Every year, in our annual State Rankings Report, we take a look at the business tax structure in each state as we prepare our Best Business Tax Climate ranking. We publish the top 10 to avoid embarrassing the locales with the most archaic tax regimes.
But it’s no secret that the cost of doing business in California has been exorbitant for decades. This is due not only to a Byzantine tax structure that supports myriad services for the nation’s most-populous state; it’s also a reflection of the rigorous regulatory environment in the Golden State. [“Regulatory environment” being a double entendre in California, the state that pioneered the most stringent environmental protection rules in the U.S.].
But now comes a report from Bloomberg which provides some surprisingly strong evidence that the high cost of doing business in California is not putting a damper on the bottom line of some leading CA businesses.
During the past four years, according to the Bloomberg report, the 63 publicly traded California companies in the Standard & Poor’s 500 have produced the best total return among the five U.S. states with the largest populations [CA companies produced average returns of 134 percent, compared to S&P players in second-place Florida at 82 percent].
When these results are parsed for individual growth sectors, they’re even more impressive: yields from CA healthcare companies were 267 percent; consumer staples came in at 302 percent; specialty pharma hit 235 percent; and biotech concerns notched a whopping 333 percent, Bloomberg reports.
Before we declare this to be a pure taxes vs. results anomaly, however, it should be noted that California has made great progress during the past four years in putting its fiscal house in order, generating a corresponding increase in business confidence in the state. Voters held their nose and pulled the levers to push through a referendum raising $6 billion in new top-tier income taxes to convert a $30-billion state budget deficit into a surplus; CA also has notched the largest four-year drop in the cost of state credit default swaps, a leading indicator of a state’s creditworthiness.
The Bloomberg survey also credits California’s pre-eminence in cutting-edge technology and alternative energy as key magnets for continued business investment. The report notes that 26 of the 122 U.S. companies in the Bloomberg Americas Clean Technology Index are based in California; these publicly traded companies spend an average of $118 million, roughly 25 percent of their annual sales revenue, on research and development.
California’s resilience in the aftermath of the Great Recession can be seen in recent employment statistics. Unemployment in the state peaked at 12.4 percent in 2011; the jobless rate finally dipped below 7 percent at the beginning of this year. Despite the clobbering California took from the housing market collapse, the Golden State still boasts a GDP that would make it the world’s seventh-largest economy if it were a country.
Perhaps California is just too big to fail, but in a good way.