On the heels of the record-setting incentive package of more than $1.5 billion in grants and tax breaks from New York state that Amazon stands to get for bringing at least 25,000 workers to a new campus in Queens, New York Gov. Andrew Cuomo was quoted as saying, “All things being equal, if we do nothing, they’re going to Texas.”
For more than a decade, Texas has consistently ranked in the top 10 states for business, landing the #1 spot in four of the last 12 years in CNBCs annual rankings.1 A variety of factors makes Texas a favored destination for business – bounty of land, accessibility to ports, diverse industrial structure, abundant energy resources, and a lower cost of living, to name a few.2
However, there is one significant variable that weighs heavily in the calculus for deciding to base operations in Texas. All you need to do is switch the vowels in the Lone Star state’s name to learn what it is. That’s right....Taxes!
When it comes to business, Texas prides itself on friendly regulations, smart spending, and low taxes.3 Texas is one of the few states without a personal, state or corporate income tax, which makes the cost of doing business in the state very competitive.4
Compounding the positive effects of low taxes for Texas is President Trump’s Tax Cuts and Jobs Act. The tax reform law capped state and local tax deduction to $10,000 per household for those who itemize, limiting the federal subsidy for taxpayers living in states with high state and local taxes.
As reported in the Washington Examiner, for some high-income taxpayers in high-tax states such as New York and California, the savings they realize will be smaller than if they lived in a state with a lower tax burden, such as Texas. Some wealthy taxpayers in the highest-taxed states will even see an increase in their tax bill.
Many small companies are not organized as corporations, meaning that the owners pay personal income taxes on any profit they make.5 For them, moving to a low tax burden state like Texas makes a lot of sense.
And based on the numbers, that realization is playing out. According to research from the Federal Reserve Bank of Dallas, small businesses constitute about 80 percent of the businesses moving to Texas to save on taxes.
But, the Dallas Fed also says these small businesses only account for about 12 percent of all jobs. So, to also make Texas the top destination for more sizeable companies, Texas is active and generous with awarding tax incentives to companies looking to expand or relocate. Since 2010, Texas has awarded almost $2.9 billion in tax incentives, making it the preferred state for the likes of Apple, McKesson, Home Depot, and Toyota.6
The results speak for themselves. The Dallas Fed reports that from 2000 to 2013, Texas netted roughly 7,000 firms and 100,000 jobs. And according to Spectrum Location Services, from 2008 to 2016, the city of Dallas ranked sixth nationally as a winning destination of companies fleeing the taxes of California.
Deep in the Heart of Texas…you’ll find CTI
With all the tax advantages of doing business in Texas, for your company to truly maximize its potential tax savings, you need the services of a tax consultancy specialist who also calls Texas “home.”
With offices in Houston and Dallas, look to CTI’s experienced tax professionals, allowing our team of attorneys, CPAs, engineers, and scientists with ‘Big 4’ experience to devise a tax strategy for you and to provide guidance and education as you navigate the federal, state, and local tax incentives for which your company may be eligible.