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California Is the Most Costly State for Starting a Business

California Is the Most Costly State for Starting a Business

Stacy Dean stands inside the restaurant she owns, the Kopper Kettle, in Yucaipa, Calif., on July 10, 2020. (John Fredricks/The Epoch Times)

John Seiler

John Seiler

8/7/2023

Updated: 8/7/2023

Commentary
Some of the people I admire most are small-business owners. One example that comes to mind is an auto shop guy who takes special care of his customers, never cheating them. Another runs a small restaurant with special attention to cleanliness. A third owns a gift store and always is walking around, straightening the merchandise on the shelves, interacting with customers.
In addition to making a profit by keeping customers happy, these entrepreneurs must pay taxes and comply with numerous multiplying government mandates, restrictions, and regulations.
A new study found these crucial foundational businesses of our economy have it the hardest in California compared to the other 49 states. The ratings come from Venture Smarter, which provides services to small businesses. The ratings show how hard it is to start up a business.
The best 10 states:

1. Wyoming 2. Florida 3. South Dakota 4. Montana 5. Alaska 6. Colorado 7. Utah 8. Vermont 9. Georgia 10. New Hampshire

You’ll notice these are the states that score highest on other rankings, such as tax rates and the number of regulations. An anomaly is Colorado, which is run by a Democratic governor, Jared Polis, who favors low taxes.
By contrast, the worst states generally also are on other lists of most difficult business and tax climates.
The worst 10 states:

51. California 50. New York 49. Delaware 48. New Jersey 47. Massachusetts 46. Maine 45. Alabama 44. West Virginia 43. Missouri 42. Arkansas 41. Washington

Anomalies are Alabama, West Virginia, Missouri, and Arkansas, which generally score higher on other measures of business friendliness.
Delaware is President Biden’s home state and a tax haven for large corporations—but not small businesses.

California Business Startup Cost: $1,950

The startup cost in taxes and fees in the first year for a California business is a hefty $1,950. That’s almost up to New York’s highest cost of $1,985. By contrast, in Wyoming it’s just $160. Lowest is $50 in Mississippi.
A spokesperson for Venture Smarter told Value Walk: “Forming a limited liability company (LLC) in Wyoming can be a great way to protect your assets. The state is one of the most business-friendly states in America, and forming a limited liability company is relatively easy.
“Creating an LLC in Florida is also an easy process, whether it is your first time, or you are an experienced entrepreneur. ... An LLC is a business entity designed to protect its owners from being held personally liable for business-related debts and LLCs have gained popularity because they offer a lot of flexibility for their owners.”
These are startup costs. The rankings don’t include such costs as rent, electricity, insurance, etc., which of course are much higher in California than elsewhere.

ALEC-Laffer Rank: 45th

The Venture Smarter rankings are similar to others. One of the best is the 2023 ALEC-Laffer “Rich States, Poor States” rankings by the American Legislative Exchange Council and economist Arthur Laffer.
California ranked 45th of the 50 states. It scored worst on income tax progressivity. That top rate of 13.3 percent just digs in and forces rich people from the state. But the 9.3 percent paid by the middle class is the worst in the country for that economic group.
On this report card, California also suffered Cumulative Net Migration—people leaving for other states—of 1,551,510 from 2012-21. That was second worst after New York, which lost 1,778,252.

2024 Tax Slam

It’s just going to get worse in 2024. The Wall Street Journal reported Gov. Gavin Newsom signed into law a bill “that raises the top marginal income-tax rate on the sly. High earners won’t know what hit them until it does.” That was Senate Bill 951.
“The bill funds an expansion of the state’s paid family leave benefit by removing the $145,600 wage ceiling on the state’s 1.1% employee payroll tax. ... This means that in 2024 California’s top marginal tax rate will increase to 14.4% from 13.3% for workers making more than $1 million. Those making between $61,214 and $312,686 would pay 10.4%. So California’s upper-middle class will pay more than millionaires in almost every state save New York, New Jersey and Hawaii.”
Moving to a place with no state income tax, such as Wyoming, Florida, and South Dakota—the top three states for starting an LLC, as listed above—is looking even more attractive for small business owners. And the rest of us.
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John Seiler

John Seiler

Author

John Seiler is a veteran California opinion writer. Mr. Seiler has written editorials for The Orange County Register for almost 30 years. He is a U.S. Army veteran and former press secretary for California state Sen. John Moorlach. He blogs at JohnSeiler.Substack.com and his email is writejohnseiler@gmail.com

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