The state of California is becoming legendary for creating the most anti-business climate in the country because of its high taxes, excessive regulations, forced unionism, and bloated public sector. For the second year in a row, a large group of America’s CEOs recently rated California as the worst state in the country to do business in an annual survey conducted by Chief Executive Magazine. California currently ranks No. 49 among U.S. states for “business tax climate” according to the Tax Foundation’s 2011 State Business Tax Climate Index, and it ranks No. 48 for “economic freedom” according to a recent study by the Mercatus Center.
It shouldn’t be any surprise then that companies are leaving the “Golden State” in record numbers this year (see chart below) for “golder pastures” and more business-friendly climates in other states. In just the last two years, the number of companies leaving California has accelerated more than five-fold, from one per week in 2009 to 5.4 per week this year, according to California relocation expert Joe Vranich.
And now because of new online sales taxes signed into law this week by Governor Jerry Brown, California’s business climate has become even chillier. According to the L.A. Times, “Amazon.com dropped about 10,000 California-based associate sales partners late Wednesday so that it would not be forced to collect California state sales tax on purchases made through them.” Many of Amazon’s sales partners in California are small business like book stores that rely heavily on online sales to stay in business, and might now be forced out of business, or out of state.
With another new tax in place on business activity, California will likely remain at the bottom of the state rankings for business and tax climate, and it’s a good bet that the rate of “disinvestment events” (companies leaving California) will accelerate ever more.