Archive for the ‘Business Tax’ category

Businesses Joined by Non-Profits in Leaving California for Friendlier States

September 21, 2017

Friends in economic development agencies and in the site selection consulting world have asked why I haven’t posted anything in quite awhile. My answer is simple: I’ve been exceptionally busy. It certainly isn’t because there aren’t things to write about.

Another question I’m usually asked is whether businesses are still leaving California.

They are, especially with the state legislature again failing to provide tax or regulatory relief to its home-state companies. Overall, taxes, fees and regulations have gotten worse. Such a difficult business environment, combined with grim treatment by local governments, have caused operating costs to grow faster in the San Francisco Bay Area and Los Angeles than in virtually every other metropolitan area in the nation.

So large corporations and small business entities – joined by non-profit organizations – continue to look for ways to partially or fully exit the state. Today alone brought two examples, which by coincidence both involve Nevada.

The first is a loss for Los Angeles with Virtual Guard, Inc. leaving the city’s Sherman Oaks section. The company plans to relocate its headquarters and interactive command and control center to Clark County (Las Vegas area), citing an “unfriendly economic environment” in California. The move is likely to occur later this year.

There, Virtual Guard  is expected to hire 80 new employees within its first two years of operations. The video monitoring company is also a developer and integrator of technology in the perimeter security sector and its solutions are being used throughout the United States and Canada.

California, which a long time ago was a haven for aerospace companies, will lose another one next year.

ERG Aerospace Corp. plans to relocate its Oakland operations to McCarran, Nevada and make the Silver State its headquarters. The company manufactures materials and components for the aerospace, national defense, semiconductor manufacturing, biotech and other high technology industries. The target date for the move is the second quarter 2018, with operations to commence in the same quarter.

Several months ago, a non-profit organization said it would relocate out of state, too. Horizon University, a private, Christian school that started classes in 1993 in San Diego is heading to Indianapolis.

Horizon’s President Bill Goodrich calls the decision “a no-brainer.” He said Indiana offers a “climate” that was slipping away in California, and by that he wasn’t referring to San Diego’s sunny days. Goodrich said that the university helps people “grow academically” while integrating the “strong biblical teachings and we find in Indiana, there’s an openness to that.”

The move will allow the, accredited university to grow on a 97-acre spread – in a state with less “red tape” – and attract more students.

Thanks to high costs, a sizeable non-profit move is upcoming: Toastmasters International will shift its headquarters from its birthplace in Orange County to Colorado.

With about 180 employees, Toastmasters CEO Daniel Rex said costs in California were a concern. “When you look at the availability of workers, when you look at the cost of commerce and real estate, this is something that makes sense.” The organization is spending $19.5 million to buy a building in Englewood, south of Denver. Toastmasters is a legendary California institution, founded in 1924 in Santa Ana. Since 1990 it’s been based in Rancho Santa Margarita.

Business people who endure the decline in California’s business climate and pervasive cost increases can take some comfort knowing that some non-profit brethren are members of the same club.

I’ll write more about how California treats its commercial enterprises. But first let’s see how many business-helpful bills and business-damaging bills Gov. Jerry Brown will sign into law.

One focus of this blog has been to address California’s perennially difficult business environment. Joseph Vranich is known as The Business Relocation Coach while the formal name of his business is Spectrum Location Solutions. Joe helps companies find great locations in which to grow.

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Cost of Doing Business Report Again Shows California as Most Expensive

June 30, 2015

“California continues to have the highest business tax climate on the West Coast. This reality compels businesses to reconsider their relationship with the State and look elsewhere for a lower-cost solution.” – Larry Kosmont

For ten years now I’ve been posting opinion and news pieces on the Internet, but today marks the first time that I’m republishing someone’s news release. I’m doing so because of the excellent findings in a well-respected Cost of Doing Business Survey. For an abridged version of the announcement, read on . . .

Claremont, Calif., June 29, 2015 – Claremont McKenna College’s Rose Institute of State & Local Government today released the 20th annual Kosmont-Rose Institute Cost of Doing Business Survey. The Rose Institute gathers business fees and a variety of tax rates from 305 selected cities, focusing on the states where business relocation is the most active.

The 2014 edition encompasses the most recent calendar year and takes a close look at business costs in California along with eight other western states that many companies view as possible alternatives to California (Arizona, Colorado, Nevada, New Mexico, Oregon, Texas, Utah and Washington).

Rankings for each city are divided into one of five “Cost Ratings” groups: Very Low Cost ($), Low Cost ($$), Average Cost ($$$), High Cost ($$$$), and Very High Cost ($$$$$).

Highlights: Most Expensive Cities

Of the 20 most expensive cities surveyed, 12 are located in California; 9 are in Southern California and 3 are in the San Francisco Bay Area. Los Angeles and the San Francisco Bay Area are the two most expensive metropolitan areas in the western United States.

Seven out of the twenty most expensive western cities surveyed are in Los Angeles County: Those cities are Bell, Beverly Hills, Culver City, El Segundo, Inglewood, Los Angeles, and Santa Monica.

Highlights: Least Expensive Cities

Texas stands out as a low-cost state, with six cities on the list of twenty least expensive western cities surveyed. Both of the least expensive cities in California, Moorpark and Mission Viejo, are located in Southern California.

California Cities Continue to Rank as High Cost – No Relief in Sight

“California continues to have the highest business tax climate on the West Coast. This reality compels businesses to reconsider their relationship with the State and look elsewhere for a lower-cost solution,” according to Larry Kosmont, President of Kosmont Companies and founding publisher of the Kosmont-Rose Institute Cost of Doing Business Survey.

Kosmont maintains that firms still want to locate in California, citing the Golden State’s world-class weather (although recently dry), amenities, large and diverse workforce, and strategic Pacific Rim location. “Mid-to-large corporations have a love-hate relationship with California. They may want to be in California, but in their attempt to control costs and remain competitive, many CEO’s are motivated to ask, ‘How small an operation in California can I manage and still service that market?’ As a result, the sales, design office, or distribution unit may stay or even expand in places in or nearby Los Angeles, San Diego or the Bay Area, but other operating units are more likely to end up in states like Nevada, Arizona or Texas,” says Kosmont.

[From experience, I can say that Mr. Kosmont’s views are quite accurate. – J.V.]

Fueling an environment unfriendly to business, numerous city elections during the past few years have resulted in increased taxes at the local level. In 2014, an astounding 65 local sales tax measures were decided, and of this total, 50 were approved by voters.

Almost every year, the California Legislature considers whether the Property Tax on businesses should be increased. Called the split roll, if adopted, it would require businesses to pay property taxes at a rate higher than the homeowners’ rate versus the present system where property taxes are taxed based on the same formula, whether a residence, apartment building, or property used for commercial or industrial purposes.

The twenty most expensive cities in the West in 2014 are (in alphabetical order):

Bell, Calif.
Bellingham, Wash.
Berkeley, Calif.
Beverly Hills, Calif.
Chandler, Ariz.
Culver City, Calif.
Denver, Colo.
El Segundo, Calif.
Glendale, Calif.
Inglewood, Calif.
Los Angeles, Calif.
Oakland, Calif.
Phoenix, Ariz.
Portland, Ore.
San Bernardino, Calif.
San Francisco, Calif.
Santa Monica, Calif.
Seattle, Wash.
Tacoma, Wash.
Tucson, Ariz.

The twenty least expensive cities in the West in 2014 are (in alphabetical order):

Abilene, Texas
Corpus Christi, Texas
Dallas, Texas
Eugene, Ore.
Everett, Wash.
Federal Way, Wash.
Fort Worth, Texas
Gresham, Ore.
Henderson, Nev.
Houston, Texas
Kent, Wash.
Las Vegas, Nev.
Mission Viejo, Calif.
Moorpark, Calif.
Ogden, Utah
Plano, Texas
Reno, Nev.
Sparks, Nev.
Spokane, Wash.
Yakima, Wash.

The complete news release can be found at PRWEB.

Some background information about the survey is here.

The Rose Institute’s interesting history is here.

To purchase the 2014 survey, click on the Institute’s logo, below:

The Rose Institute of State and Local Government

Congratulations to all who worked on this excellent survey.

One focus of this blog has been to address California’s perennially difficult business environment. Joseph Vranich is known as The Business Relocation Coach while the formal name of his business is Spectrum Location Solutions. Joe helps companies find great locations in which to grow. Also, Joe has been a Keynote Speaker for more than 20 years – see A Speaker Throughout the U.S. and in Europe and Asia.

California: The Land of Double Taxation for Small Businesses

November 26, 2014

Just think: You run a small company. Your partner embezzles from you and you are reeling – you feel like you’ve been punched in the gut. Next, California’s state government shows up and slaps you around. When you object, Sacramento offers no apology, no comfort. You’re on your own.

Farfetched? Read on to see what happened to a California Limited Liability Company (LLC) that tried to play by what it thought were common-sense rules.

First, an LLC is a form of business that permits the owner to avoid double taxation. In California, such companies must pay an annual minimum franchise tax of $800, which is the highest of any state (in 40 other states the fee is $100 or less) and may be subject to additional fees based on revenue.

An article by Mike Dazé in Bloomberg BNA – Corporate Close-Up: The Burden of California’s Taxes and Fees on Limited Liability Companies – points out that the State Board of Equalization “illustrates the challenges businesses face when trying to reduce their liability for taxes and fees in California. A company filing two short-period returns in tax year 2010 unsuccessfully protested the imposition of the minimum tax and LLC fee in each short period.”

In short, they objected to double taxation.

The company, Bay Area Gun Vault, LLC, converted from a two-member entity into a single-member LLC after one of the two members was caught embezzling money and was removed. So the company filed two returns for 2010, one as a two-member LLC and the second as a single-member LLC.

In the first return, the company timely paid the annual tax of $800 and an extra LLC fee on profit. In the return for the second period, the company did not pay the LLC annual fee, but did pay the tax.

Despite two tax returns, the company clarified that the income was for the same business with the same tax ID number and assets and was operating in the same location. So the company should owe only $800 in tax and an LLC fee of $6,000.

But the removal of the embezzler caused a “technical termination” of the original LLC because 50 percent or more of the interests changed hands. Hence, the resulting single-member LLC was a “new entity for tax purposes” and owed the minimum tax and LLC fee during the same year.

Mr. Dazé wrote, “The logic of the company’s argument is appealing: LLC taxes and fees should not be imposed twice in the same year on the same business.”

The Board claims there is no statutory support for that position.

Well, if the Board is correct, why did legislators let an unfair law stand? Do Sacramento lawmakers use no foresight in determining whether technical provisions in business-oriented laws might cause future injury?

Actually, I know the answers to my own questions. Here is why the legislature doesn’t care how its actions harm the business community:

  • First, the Franchise Tax Board (California’s version of the Internal Revenue Service) has projected revenue from LLC taxes and fees to be $753 million in fiscal year 2014-2015. Sacramento wants to collect every single penny of that revenue.
  • Next, California’s legislature is packed with people who will use taxpayer funds to support the latest half-baked ideas. But they routinely turn a deaf ear to requests from the business community for fair taxation and regulatory policies.
  • Finally, most Sacramento politicians are clueless about what it takes to run a business.

To amplify on that last point – only “18 percent of the Democrats who control both houses of California’s full-time legislature worked in business, farming or medicine before being elected,” wrote former California Assemblyman Chuck DeVore. “The remainder drew paychecks from government, worked as community organizers, or were attorneys.”

In business-friendly Texas, “Democrats are more than twice as likely as their California counterparts to claim private-sector experience outside the field of law,” continued DeVore, and “75 percent of the Republicans earn a living in business, farming, or medicine….” All that can be found in his book, The Texas Model: Prosperity in the Lone Star State and Lessons for America.

The analysis was for a couple of years ago, but the makeup of both legislatures remains virtually the same.

California is replete with demands for “environmental justice,” “social justice,” “income justice,” “sexual justice,” “workplace justice” – oh, the list goes on and on. What California needs more of is “entrepreneurial Justice,” “business justice” and “tax justice.”

Gov. Jerry Brown and legislative leaders should reverse tax-confiscatory policies and refund overpayments to that LLC and others in similar positons. If not, California will perpetuate its mean-spiritedness towards corporations – even the one-person kind.

One focus of this blog has been to address California’s perennially difficult business environment. Joseph Vranich is known as The Business Relocation Coach while the formal name of his business is Spectrum Location Solutions. Joe helps companies find great locations in which to grow. Also, Joe has been a Keynote Speaker for more than 20 years – see A Speaker Throughout the U.S. and in Europe and Asia.