In the last ten years California has developed a bad reputation for being incompatible with business. An annual national survey of more than 500 corporate executives has consistently ranked California as one of the worst states for conducting business (see rankings for all fifty U.S. states on ChiefExecutive.net).
The reason? California’s complicated regulatory network and hefty taxes take a heavy toll on businesses, especially when compared to states like Texas or Florida, which have no state income tax, limited regulation, etc.
California’s business environment has been particularly onerous during the recession. From 2008 to 2012 the business situation has become worse: as the state of California and many local governments struggle to make their budgets, they’ve begun to collect even more fees and taxes to make up the difference. This only feeds the downward cycle.
California’s Regulations Are Almost Byzantine, But They Do Benefit Quality of Life
California businesses must operate under an extensive number of rules and regulations. These include labor codes, environmental impact laws, licensing and business activity requirements, water rights, zoning issues, and more. All combined, the massive amount of regulation from state and local agencies involved in oversight can create a bewildering environment for a business.
Yet the upside of these regulations is that they provide significant protections to California citizens. Environmental rules and regulations, for example, have brought down pollution to levels that haven’t been measured since the 1970s. These same rules have protected workers from wage abuse, overtime denials, and employer mishandling of payroll taxes or workers’ compensation for work-related injuries. Compared to other states, these rules help Californians enjoy very strong protections that benefit their lifestyles, workplace, education, and public safety.
Still, what good are worker’s rights if there aren’t enough jobs to go around? According to the Bureau of Labor Services, California’s unemployment rate was over 11% in December 2011, compared to 8.5% unemployment nationwide.
Business Taxes And Special Fees Add Up
California’s business tax environment isn’t exactly friendly. Take, for example, California sales tax. The Board of Equalization basic sales tax form must be completed to assess both the state’s tax charges as well as tax charges from 58 counties and multiple special districts, depending where product was sold. That’s a ridiculous level of complexity considering that some states like Oregon don’t even collect sales tax.
California also charges businesses a myriad of special fees. Licensing, special activity permits, and other fees can add up to a small fortune – one business owner told the Orange County Register that his company of only 20 employees was paying $2,000 to $3,000 every quarter in fees alone. Of course, all of these fees reduce the tax burden on California citizens and provide funds for a wide variety of benefits, which obviously has an upside for the people living and working in the state.
So is California bad for business? Not necessarily. Economically, there are far better places to run a business at lower cost. In terms of quality of life, however, California offers services and protections that exceed most other states in the union.
In fact, depending on your perspective, the problem isn’t that California is a hard place to do business – it’s that the other states are too lax. The question could be, “Is California really a bad place to do business, or are all the other U.S. states too business friendly?”
Author Jason Lancaster works with BusinessProfiles.com, a website that curates profiles of businesses, including business listings in California.