Archive for November 2015

‘Mixed message: Business relocation expert is both fan, critic of California’

November 30, 2015

Story in the Orange County Register today about yours truly:

For a guy who’s gained a reputation as a harsh critic of California’s business climate, Joe Vranich has surprisingly good things to say about the state.

Vranich, owner of Spectrum Location Solutions in Irvine, is a corporate relocation specialist who has gained a loyal following among people who think California’s regulatory and tax structure is scaring away hordes of businesses. …

His latest report estimates 9,000 business have disinvested from California in the past seven years – departures and out-of-state expansions that could have been worth at least $68 billion in capital investment.

See the rest of the story here.

One focus of this blog has been to address California’s hostility toward business, as addressed in the new study, Businesses Continue to Leave California – A Seven-Year Review, issued in November 2015.

 Joseph Vranich of Spectrum Location Solutions helps companies find great locations in which to grow. Joe also is a keynote speaker on the benefits of businesses relocating out of high-tax, high-cost, over-regulated states to friendlier business environments. More information is available at Biography and Speaking Availability. On Twitter, Joe is known as @LocationConsultant.

California: Awful Ranking in Business Tax Survey; How One Company Owner Said ‘Goodbye’

November 18, 2015

The Tax Foundation issued its 2016 State Business Tax Climate Index, a highly respected report on the topic. For the fourth year in a row California ranks at No. 48 – meaning that taxes on businesses are worse only in New York and New Jersey.

Calif FTB LogoBefore saying more about the Index, let’s bring to light how some business owners feel about taxes in California.  I recently came across comments by Erica Douglass, a young tech entrepreneur, who moved the headquarters of her company, Whoosh Traffic, from San Diego to Austin, Texas. Although what she said is several years old, her comments remain relevant today:

Dear California, I’m leaving you. One thing I’ve struggled with for years is a government that is notoriously business-unfriendly – with everything from high taxes on business earnings to badgering businesses into more work to satisfy the bureaucracy. California decided that businesses grossing over $100,000 a year should have an account to report quarterly on the sales tax customers pay for goods sold. But my company sold services – not products – which aren’t taxed. When I closed the account with the state (by going into a local office and spending nearly an hour explaining my situation), they forced it open again and sent me a nastygram explaining that I would owe fines for not filing the quarterly reports. It takes time to fill them out, even if you owe nothing. Also, the state charges a 10% income tax on all income over $47,055 in addition to an 8.25-9.25% sales tax (depending on where you buy products). I paid enough in California income tax in one year alone to hire another worker for my business. I’d bet that I’m far more efficient at creating jobs as a small business owner than the state is given the same amount of money. And a really dumb law for small business owners is an annual $800 fee just to have a corporation in California. Most states only charge you a few dollars annually. California’s is exorbitant. (Her comments were edited for brevity.)

How many other business owners share Ms. Douglass’s frustration? With the state ranking at No. 48, the answer is “plenty.”

Back to the Tax Foundation. The organization compiles the Index each year to rank the 50 U.S. states across more than 100 variables in the areas of corporate income tax, individual income tax, sales tax, property tax, and unemployment insurance tax. The Index enables business leaders, government policymakers, and taxpayers to gauge how their states’ tax systems compare. While there are many ways to show how much is collected in taxes by state governments, the Index is designed to show how states structure tax systems and provide a roadmap for improvement.

Improvement? There will be numerous proposals to increase taxes (business and personal) considered by the California legislature in 2016 as well as ballot propositions to do the same. I don’t know of a single serious proposal to reduce state taxes in California.

Key findings from Tax Foundation

The top ten states are Wyoming, South Dakota, Alaska, Florida, Nevada, Montana, New Hampshire, Indiana, Utah, and Texas. The bottom ten states are Maryland, Ohio, Wisconsin, Connecticut, Rhode Island, Vermont, Minnesota, California, New York, and New Jersey.

Source: 2016 State Business Tax Climate Index

Note: The Tax Foundation, a non-partisan research think tank, based in Washington, D.C., is the nation’s leading independent tax policy research organization. Since 1937, its principled research, analysis, and experts have informed smarter tax policy at the federal, state, and local levels.

‘Chief Executive’ notes California Business Departures

November 12, 2015

So pleased to report that Chief Executive Online today published a column by yours truly regarding businesses disinvesting in California. Such events occur when companies relocate out of state entirely or place facilities elsewhere that traditionally were placed in California. See the column here.

California Companies Head for Greatness – Outside of California

November 10, 2015

Why would companies located in one of the most beautiful states in the country – California – undertake the costly proposition of relocating to places with less scenic appeal and less-than-ideal weather?

Relocation - Blue Hanging Cargo Container.

There are three answers and they relate to California’s business environment: Regulations, taxes and anxiety.

Let’s take anxiety first. Corporate leaders and business owners fear what will happen in the future regarding proposals to raise taxes on business property, extend the Proposition 30 taxes that were supposed to be “temporary,” raise cap-and-trade fees to curb carbon emissions, and impose new workplace regulations regarding family leave and health care. We’re talking about billions of dollars in new operating and ownership costs.

Some of those proposals were defeated this year. But the energy level of the zealotry in California’s legislature means they are certain to rise again in 2016 and 2017. Projecting the resulting cost and complexity in future operations causes leaders in corporations and small businesses to worry – then they worry some more over the unpredictability of it all.

About taxes: This could be discussed for hours, but suffice to say that the Tax Foundation’s 2015 State Business Tax Climate Index lists California at No. 48.

The regulatory environment can be brutal. Examples include fines for trivial errors such as a typo on a paycheck stub – not on the check, just the stub – and putting into law costly overtime provisions that in most states aren’t codified in a statute.

Last year, when Gov. Jerry Brown was asked about business challenges, he revealed his aloofness by saying, “We’ve got a few problems, we have lots of little burdens and regulations and taxes, but smart people figure out how to make it.” The Wall Street Journal responded: “California’s problem is that smart people have figured out they can make it better elsewhere.”

In short, California is so difficult that companies relocate entirely or, if they keep their headquarters here, find other places to expand.

In an effort to offset Sacramento’s head-in-the-sand approach to business concerns, my firm completed a new study that provides details of business disinvestments in the state. Over the seven-year period that includes last year, the study estimates that 9,000 businesses disinvested in California in favor of other locations.

The study shows that 1,510 California disinvestment events have become public knowledge and provides details on each and every event. Site selection experts I’ve been in touch with conservatively estimate that a minimum of five events fail to become known for every one that does. One reason is that when companies with fewer than 100 employees relocate it almost never becomes public knowledge. Hence, it is reasonable to conclude that about 9,000 California disinvestment events have occurred in the last seven years.

Los Angeles County #1 in Losses

The study found that the Top Fifteen California counties with the highest number of disinvestment events put Los Angeles with the most losses at No. 1, followed by (2) Orange, (3) Santa Clara, (4) San Francisco, (5) San Diego, (6) Alameda, (7) San Mateo, (8) Ventura, (9) Sacramento, (10) Riverside, (11) San Bernardino, (12) Contra Costa tied with Santa Barbara, (13) San Joaquin, (14) Stanislaus and (15) Sonoma.

The report excluded instances of companies opening new out-of-state facilities to tap a growing market, acts unrelated to California’s business environment. It also points to shortcomings in Federal and state reporting systems that result in underreporting of business migrations. Those factors reduced the number of California losses.

It is easy to verify circumstances described in the report since every disinvestment event is public information, is outlined in detail and sources are identified in endnotes.

When a company launches a site search, it always wants to examine potential costs. I’ve seen many business people smile upon learning that operating cost savings are between 20 and 35 percent in other states. By the way, the appeal isn’t necessarily to the lowest-cost states, but to lower-cost states with the proper workforce.

Winning Locations

The Top Ten States to which businesses migrated puts Texas in the No. 1 spot, followed by (2) Nevada, (3) Arizona, (4) Colorado, (5) Washington, (6) Oregon, (7) North Carolina, (8) Florida, (9) Georgia and (10) Virginia. Texas was the top destination for California companies each year during the study period.

Metropolitan Statistical Areas (MSAs) benefiting from California disinvestment events, in the order starting with those that gained the most, are: (1) Austin-Round Rock-San Marcos, (2) Dallas-Fort Worth-Arlington, (3) Phoenix-Mesa-Scottsdale, (4) Reno-Sparks, (5) Las Vegas-Paradise, (6) Portland-Vancouver (WA)-Hillsboro, (7) Denver-Aurora-Lakewood, (8) Seattle-Tacoma-Bellevue, (9) Atlanta-Sandy Springs-Marietta and (10) Salt Lake City tied with San Antonio.

Offshoring still occurs, and the Top Ten Foreign Nations that gained the most put Mexico at No. 1, followed by (2) India, (3) China, (4) Canada, (5) Malaysia, (6) Philippines, (7) Costa Rica, (8) Singapore, (9) Japan and (10) United Kingdom.

Capital diverted to out-of-state locations totaled $68 billion, a small fraction of actual experience because only 16 percent of public source materials provided capital costs for the 1,510 events. Moreover, the top industry to disinvest in California is manufacturing, a capital-intensive sector, and more detailed knowledge of this industry alone would likely increase the capital diversion.

As California companies relocated or expanded facilities elsewhere they transferred more than capital – they also shifted jobs, machinery, taxable income, intellectual capital, training facilities and philanthropic investments.

Indicators are that California’s business climate will worsen, enhancing prospects that more companies will seek places that are friendlier to business interests.

The report is based exclusively on news stories and company reports to the U.S. Department of Labor, the Securities and Exchange Commission and the California Employment Development Dept. Although all entries are based on public information, it’s rare for so much data to be gathered into one report.

Full Study: “Businesses Continue to Leave California – A Seven-Year Review” available as a PDF (378 pages) here.

This post originally appeared at NewGeography.com.

One focus of this blog has been to address California’s hostility toward business. Joe Vranich of Spectrum Location Solutions helps companies find great locations in which to grow. Joe also is a keynote speaker on the challenges and benefits of businesses relocating out of high-tax, high-cost, over-regulated states. More information is available at Biography and Speaking Availability. On Twitter, Joe is known as@LocationConsultant.

© Excerpts from this blog may be used, but only if attribution is given to “Joseph Vranich of Spectrum Location Solutions in Irvine, Calif.” 

Seven-Year Study: California’s Anti-Business Climate Inspires More Company Departures

November 5, 2015

Companies continue to leave California because of rising costs and concerns over the state’s hostile business environment, according to a new study that names companies and provides details of business disinvestments in the state.

Road to FutureOver the seven-year period that includes last year, the study by Spectrum Location Solutions estimates that 9,000 businesses disinvested in California. Some relocated completely while other kept their headquarters here but targeted out-of-state locations for expansions.

“Gov. Jerry Brown’s office routinely denies that business departures is a serious issue,” said Joseph Vranich, a site selection consultant, who prepared the report.

“The study shows that a total of 1,510 California disinvestment events have become public knowledge and we provide details on each and every event,” Vranich said. “Site selection experts I’ve been in touch with conservatively estimate that a minimum of five events fail to become known for every one that does, making it reasonable to conclude that about 9,000 California disinvestment events have occurred in the last seven years.”

The report did not count instances of a company opening a new out-of-state facility to tap a growing market, an act unrelated to California’s business environment. It also pointed to shortcomings in Federal and state reporting systems that result in underreporting of business migrations.

“Public officials can verify every event in the report on the Internet, which is a strength of the study,” Vranich said. “This public information argues against Sacramento’s plans for a ‘tsunami’ of new taxes, higher fees and more regulations.”

“It’s typical for companies leaving California to experience operating cost savings of 20 up to 35 percent,” said Vranich. “The appeal isn’t necessarily to the lowest-cost states, but to lower-cost states with the proper workforce.”

Capital diverted to out-of-state locations totaled $68 billion, only a small fraction of actual experience because only 16 percent of public source materials provided capital costs for the 1,510 events detailed in the report.

As California companies built or expanded facilities elsewhere they transferred more than capital – they also shifted jobs, machinery, taxable income, intellectual capital, training facilities and philanthropic investments.

“As California’s business climate worsens, chances are that more companies will seek places that are friendlier to business interests,” Vranich said.

The report is based exclusively on public information sources such as news stories and company reports to the U.S. Department of Labor, the Securities and Exchange Commission and the California Employment Development Dept. It’s rare for so much data to be gathered into one report.

“Businesses Continue to Leave California – A Seven-Year Review” available as a PDF here (374 pages):
http://www.spectrumlocationsolutions.com/pdf/Businesses-Leave-California-.pdf

One focus of this blog has been to address California’s hostility toward business. Joe Vranich of Spectrum Location Solutions helps companies find great locations in which to grow. Joe also is a keynote speaker on the challenges and benefits of businesses relocating out of high-tax, high-cost, over-regulated states. More information is available at Biography and Speaking Availability. On Twitter, Joe is known as @LocationConsultant.

© Excerpts from this blog may be used, but only if attribution is given to “Joseph Vranich of Spectrum Location Solutions in Irvine, Calif.”