Archive for the ‘Income Tax’ category

The Big Mystery: Will a Coastal or Interior City Win Amazon’s HQ2 Project

October 19, 2017

Today is deadline day at Amazon for cities and states to file their proposals to become home to the company’s second headquarters, commonly referred to as HQ2.

I can’t count the number of times I’ve been asked what decision Amazon will make. Well, Amazon isn’t my client so how would I know? Even if they were, under non-disclosure rules I wouldn’t breath a word about the company’s project.

A little speculation can’t hurt, so here goes …

I think Amazon will seriously consider metropolitan areas located in the nation’s interior. While the smaller ones won’t make it simply because the workforce isn’t there, others have characteristics that are superior – often far superior – to coastal areas.

Many people think the winning bid will be the one that offers the highest value in economic incentives, but that isn’t always the case. It’s true that incentives can be a significant factor, but not necessarily a decisive one.

At times, a community offering the most attractive incentives can lose if it fails to meet certain parameters. For example, putting a warehouse located a half-mile from an Interstate highway will beat out a community that is situated 25 miles from an Interstate.

Countless examples like that exist.

So incentives are only part of the puzzle. Selecting the optimum location is a balancing act that weighs many important factors, such as the extent of workers in the area with appropriate talents, availability of shovel-ready land on which to build, tax rates and how they are applied, and laws that regulate labor factors such as overtime — the list is a lot longer than this.

Also important are quality-of-life factors for employees, such as the cost of living (especially housing costs), quality of the local school system, traffic congestion during peak commuting times, recreational and cultural opportunities, taxes and crime rates.

I predict that one state Amazon won’t put its HQ2 is California because of the state’s harsh business and legal environment.

Just one example: Employers can be fined or sued for a mistake on a paycheck stub (not the check, just the stub). Challenges facing workers include super-expensive housing, the highest taxes in the nation and long commuting times caused in part by highway improvements that have long been neglected.

Two days ago the Tax Foundation released its 2018 State Business Tax Climate, which showed California ranking as the 48th worst state beating out only New York and New Jersey.

Next year the tax picture may worsen as California legislators again try to revise Proposition 13 to put business and residential properties into two groups – and then place still-higher taxes on all types of office, industrial and commercial property.

Legislators are motivated by plans to once again increase state spending despite needing reserve funds to pay down state and local debt that now exceeds $1.3 trillion.

So it’s little wonder that the California Business and Industrial Alliance in Sunland has placed a full-page ad in the Seattle area to warn Amazon away from locating its HQ2 in the state. According to the San Fernando Valley Business Journal, “The headline warns the Seattle online retailer that while the weather is nice in California, the business climate is not.”

All of that represents the formula for California being scratched off the list, especially because of this Amazon specification: “A stable and business-friendly environment and tax structure will be high-priority considerations for the Project.”

Since Illinois, New York and New Jersey mimic California’s awful public policies, I won’t be surprised if Chicago, New York City and Newark also disappear as candidates.

Finally, I wish I could be in Amazon’s office as each proposal was unveiled. I know this is serious business, but I also think it would be fascinating, exciting and fun, too.

Note: Three excellent stories appeared today regarding the project:

CNBC’s – Bids for Amazon’s second headquarters are due Thursday — here are the cities in the running – This story states: “Although we don’t know exactly which cities have officially submitted their proposals so far, there are more than 100 cities and counties that have expressed interest in placing a bid, according to previous reports. There could be more, as some cities are keeping their bids secret, at least through Thursday, for competitive reasons.”

Wall Street Journal – As Cities Woo Amazon to Build Second Headquarters, Incentives Are Key

PoliticoThis Is What Really Happens When Amazon Comes to Your Town.

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.

Chief Executive Magazine Issues 2014 State Biz Climate Rankings

May 11, 2014

In its latest survey, Chief Executive magazine again ranked Texas the best state for business, followed by Florida, Tennessee, North Carolina and South Carolina.

I’ve publicly predicted that the survey would rank California the worst state for business for the 10th year in a row because of what has been happening with tax increases and more employer-unfriendly labor laws. Out-of-control public pension obligations are also a concern because they represent “tax increases in waiting.”

Well, that 10-year mark is exactly what happened. So, again, California ranks 50th. Rounding out the bottom five are New York, Illinois, New Jersey and Massachusetts.

Here are some of the magazine’s observations:

California has gained breathing space since Governor Jerry Brown took office and is credited with a budget surplus. But despite the return of fiscal discipline, it has exchanged acute problems for merely chronic ones. It is a state that continues high personal income tax rates and regulates with a very heavy hand. Its top, marginal tax rate of 33 percent is the third-highest tax rate in the industrialized world, behind only Denmark and France.

Note: I have no intention of starting an argument with the fine folks at Chief Executive. However, considering Sacramento’s plans to increase spending by billions of dollars on wretched projects, and with new tax increases being proposed, I doubt that we in this state have a “return of fiscal discipline.”

The magazine also states:

“California likes to say that Texas can have all those low-wage jobs,” says Richard Fisher, CEO of the Dallas Federal Reserve, “but from 2000 to 2012, job growth percentage change by wage quartile was better in Texas.” Texas won another bragging right last February when Site Selection magazine reported that it surpassed California in global technology exports in 2012.

Congratulations to JP Donlon, Editor-in-Chief of Chief Executive and to the magazine’s team for a remarkable and valuable survey.

See 2014 Best & Worst States for Business and the State Rankings. Clicking on the name of a state in the rankings column will bring you to additional information.

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.

Powerful Column About Out-of-California Migration

May 11, 2014

The upcoming departure of Toyota’s headquarters from California to Texas has sparked renewed interest in the topic of companies migrating from one state to another. Also, individuals are moving from states with high income taxes to states with low income taxes or no such tax at all.

A new analysis contains striking findings about relocations – see economist Art Laffer’s new Investor’s Business Daily column,  “California’s High-Tax, Big-Government Comedown.”

This is a good time to address a new twist in out-of-California migration. It appears that more soon-to-be-retired individuals are planning to pack their bags for states with a friendlier attitude towards taxpayers.

The reason seems to be that California taxes all 401K, Traditional IRA, and pension distributions as ordinary income. This is so even though there is nothing “ordinary” about accumulated wealth. For example, an individual who has worked 40 years, but only 10 of those were in California, will pay taxes to Sacramento on all distributions stemming from 30 years of income earned in other states.

There are states with income taxes that permit such distributions to be completely exempt. Of course, states with no income taxes don’t take a penny of the distributions. Kiplinger says “the Golden State is a retiree’s tax nightmare.” It’s easy to compare the tax consequences of retiring in California with other states by going to the State-by-State Guide to Taxes on Retirees.

Considering how big a bite Sacramento wants, some retirees feel that the sunshine and nice beaches aren’t that alluring anymore.

Anyway, Mr. Laffer’s column takes a deep and valuable look at moves out of California. It’s well worth reading.

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.

Stunning: California Imposes 5-Year Retroactive Tax Bill on Startup Investors

January 30, 2013

Thanks to an entrepreneur, Brian Overstreet, we in California are just starting to learn that the state Franchise Tax Board has cancelled the Qualified Small Business (QSB) tax benefits and is retroactively denying the benefits for the past five years.

Overstreet explained in a column in Xconomy that the QSB was designed to incentivize people starting business to keep them in California. If so, founders and early investors could exclude 50 percent of the taxable gain on the sale of their stock—meaning about 4.5 percent instead of 9 percent (now nearly 13 percent due to Proposition 30).

“Without the QSB provision, we might have decamped to a more tax- and business-friendly state,” he wrote. “After we completed the sale, I paid both my federal and state estimated taxes computed with the QSB exclusion. I thought I was clear until April 2013.”

But, on December 21, the FTB retroactively disqualified all exclusions and deferrals going all the way back to 2008.

How this came about is due, in part, to the FTB overreacting to a court ruling.

“What does this mean for you?” asks Overstreet.

1. If you are a business founder or early investor who sold stock since 2008 and took the QSB exclusion: Surprise! You are going to get a bill from the FTB for the 50 percent of the taxes you excluded plus interest plus possible penalties.

2. If you are a business founder or early investor and have not yet sold stock: Rethink your business and tax planning strategies. Consider whether it’s fiscally prudent to stay in California.

3. If you a contemplating starting or investing in a California business: Think long and hard. Consider out-of-state alternatives.

He adds, “Just at the moment when California is retroactively taxing entrepreneurs, the federal government is extending the federal QSB benefit.”

Those affected will pay no federal capital gains tax, and in some states, no state taxes—but in California will pay up to 13 percent.

“Why in the world would any smart business person start or invest in a new California company facing that kind of penalty?”

“California changed the rules after the fact, and that’s just not right. More importantly, the FTB’s radical action is going to send a terrifying message that will have the unintended consequence of driving young, growing businesses to friendlier environments.”

Overstreet is correct—when it is right or moral to penalize  taxpayers who did nothing wrong? Nonetheless, my instinct tells me that entrepreneurs, inventors, investors and venture firms better pay those bills on time.

Congratulations to Xconomy for breaking this story, which still has gone under-reported.

See Brian Overstreet’s column at “California To Hit Startup Founders with Big Retroactive Tax Bills.”

An excellent story that explains the series of events written by Wade Roush, Xconomy’s chief correspondent and editor of Xconomy San Francisco, is “The Surreal, Ironic Story Behind California’s Retroactive Tax on Small Business Investors.”

The court decision is Cutler v. Franchise Tax Board.

Deloitte issued an alert entitled “California Franchise Tax Board Notice Implements Court of Appeal Decision Involving Qualified Small Business Stock Gain Exclusion/Deferral.”

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 Politicians Owe Golfer Phil Mickelson an Apology

January 25, 2013

Political correctness in California has become so bizarre that a high-achieving citizen paying huge amounts in taxes is ostracized if he even mildly complains about those taxes.

Pro golfer Phil Mickelson has suggested “drastic changes” were in store for him – including possibly moving out of California – because of changes in federal and state taxes that puts him in an absurdly high tax category. The big tax bite was the reason behind his decision not to be part of the new ownership group of the San Diego Padres.

But the nation now has a class-warrior chorus that will defend reckless tax-and-spend policies in Sacramento and Washington while bullying people who dare speak the truth about their own tax quandaries.

An example can be seen in a Forbes online column that advises Mickelson: “Please stop whining and give thanks for being able to earn a fabulous living playing a game and selling golf clubs (even after tax). 99.999% of people would never have that option, no matter how hard they worked on their swing.” The writer should look up the definition of “whine” because that is not what the golfer was doing.

Apparently a backlash prompted Mickelson to apologize for airing his views, saying, “Finances and taxes are a personal matter and I should not have made my opinions on them public. I apologize to those I have upset or insulted and assure you I intend to not let it happen again.”

Hank Gola of the New York Daily News got it right in declaring that “Mickelson doesn’t have to apologize for anything. It’s almost more offensive that he feels compelled to apologize. He said nothing wrong. The worst thing he’s guilty of is a minor public relations gaffe …. Let’s look at Mickelson’s ‘controversial’ quotes from Sunday. He said he might have to make ‘drastic changes’ because he was in the ‘(income) zone’ being ‘targeted both federally and by the state’ and that it ‘doesn’t work’ for him right now.”

That is hardly polarizing, offensive or insulting. His comments were tame.

I think the apology should be the other way around with Gov. Jerry Brown, Senate President pro Tem Darrell Steinberg, and Assembly Speaker John A. Pérez apologizing to Mickelson and the rest of us for their irresponsible spending and tax-greedy ways.

I’ll be even more provocative and declare Brown, Steinberg and Pérez to be immoral for their support of Proposition 30, which passed in November. It increased income taxes and did so in an disgraceful manner – it raised taxes retroactively to January 1st of 2012.

Retroactively?

That’s OK with California’s politicians? Imagine if a home builder said, “We’re glad you bought that house from us in November, but we’re sending you a bill for the higher amount we wanted you to pay in January – and you have to pay it or you’ll be fined or go to jail.” Or imagine a car dealer billing you for the difference between a higher January price compared to your end-of-year purchase price. Or similar acts by your dry cleaner. Or your doctor. Can you imagine the public outrage?

If a retroactive tax doesn’t prove that Sacramento’s politicians are guilty of far more than a golfer making a few bland statements, what will? (Here’s an idea: How about some retroactive budget cuts?)

Phil Mickelson is hardly alone in his thinking. According to the Manhattan Institute for Policy Research, in their report The Great California Exodus: A Closer Look, “For the past two decades, California has been sending more people to other American states than it receives from them. Since 1990, the state has lost nearly 3.4 million residents through this migration.”

Mickelson would also be in synch with his golfing colleagues Tiger Woods and Natalie Gulbis and also with equipment manufacturers Calloway Golf and Feel Golf. All have exited California for kinder, gentler, low-tax states.

It’s been said that Tiger Woods saved many millions in taxes when he moved from California to income-tax free Florida. In the aftermath of Mickelson’s comments he said, “I moved out of here back in ‘96 for that reason. I enjoy Florida but it was also…I understand what [Mickelson] was I think trying to say.”

Several years ago, Natalie Gulbis, a golfer in the LPGA, left Sacramento for an income-tax-free state, Nevada, before her biggest paydays as a professional athlete. Also, Scott McCarron on his PGA tour amassed considerable earnings and moved to Reno with taxes a consideration.

In 2011, Feel Golf Co., after acquiring Pro Line Sports, Inc. relocated its headquarters from Salinas in Monterey County to Sanford, Florida, with CEO Lee Miller stating, “We believe consolidating operations increases mutual synergies while significantly reduce operating costs. Florida also has tax advantages over California for the company and employees.”

A year earlier Callaway Golf Co. moved most manufacturing out of Carlsbad in San Diego County to Monterrey, Mexico. George Fellows, CEO, said, “This decision… supports the gross margin improvements necessary to secure our leadership position in a competitive market.” Moreover, the company outsourced distribution to Ryder Logistics and the bulk of that Carlsbad work moved to Dallas in income tax-free Texas.

I continually hear from business owners who tell me of their struggles with California’s tax maneuvering. Some worry about future abuses, with one client asking, “What’s to prevent Sacramento from passing a tax increase that’s retroactive back to five years?”

Another California relocation may occur even though it doesn’t seem to have anything to do with taxes: It looks like the Sacramento Kings will become the Seattle SuperSonics. If the NBA approves, the move will occur in time for the next season. Plans fell apart in 2011 for the Kings to move to Anaheim, which put Seattle in a better position to close the deal.

Kings players who relocate to Seattle will find that Washington is another state with no income tax. That fact may interest many Californians who are teed-off by the state’s outrageous retroactive tax hike.

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.