Many businesses consider relocating their headquarters, moving office location and/or opening brand new locations in other states because of the economic challenges and evolving state tax codes that continue to eat into profit margins. A relocation or expansion is a strategic business change that could provide your company with a unique opportunity to operate from a location where you could benefit from tax advantages offered by state and local governments. The tax efficiencies you may be able to achieve depend largely on the nature of your business, your plans for growth and plans to create good jobs for local residents, to name a few.
Use our business relocation and expansion checklist to assess your organization’s tax needs from an existential and geographical perspective, aligning them with your business operational needs to make better decisions as you consider change.
#1: What is the nature of your business?
- Are you a service-based organization, such as a SaaS company? Or do you produce tangible goods, such as a manufacturing company or a retail business? Each has different tax considerations that certain business types can capitalize on in various states. Some companies operate in multiple verticals, creating opportunities for both tax exposure and savings.
#2: What is the type of relocation or expansion you’re considering for your business?
- Is it a relocation of your company’s headquarters?
- Is it an expansion into new states or an expansion of an existing facility?
- Are you consolidating offices in a new or existing location?
- Are you moving to a new city within the same state?
#3: Why is your organization looking to relocate or expand now?
- Are you adapting to changing workforce demands?
- Are legislative changes making your tax exposure prohibitively expensive in your current location?
- Are you exploring new incentives available to your company if you adjust your processes (e.g., incorporating renewable energy into your model)?
- Do you want to consolidate or expand your business’s physical footprint to adapt to evolving business needs?
#4: Have you considered your geographical needs for moving your company headquarters?
- If you’re an international subsidiary, what is the most convenient area for your current operations? For example, if your parent company is headquartered in Japan, then a west coast location may make sense, or if your parent company is in the EU, then an east coast location may be a good option.
- If you’re a manufacturing company or an organization that relies on distributing throughout the U.S., then having your headquarters be a hub that allows for centralized distribution from a place like Nashville may be the most appropriate choice.
- The overall tax exposure your business would encounter varies from state to state. When determining which state you prefer, it’s best to have a baseline to weigh your options. This state tax index provides a detailed ranking of the strictness of each state’s tax regime, including corporate taxes and property taxes.
#5: What are your workforce constraints, and how do they affect your move?
- Do you have a remote workforce?
- If that’s the case, is there a reason to keep your current offices?
- If your employees are in a more expensive or inexpensive part of the country, how will their salaries be adjusted for cost of living?
- Is your business suitable for moving to a location that can capitalize on a highly educated and skilled labor market in a lower cost of living area?
- If you rely on an in-person workforce, are you moving to be closer to your current team, or are you considering the potential tax incentives involved with adjusting your hiring practices in certain metropolitan areas?
#6: What are the tax credit and incentive opportunities you should consider before you relocate or expand?
- States offer various tax credits (which evolve constantly) to incentivize different industries to invest in their jurisdictions.
- Does the state offer property tax incentives or exemptions? (e.g., freeport, pollution control equipment, solar)
- Incentives are negotiated with state or local authorities to locate or expand business operations in a specific jurisdiction. However, incentives must be negotiated well in advance of a firm commitment by your business to move to that location. State and local authorities have no incentive to offer you money once you’ve announced your move there. Most incentive packages are very competitive and require agreements — the business must state in writing that their project will only occur in the new location if the incentive package is offered.
#7: How does sales and use tax present exposure and savings opportunities to your business?
- Many local municipalities offer a share of the sales and use tax revenue your business generates in exchange for a long-term commitment to centralizing your business in that locality.
- These types of incentives are commonly referred to as local sharing agreements and they are negotiated well in advance of any commitment to moving to that location.
#8: Have you researched the change in income tax exposure if you relocate?
- Does that location have a higher income tax rate or an incremental net worth/capital tax?
- What makes up the state’s apportionment formula? Is it single-sales-factor only or some variation of property, payroll and sales?
- What is the nexus threshold to trigger a filing requirement? Is it based on having a physical presence in the state or is it based on an economic presence?
- Have you thought about payroll tax and HR considerations (e.g., unemployment insurance, state disability, workers comp, hourly minimum wage)?
- Does a city or locality you’re located in require a separate business license?
- Does that location require a unique business tax, such as Los Angeles’s City Business Tax (i.e., a gross receipts tax)?
#9: Have you considered how to incorporate your property tax exposure in your relocation?
- Is your inventory taxed?
- If your business is a multi-state taxpayer, have you considered the tax impact?
- How does the property tax rate compare?
- What is the assessment date of the state you’re considering relocating to? Most states’ assessment date is January 1, but a few are not, which can greatly impact your property tax liability.
- Does the state reassess annually, bi-annually or every 3-5 years?
- In addition to taxing real estate, does the state tax business personal property, inventory or vehicles? If yes, what are the statutory exclusions?
- What are the compliance obligations and timing? Each state’s due dates vary for filing returns, appealing valuations and paying tax bills.
- Is the state considered an audit state? Many states have a mandatory audit every 4-5 years.
For help managing the tax impacts of relocating your business, contact our tax experts .
