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AUSTIN BUSINESS JOURNAL
IF YOU’RE GOING TO (LEAVE) SAN FRANCISCO
COVER STORY
can’t be,” said Vranich, consultant with Spec- trum Location Solutions in Pennsylvania. Vranich said his clients typically save 15% to 30% on taxes by moving to Texas. Other cost savings also vary based on what city a compa- ny chooses in the Austin metro and the com- pany’s business model. Meaning, a company looking for space in downtown Austin might not see the same savings as those looking in Round Rock, and those that are labor-inten- sive will see more savings in salary costs. Those have been the most apparent sav- ings for FileTrail so far, said Mervau. After less than a year in Austin, he’s already doubled his employee count to 40 people — and the com- pany has still reduced its salary costs by 25%. FileTrail hasn’t finished its first tax cycle yet, but Mervau expects those costs to also be in the company’s favor. Seeking greater quality of life Austin is known for its nightlife and live music, but those aren’t the biggest factors weighing on executives considering how to improve employees’ quality of life. Instead, it’s that housing expenses in Aus- tin are more than cut in half compared with San Francisco, and employees spend less time in their cars to get to their jobs. And it’s the lack of income tax and the ability to start sav- ing money, site selectors said. For comparison, the typical home value in San Francisco is $1.38 million and the average apartment rent is more than $3,000 a month, according to data from Zillow and RentCafe. com. In the city of Austin, the typical home value is closer to $438,000 and monthly rent is roughly $1,400. “Corporate income taxes are important, but really, personal income taxes play amajor role in site selection decisions today, because com- panies are only as good as the people,” Boyd said. At FileTrail, Mervau said his employees have described the move to Austin as a sub- stantial raise because their take-home pay is much higher in comparison. Since moving here last spring, several of his employees have purchased their first home — amilestone near- ly impossible back in Silicon Valley. The housing affordability crisis in Califor- nia is the main reason that the Golden State’s population has actually started to shrink, said Wendell Cox, principal of St. Louis-based international public policy firm Demograph- ia. According to the U.S. Census Bureau’s 2020 population estimates, Texas added the most residents of any state last year, while Califor- nia’s population lost an estimated 69,532 res- idents — the first negative population change for theWest Coast state since at least 1900, the earliest available data. Cox said California’s rising housing prices mean many people who work in the Bay Area live in communities an hour or more away, where housing still costs 1.5 times as much as in Austin, and twice as much as in Dallas or Houston. Just to be able to qualify for a typ- ical loan on a house in San Jose, that house-
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Many executives point to increased quality of life for
An era of cost-cutting Businesses generally save 20% on over- all costs by making the move from California to Texas, said John Boyd Jr., principal at site selection consulting firmThe Boyd Co., based in New Jersey. Taxes are obviously a big factor in this, but Boyd also pointed to the savings from operat- ing costs such as leasing commercial real estate and payroll. Companies even save on utilities for an office space, with costs in Austin about half what businesses pay in San Francisco. “Companies save tremendous amounts of money with taxes and operating costs in Aus- tin versus the Bay Area in California, and also labor costs,” he said. For both states, the types of taxes and rates vary based on the business, which makes the complete tax picture a bit complex. When it comes to income, combined feder- al and state corporate taxes total roughly 28% in California and 21% in Texas, thanks to the limited taxes in the Lone Star State, according to a report from The Tax Foundation. That’s not to say businesses don’t pay taxes in Texas — there’s a franchise tax, plus taxes for specific industries. California also has a franchise tax and an alternative minimum tax. However, site selectors said the lack of per- sonal income tax is huge for both businesses and their employees in Texas. It is important to note that property taxes are higher in cities across Texas — about 2.2% in Austin — to help make up for the lack of income tax to fund government services. Other booming mar- kets, like Tennessee or Arizona, have average property tax rates lower than 1%. To the dismay of many California CEOs, state lawmakers were considering another tax hike for millionaires by press time to help fund homelessness efforts — a move that Boyd said will accelerate the exodus from the West Coast. “Every company with a major presence in California right now — it’s not even an over- statement to say this — their board of direc- tors are, as a matter of due diligence, explor- ing options as a way to be accountable to their shareholders,” Boyd said. On average, an employer in the Bay Area can save about 15% to 20% in annual payroll costs by moving to Austin, Boyd said, though he warned that gap is beginning to narrow as more companies rush to Central Texas. “The trend is clearly companies are reduc- ingwages with thesemoves to lower cost mar- kets with lower costs of living,” he said. “The market is just on fire right now, and it’s begin- ning to shrink labor cost savings.” Site selector Joseph Vranich — whose spe- cialty is companies leaving California — said he expects to have a record amount of business in 2021 as companies leave the West Coast for several reasons, including proposed tax hikes. He said it ultimately comes down to politics. “Can it get any better? I’ve tried to be an optimist ... but when it comes to California I
employees after leaving the San Francisco Bay Area, from cheaper housing to shorter commutes.
AUSTIN
$45/sq. ft.
$437,800
Typical home value
Class A office asking rent
$80/sq. ft.
$1.38M
SAN FRANCISCO
“Companies save tremendous amounts of money with
taxes and operating costs in
hold would have to be well into the top 20% of income earners, Cox said. City planners also have a role to play in how the housing market evolves. Cox said costs have been driven up in California and West Coast cities such as Portland by urban growth boundaries — a tool used to control urban sprawl by mandating what areas can be used for urban development — and other restrictions. “The basic problem is, when you draw a line around the city and say you shall not develop beyond this line, you force prices up,” Cox said. “Texas should run and hide if such restrictions are ever proposed there.”
Austin versus the Bay Area in California, and also labor costs.” JOHN BOYD JR., principal at site selection consulting firm The Boyd Co.
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