Lower Costs Draw Tech Firms to Texas

See Texas’ Tax Advantage Is All About Individuals, Not Business Taxes: Companies moving from California likely won’t see their own tax bills shrink, but executives and employees could pay less. Excerpts:

"Moves by high-profile companies to Texas from California are likely to improve the personal finances of executives and offer employees more affordable housing—but make little difference to the firms’ tax bills.

Oracle Corp. ORCL +1.33% and Hewlett-Packard Enterprise Co. HPE +0.41% are the latest big corporations to announce moves to the Lone Star State. Elon Musk, the chief executive of Tesla Inc., is also moving to Texas, and the electric car company is expanding there.

The announcements have highlighted the vastly different tax and regulatory systems in the country’s two most populous states. California relies more on taxing personal income, particularly of high-income households, and operates a growing regulatory structure. Texas leans on more regressive property and sales taxes and boasts a more laissez-faire environment. The biggest difference: High-paid executives who move can see their state income-tax bills go from 13.3% to nothing.

But corporate investors hoping for big tax and other savings may need to temper their enthusiasm. Business-tax considerations are likely to prove secondary at best, tax and economic-development experts say. They are dwarfed by the allure of more-affordable housing, lower cost of living and lighter regulatory burdens.

For companies, much of the difference between California and Texas boils down to ease and cost of hiring—not just now but down the road.

“A lot of it, honestly, is just long-term workforce availability,” said King White, chief executive of Site Selection Group, a consulting firm that helps companies decide where to open or move facilities.

Companies have also grown frustrated with the cost of attracting and keeping employees, as living expenses soar in Northern California especially, and as regulatory mandates expand. “The compounding effects of California’s economic and political environment is making it more difficult to run a business effectively,” Mr. White said."

"The Tax Foundation, a conservative-leaning Washington group, puts Texas 11th in its ranking of state business-tax climates, with California 49th. That is largely a function of individual taxes, some of which do fall on business income. The group ranks California ahead of Texas on corporate and property taxes."

"The bigger factor—outweighing any change in business taxes—is likely to be the lower cost of employing workers in the state. For most people, that calculation is more about housing costs, said Darien Shanske, a tax law professor at the University of California, Davis. Housing scarcity and land-use regulations are bigger drivers of payroll costs than taxes."

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