California is considering imposing the most ruthless set of taxes ever placed on businesses – a tsunami of levies that may trigger the worst raid on private-sector finances ever organized by the state’s politicians. One result will be an increasing number of businesses leaving California for greener domestic or international pastures.
Gov. Jerry Brown and legislators will consider several proposals – including a new tax on previously untaxed services that will force companies to pay more for routine transactions, such as shipping a FedEx package, conducting bank transactions, hiring a contractor or relying on an independent auditor.
This “let’s tax everything in sight” measure will be on the backs of enterprises ranging from Fortune 500 corporations down to a one-person entrepreneurial company. Estimated annual cost to businesses: $10 billion.
Then there is the fanatical $6 billion annual escalation in fuel and motor vehicle taxes, sure to hit any operation that owns or leases trucks or automobiles.
Also damaging is the potential elimination of Proposition 13’s tax-limiting protections for companies that own offices, data centers and factories – a “split roll” that would include virtually all non-residential properties. That will be another $9 billion paid annually by commercial enterprises.
Public employee unions are insisting on a multi-year extension of Proposition 30, which pushed income and sales taxes to the highest in the nation. That passed in 2012 after voters were told they were “temporary” taxes. Cost: $6-7 billion annually on businesses and individuals.
And so it goes, even though the state is awash in an unanticipated $6 billion tax surplus above Gov. Brown’s budget, according to the Howard Jarvis Taxpayers Association. Astonishing.
It’s little wonder that companies leave California in full or in part, as reflected in a sampling of moves that have occurred quite recently.
Right now, Sage North America is relocating its headquarters from Irvine to Atlanta, where it will create 400 jobs. A company official said the project happened “very quickly.”
Another firm, iDiscovery Solutions, Inc., will shift its West Coast headquarters from Costa Mesa to Seattle – the latter office having opened only six weeks prior to the relocation announcement.
Los Angeles sees many company departures, the latest being Go West Creative. The marketing agency said it didn’t intend to relocate its headquarters to Nashville when it opened there a few months ago, but that’s precisely what happened.
None of this is surprising because the state’s political establishment routinely ignores concerns expressed by business leaders.
For example, Ehsan Gharatappeh, CEO of CellPoint Corp. of Costa Mesa, when launching a new facility in Fort Worth, said, “Even if California were to eliminate the state income taxes tomorrow, that still would not be enough to put my manufacturing operations back in California.”
Think about Dan Castilleja, president of DHF Technical Products, who said when relocating that it’s easier to expand in New Mexico than in the Los Angeles area where “We are hampered by everything from payroll to taxes to regulation.”
Examples abound of companies leaving for other states – even to the so-called “Rust Belt” – because their friendlier business environments far outshine our disadvantages.
California’s public officials come across as being uncaring about the damage they inflict on businesses, investors, employees and their families, and to the towns that lose jobs to distant locations.
As the California political parade demanding higher taxes becomes longer, look for the list of companies leaving California to become longer, too.
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.