California businesses continue to relocate to Texas

Californians who relocate to Texas will pay roughly one third less in taxes, according to a Tax Foundation analysis.

Updated: December 16, 2022 - 11:52pm

The exodus of companies from California continues, with many relocating to Texas, according to a tally kept by the California Policy Center. According to its California Book of Exoduses, 183 companies have left California since 2005, citing the state’s ever-expanding regulatory and taxation climate.

Since Gov. Gavin Newsom took office in 2019, companies have increasingly left California, and every year, more are relocating to Texas.

In 2019, 11 of 22 companies exiting California relocated to Texas; 19 out of 37 in 2020 and 26 out of 49 in 2021, according to the report. The first 10 months of 2022 was no different when nine out of 32 companies left California to relocate to Texas and another downsized, offering to relocate its employees to Houston.

Those exiting California this year include high-end fitness equipment company, Primo Fitness, which moved its warehouse and headquarters from Santa Ana to Fresno, outside of Houston. Lemark Investments, which sold the company and its property, said in a statement, “Texas’ business-friendly atmosphere along with the lower cost of living made a very compelling case for Primo’s relocation.”

Integrated Defense Products, a family-owned business based in Oxnard, announced it was relocating its headquarters to Rockwall Technology Park, in north Texas.

“Texas is politically, by nature, an extremely business-friendly state,” Brandon Buschold, president of IDP, said in September when he announced the move. “With a highly skilled workforce, ongoing trade programs, reasonable cost of living, and a lower overall tax burden, IDP will be strategically positioned to focus its efforts in building a stronger team while continuing its focus on new technologies.”

Skincare company Obagi Cosmeceuticals is relocating its corporate headquarters from southern California to The Woodlands, north of Houston, as is San Diego-based Cellipoint.

Sovereign Flavors moved its headquarters from higher-tax Orange County in California to lower-tax Hays County in Texas. The Taiwanese electric vehicle company, Noodoe EV, is relocating its headquarters from Irvine to southwest Houston, saying it needs to be centrally located with access to Houston’s port and airports.

California fintech firm Confer Inc. moved its headquarters from San Francisco to McKinney, Texas. Tech company Aviatrix moved its headquarters from Santa Clara to Dallas.

Citing Newsom's and the state legislature’s increasing hostility to oil and natural gas companies, Chevron announced it was selling its San Ramon headquarters property and downsizing while relocating some of its employees to Houston. It’s keeping its headquartered in California but is paying for moving costs for employees who want to relocate to Houston to join its nearly 8,000 workforce already there, the Wall Street Journal first reported.

The Houston area is ground zero for oil and natural gas development in Texas, which is enabling Texas to lead the U.S. in energy production and job growth, both fueled by oil and natural gas workers.

Californians who relocate to Texas will pay roughly one third less in taxes, according to a Tax Foundation analysis. Californians pay $6,813 per capita in state and local taxes every year compared to Texans paying $4,481, the foundation estimates.

Businesses also pay significantly more in California than in Texas. California’s 8.84% corporate income tax rate and an average combined state and local sales tax rate of 8.82% makes it one of the most expensive states to do business. By comparison, Texas levies no corporate income tax and an average combined state and local sales tax rate of 8.2%.

California’s tax system ranks 48th on the Tax Foundation’s 2022 State Business Tax Climate Index, Texas ranks 14.

According to a recent study, Texas is beating every other state as a destination for California companies by a ratio of 4:1, with California company headquarter exits more than doubling in 2021.

Its authors warned, “California is experiencing a serious loss of company headquarters to other states. The phenomena, which includes business in nearly all industries, has gone virtually unrecognized by the state’s elected officials and governmental agencies.

“Unless policy reforms reverse this course, California will continue to lose businesses, both large established businesses, as well as young, rapidly growing businesses, some of which will become the transformational giants of tomorrow.”

Since the report was published, California legislators and Newsom doubled down on increasing taxes whereas Texas Gov. Greg Abbott has vowed to allocate half of Texas’ $27 billion surplus in the form of property tax relief.

More companies are relocating to Texas Gov. Abbott maintains because "Texas is the number one destination for economic opportunity in America” with “an unrivaled business climate and skilled, diverse workforce, [and] a competitive advantage that continues to attract top-tier companies.”

So many residents and companies left California under Newsom that in 2020 California reported its first population decline in history and lost a congressional seat. By contrast, Texas continues to break population records and gained two congressional seats after the 2020 Census.