Texas Governor Rick Perry recently aired a series of ads in California encouraging Californian businesspeople to move their firms to Texas, where the corporate taxes are lower. But taxes aren’t the only factor that makes a state business-friendly. Texas has lower corporate taxes, and a cost of living calculator reveals that general living costs are much lower in Texas, but Californian businesses are more diverse and more profitable overall.
Depending on your business’ needs and values, certain states may be better than others. In the Texas vs. California debate, both states have advantages.
1. California has more businesses per capita.
California has more businesses per capita—California boasts 9 businesses per 100 residents, while Texas only has 8.3. The U.S. overall has 8.6 businesses per every 100 residents. Although these numbers may seem high, 78 percent of small businesses are non-employer firms, meaning they have no employees. California’s high number of business per capita show that the state has a proven business-friendly climate as well as a plethora of small business owners to work and network with.
2. California has more diverse business ownership.
Although both states are well above the U.S. average of minority-owned firms, California has more minority-owned firms and women-owned firms than Texas. 30.3 percent of California’s businesses are women-owned, as opposed to only 28.2 percent of Texan businesses (which is less than the United States average). Members of ethnic minority groups own 37 percent of Californian businesses and only 34.1 percent of Texan businesses.
3. Texas has lower corporate tax rates.
California has one of the highest state corporate tax rates in the nation, while Texas has no corporate tax. California’s tax burden can be difficult for small businesses that are just starting out.
4. California’s businesses account for a larger proportion of the nation’s GDP.
California’s share of the GDP is almost one and a half times that of Texas, indicating that California’s businesses tend to be profitable.
Divya Raghavan is an analyst for NerdWallet, a consumer-friendly financial literacy website that offers unbiased resources and advice to help consumers navigate their personal finances and find a high interest savings account.