Texas Outshines California as More Business-Friendly State

June 11, 2019
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Author: Tyran Saffold Jr

As two of the largest states in the country, Texas and California are prime destinations for new and established businesses. Both claim large talent pools and a plethora of customers to keep business moving. But, when it comes to settling down, which state is a better attractor? Over the last year, 1,800 companies left California, with 299 of them landing in Texas.

As businesses leave, four factors appear to be the driving force:

  1. Housing
  2. Cost of Living
  3. Competition
  4. Taxes
Texas is Ready for Business

Housing

In 2017, a total of 819,976 family homes were constructed in the United States. Among housing starts, Texas led the nation with 14.2 percent, or a total of 116,766 new homes. The Dallas-Fort Worth area saw the largest addition to their neighborhoods with 33,891—a volume that hasn’t been seen in more than a decade.

California’s housing stock increased by 88,562 units while adding 334,578 residents. So, for one new home, there were 3.78 residents. The bottom line—California’s population grew faster than the housing supply, thus, increasing the price of homes and rents in the area. The median home cost is 257 percent more expensive in Los Angeles than it is in Dallas.

Considering the cost of homes in one area is a logical step when determining the benefits of relocating a company to another city. At times, people pay for the view and weather— and in California, those amenities are the cream of the crop.

Cost of Living

Overall, California is 81.2 percent more expensive than Dallas, Texas.
The Massachusetts Institute of Technology found that, in 2019, an individual must earn 27.2 percent more income to earn a living wage in California versus Texas. While things are more expensive in California, the wages are higher within the state’s borders than most places. The minimum wage is currently at $12 an hour, tied with Massachusetts and second only to D.C., at $13. For example, Palo Alto and Santa Clara’s minimum wage is $15, initiating a tidal change that will likely increase the rate for California as a whole.

Californians have an average salary of about $63,783, compared to Texas at $59,206. If a company has plans on landing or growing in California, C-Suites should understand that they will be paying salaries much higher than the U.S. median. Over time, employers will make more in California than in Texas, but the Lone Star State has one added benefit that may completely tilt the race in its favor—there is no income tax.

Competition

The average business per capita in the US is 8.6 per 100 residents. While Texas falls below that average at 8.3 per, California is above at 9 per.

The numbers could reflect the fact that there are 11 million more residents in California than in Texas, but it could also show that many entrepreneurs aspire to plant and grow businesses on the west coast. That idea breeds competition and in a tight labor market, the struggle to keep afloat is challenged by not only securing employees but making sure your company has enough customers to keep your business above water and that hasn’t been a problem for Women and Minority business owners.

In California, 30.3 percent of its businesses are women owned as opposed to 28.2 percent of Texas businesses. Minority business owners are at 37 percent compared to 34 percent for Texas.

Although everyone may not find an interest in your product, or service, California’s 39.56 million residents guarantee that you will at least find a handful of people to spread the word about what you are offering.

Taxes

Texas is one of the 7 US states that do not charge income tax on its residents. While this state has a series of corporate income taxes, most revenue comes from sales and property taxes.

On the other hand, the state income tax in California is the highest in the country. Tack profit-draining policies on to that fact and it provides insight for some of the dismaying factors that would keep businesses out of California. According to the California Policy Center’s Edward Ring:

“There are government fees attendant to construction, along with the ubiquitous and lengthy permitting delays caused by a myriad of indifferent bureaucracies with overlapping and conflicting requirements. There is a separate fee and separate permit for seemingly everything: planning, building, impact, schools, parks, transportation, capital improvement, housing, etc. Government fees per home are often well over $100,000: in the City of Fremont in 2017, they totaled nearly $160,000 on the $850,000 median value of a single-family home.”

In the past year, 1 in 7 companies was created in Texas—which equates to 350,000 jobs, the most coming from the energy sector. “As far as I’m concerned, the only good tax is a dead tax,” said Greg Abbot, Governor of Texas. No wonder that Texas ranked first in CNBC’s Top State for Business rankings in 2018.

Between the two states in comparison, they both have advantages and disadvantages on the table but Texas appears to be a great choice for C-Suites when it comes to settling down. A business-friendly environment and low cost of living make the state an ideal place to land.