Apparently business owners don’t have a one-track mind when it comes to location, location and location.
According to some economists, what a state demands a business pay in taxes ranks far down its priority list of attractive qualities. Business owners, they say, look at the whole package when choosing where to locate, taking into account quality of life, school systems, public safety and other services that said taxes end up paying for. If low taxes were the only thing that mattered, economists contend, we’d see mass migration to southeastern states, where it’s dirt cheap to start up a business.
“One could argue that the more traditionally high-tax communities like Massachusetts, New York, Wisconsin, do a much better job at attracting and retaining small firms” than those states with lower taxes, explained Rutgers University finance and social policy Professor Henry A. Coleman, who has also served as senior economist in the Office of the Chief Economist at the U.S. General Accounting Office. “What are you getting for the taxes that you pay? I think businesses are a lot more sophisticated than some of the simple thinking associated” with taxes.
There are other less-obvious, tax-related measures that come into play, as well.
For example, does a state allow a business to file as a business, or pay taxes through the personal-income tax? And does it offer small businesses the option of carrying over losses from one operating period to the next?
“We need to be mindful and flexible in looking at the total picture of all of those factors that influence those locational decisions. Are there any businesses that leave because those taxes are high? Sure,” but “I just can’t believe that taxes are the pivotal issue because otherwise, they would all be leaving for Louisiana and Mississippi,” said Coleman, who has also served as executive director of the New Jersey State and Local Expenditure and Revenue Policy Commission.
“If you look around the country, many of the states, say in the southeast ... have legendary low tax rates but not all big companies and certainly not all small companies move to those states,” he said.
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