Texas Sees Growth Despite Downturn As Companies and Startups Flee California To Trade High Costs for Texas' Tax Incentives

California is feeling the sting of an ongoing business exodus as companies continue to abandon the Golden State in droves. 

According to a new study by the Hoover Institution, 352 companies moved their headquarters out of California between January 2018 and December 2021, citing high costs and red tape as their reasons for leaving. 

Where are they heading? The Lone Star State seems to be the destination of choice, with Texas boasting no personal income tax, lower business taxes and a welcoming environment for businesses of all sizes. It's clear that for many California companies, the grass is definitely greener in Texas.

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Businesses relocating: The exodus of companies from California isn't limited to small startups and niche players. Some of the biggest names in tech and finance are packing up and heading for the door. Oracle Corp., Tesla Inc., Hewlett-Packard Co. and Charles Schwab Corp. are just a few of the giants that have recently opted to leave the Golden State behind.

Primo Fitness, an upscale fitness equipment company, has recently moved its warehouse and headquarters from Santa Ana, California, to Fresno, Texas, outside of Houston, citing the state’s business-friendly atmosphere and lower cost of living as the main reasons for the move. 

Another company, Integrated Defense Products, a family-owned business based in Oxnard, California, is also relocating its headquarters to Rockwall Technology Park in north Texas, citing the state’s skilled workforce, ongoing trade programs, reasonable cost of living and lower overall tax burden. 

Skincare company Obagi Cosmeceuticals and San Diego-based Cellipont Bioservices are both relocating their corporate headquarters from Southern California to The Woodlands north of Houston. 

Cost of doing business: According to Ken Miller, director of the Rose Institute of State and Local Government at Claremont McKenna College, businesses in California that are choosing to relocate are not opting for the East Coast or the Midwest. Instead, they are exploring neighboring states. More companies are packing up and heading for Texas, where they can enjoy a lower cost of doing business and a more welcoming regulatory climate. 

According to the Tax Foundation, California ranks 48th in the nation for business tax climate, with only New York and New Jersey behind it. In contrast, Texas is ranked as the 12th-best state for business taxes, making it a hot spot for companies looking to save money.

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Funding opportunities for startups: Texas is becoming a promising destination for entrepreneurs seeking venture capital investments. Crunchbase data reveals that between 2020 and 2021, there was a 105% increase in funding to Texas-based startups, reaching a total of $10.3 billion — a remarkable feat for the state's startup ecosystem. 

Despite the ongoing pandemic, Texas-based startups managed to maintain their upward trajectory, with a 1% increase in funding in 2022, demonstrating their resilience and adaptability. With a dynamic business environment and a lower cost of living, it's no surprise that Texas is attracting startups and entrepreneurs from all over the country that are eager to seize new opportunities and build their dreams in the Lone Star State.

Cost of living: Texas' appeal as an affordable place to live has been steadily increasing, particularly when compared to the expensive coastal areas. The Texas Triangle — Houston, Dallas-Fort Worth, Austin and San Antonio — is the most densely populated region in the state and has been named among the top places to live in the country. 

Compared to California, Texas also offers a low cost of living, with lower utility and transportation costs. The process of land acquisition and obtaining building permits is highly efficient, and corporate rent figures are lower than those of other major cities.

Recent surveys following the pandemic have shown that a segment of employees would prefer to work from home permanently and would consider moving to locations with a lower cost of living index. In light of this, Austin could be an excellent choice for any business looking to relocate, given its affordability and thriving tech scene.

The California exodus isn't just affecting businesses — it's hitting the state's population hard. In the past two years alone, more than 500,000 people have fled the Golden State, with the number of residents leaving far surpassing those moving in by nearly 700,000.

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