chief Executive magazine does a survey every year of the best and worst states for business. This isn’t just a list about taxes, but includes other factors; still, it’s a good survey of what business executives look at. The top ten includes my home:

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

The bottom ten has a couple of surprises (for me):

41. Alaska

42. Hawaii

43. Oregon

44. Washington

45. Massachusetts

46. Connecticut

47. New Jersey

48. Illinois

49. New York

50. California

That Texas is at the top isn’t a surprise. “Employers continue to be attracted by the state’s lack of an individual income tax, low business taxes, friendly regulators, a reasonable cost of living, and diverse and growing labor force.” [emphasis added]. Contrast that with California: ” Business owners—especially companies that make things— continue to abandon the state as fast as they can.”

I was surprised by Alaska and Washington. Neither state has a state income tax. Alaska, of course, is hard to get to, and the cost of living is a big issue. In Washington state, it appears that the cost of living and regulations lower the ranking.

I wanted to emphasize the impact of regulations. Regulations are hidden costs for businesses. It’s not that all regulations are bad (that’s absolutely not the case); rather, over-regulations cost business money. Consider a widget manufacturer in Los Angeles. He’ll face California’s burdensome regulations at the state, county, city, and regional level (the air quality district regulates). Here in Nevada, there are state and local regulations, but they’re integrated without the quadruple level of regulations. I read years ago it took Carl’s Jr. (a fast food chain) over a year to get regulatory approval to build a new location in California; it took less than two months in Texas.

In good times, California has prospered because of the entertainment industry and Silicon Valley. We’re not in good times right now, and the budget hit to the Golden State is severe (they’re projecting a $54 billion deficit). Sure, Covid isn’t the fault of California (or any other state). But the reaction of the legislature demonstrates that they’re not learning anything: Increase taxes and hope for a federal bailout (one that I doubt is coming).

For those who think that state policies don’t matter, this survey tells you otherwise. The states at the top (run by Democrats or Republicans get this). The states at the bottom mostly don’t.

State Taxes Matter, Lesson #21

Sunday, July 5th, 2015

When does $108 million equal $80 million? When you’re leaving California and heading to Texas.

DeAndre Jordan has been playing center for the Los Angeles Clippers of the National Basketball Association. Mr. Jordan just signed a free agent deal with the Dallas Mavericks for $80 million, $28 million less than what he was offered to stay with the Clippers. It might be that Mr. Jordan believes that the Mavericks have a better chance at winning the 2015-2016 NBA Championship. Perhaps he likes Texas better than California (his hometown is Houston). It also might be that Mr. Jordan likes keeping more of what he makes.

Marc Spears of Yahoo Sports noted to NBA TV,
“First of all the taxes are so bad in my home state of California it ends up being about even.” California’s top tax rate is 13.3%, so if all of Mr. Jordan’s contract were subject to the top California tax rate he’d end up at $93.6 million–still a bit more than the $80 million he’ll get with the Mavericks. Because of Jock Taxes some of what Mr. Jordan will earn will still be subject to various state and local taxes (including California’s); the Spurs will play road games in Los Angeles, Oakland, and Sacramento.

Another NBA free agent, LaMarcus Aldridge, signed for $80 million with the San Antonio Spurs; he played for the Portland Trailblazers last year. Mr. Aldridge is leaving Oregon (which has a 9.9% maximum rate) for Texas’ 0% rate. Yes, the Spurs might be a better team than the Blazers and Mr. Aldridge may like the Spurs’ organization more, but I’m also certain he likes that his tax rate just went down.

Toyota Living Up to Their Slogan: They’re Going Places (to Texas from California)

Monday, April 28th, 2014

Toyota’s current slogan is “Let’s go places.” And they are–Toyota is leaving the Bronze Golden State and moving to the Lone Star State. While Toyota isn’t saying anything about why they might move roughly 5,000 employees from Torrance to Dallas, it doesn’t take a genius to know that taxes and regulations are two prime factors.

“The costs of doing business in Southern California are much higher than the costs of doing business in Tennessee,” Nissan Chief Executive Carlos Ghosn said at the time [Nissan announced they were moving their headquarters to Tennessee from Gardena, California]. He cited cheaper real estate and lower business taxes as key reasons for the move.

Fritz Hitchcock, who owns several Toyota dealerships in Southern California, said Toyota’s decision won’t affect local car sales. But he said it represents an “indictment of California’s business climate.”

California ranks at the bottom of almost every comparison of state business climates and taxes. Texas ranks near the top in both categories. Yet I read that the California legislature is considering even more anti-business legislation. (The link goes to an article on a proposal to tie California corporation tax to the differential in pay between a CEO and the average employee.)

When I moved my business from California to Nevada, taxes and regulations were prime reasons. It’s far easier to uproot a one-person business than it is the marketing arm of Toyota. That said, California is giving business owners plenty of reasons to check out neighboring states. The desert sands of Nevada don’t make the world’s best meteorological climate, but the business climate here is day-and-night better in comparison to California.

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.