Rare News Desk
Large companies headquartered in one state don’t pack up and move out on a whim. That has to go double for Toyota, which opened its first U.S. office in Hollywood in 1957. That location made sense at the time because it put Toyota close to a major port where its Japanese-made cars would be arriving in the U.S. And California’s legislature still lived in the real world.
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Today, however, about 75 percent of Toyota’s cars and trucks are made in the U.S.—Kentucky, Mississippi, Texas, and engines in Alabama. Perhaps more importantly, companies of all types and sizes are increasingly looking to settle in business-friendly states, which California decidedly is not. Hence, according to news accounts, the announcement Toyota is moving its U.S. headquarters from California to Texas.
The company will be prudent in its statements and press releases explaining the move. But here’s what are likely the driving forces.
1. High Taxes — California imposes a flat 8.84 percent state corporate income tax rate, one of the highest in the country—which, incidentally, is on top of the federal corporate rate of 35 percent, which is the highest in the developed world.
By contrast, the Texas corporate income tax is zero. The state corporate rate is one reason why the Tax Foundation ranks California as 48 in its state business tax climate index.
2. Burdensome Regulations — Chief Executive magazine annually surveys major CEOs asking which states are the best and worst for doing business. The editor told me in an interview that the survey has two constants: Texas is always first and California is always last. That finding is supported by other surveys. CNBC does a ranking for “America’s Top States for Doing Business.” In its 2013 survey California came in dead last in the “cost of doing business” category.
3. Follow the Profits — People frequently use the phrase “follow the money” in a derogatory sense. But when it comes to profits, that’s exactly what companies should do.
Liberal politicians, of whom California has an abundance, want Americans to buy electric, hybrid or very small, fuel-efficient cars. And they are happy to use the law to force Americans to embrace that liberal vision. But those cars are costly to produce, demand is low, and profit margins are slim.
Americans much prefer trucks and SUVs, which also happen to have the highest profit margins. Toyota has been making a push to give Chevy, Ford and Dodge some real competition. And since the company makes its trucks in Texas, the largest truck market, it makes good business sense to go where the profits are.
4. California’s Fickle Legislature — Let’s face it, the politicians who run the Golden State live in an alternate universe—one where companies love high taxes, strangling regulations, and a spendthrift government. Next to Illinois, California has to be the most dysfunctional state in the country—even handing out IOUs a few years back because the state couldn’t pay its bills. It’s so bad that Governor Jerry Brown—once referred to as “Governor Moonbeam”—has become the voice of reason in Sacramento.
Toyota’s abandoning high-tax California for a business-friendly, low-tax state—as more and more companies and individuals in blue states are doing—makes good economic and political sense. Now if there were only a way to escape Washington, D.C., which is as bad if not worse than California.
