In the last decade and particularly over the last 18 months, many businesses have uprooted and transplanted themselves within the United States. Florida and Texas are two of the most popular corporate headquarter destinations. Recently, well-known companies including HP, Oracle, Schwab, and Tesla have made the move. What are the reasons for these moves? What does the data tell us?
Technology and Remote Work
It was more than a decade ago that corporations began to strategically relocate offices within the country. Some had already decided to move to locations that would be more affordable to the company as well as their employees. The ability of technology to untether employees from their desks presented opportunities which had been untenable in the past. Driven by pandemic forces, the trend of headquarter relocations simply accelerated.
In March of 2020, employees began working from home and offices stood empty. Executives contemplated how much office space would be needed in the future. The disruption to the workplace created an opportunity for businesses to make big changes. Companies discovered that workers took their newly found freedom and began to relocate to other geographies. With the stop-and-start nature of COVID guidance, many offices continue to be partially staffed and much of the work still being performed remotely.
Taxation and Regulation
Over the years, the largest companies have created outsized economic growth for states where they are located. For New York, the financial industry has been a boon and California has its famous Silicon Valley, nurturing numerous wealthy entrepreneurs. These states have become reliant on the high-paying jobs and a rich tax base. This could be compared to the story of the goose and the golden egg. Planning on the eggs but neglecting to take care of the goose can make economic predictions about future state revenue doubtful.
Silicon Valley has been the epicenter of the tech industry for decades, but steep housing costs, high tax rates, and strict regulations have made it challenging to live, work, and do business in the area. More tech companies are opting to move operations to Texas and other states with lower costs of living and more-favorable tax laws.1 So it is that Silicon Valley has been moving to what is being affectionately dubbed the Silicon Bayou in Texas. To make matters even worse, since the end of 2020, an additional 125 tech companies announced they are moving to Texas.2
Florida is another popular destination for businesses, catering to a population who likes the moderate climate. Many financial institutions relocate there from the very expensive Northeast, particularly New York City. Florida is one of nine states that do not have a personal income tax. It also does not have an estate tax or a capital gains tax, and its corporate taxes are low compared to those of California, Connecticut, Illinois, Massachusetts, New Jersey and New York. These factors, among others, make Florida especially appealing to businesses and executives.
According to Miami’s Downtown Development Authority, a person who makes $1 million a year pockets about $640,000 in Miami vs. $590,000 in Chicago, $535,000 in New York and $532,000 in California after taxes.3
It is impossible to ignore the fact that many businesses have been moving to states that have business-friendly regulations as well as lower taxes or tax incentives to encourage relocation. These lower costs go straight to the bottom line, juicing profit margins. In many of these states, the taxes that workers pay are lower as well. It is unlikely that this search for utopia will end as long as companies are incentivized to relocate in order to maintain or even increase their profit margins.
Footnotes:
1 Investopedia: Why Silicon Valley Companies are Moving to Texas
2 Decide Consulting: Companies Moving to Texas
3 Florida Trend: COVID Speeds Up Company Relocations to Florida
4 Q1 2021 U.S. Migration Report
