Kentucky Fried Chicken recently announced plans to leave its namesake state, making it the latest major corporation to join the mass business migration to Texas. The restaurant chain follows corporations like X (formerly Twitter) and Realtor.com, which both moved to the Lone Star state within the last year.
Businesses are leaving high-tax states in growing numbers, and Texas is reaping the benefits. The state’s lighter regulations and tax breaks have caught the attention of many companies, from startups to Fortune 500s, that are looking for a new home.
But relocating to Texas isn’t necessarily the right move for every company. Let’s talk about why.
Why are businesses flocking to Texas?
One of the biggest draws for businesses that are considering a move to Texas is its tax structure and regulatory environment. “Part of the reason I see an exodus from California is because they have some cumbersome regulations,” says Mina Haque, PLLC, CEO of Tony Roma’s and a practicing attorney who has helped businesses navigate state transitions. “For example… California has rules like, ‘You have to pay your employees’ Internet.’” When businesses move to Texas, they no longer incur these expenses because “although [the state] protects employees, Texas is definitely more employer-friendly.”
According to Spencer Carroll—CPA and account executive at Gelt and adjunct professor of accounting at Palm Beach Atlantic University—Texas also offers significant financial incentives that can impact a company’s bottom line. “Not only is Texas a no-state-income-tax state, but a lot of the times when these big major companies move into town… they’ll work with the local governments to get special tax deals for moving a big economic booster, which is their company, into the state.”
For large businesses like KFC or X, these tax savings go a long way toward expanding operations and sales efforts or increasing shareholder profitability.
In addition to the tax deals, Haque says that “the Texas government also gives funds that invite businesses to set up over there. Their development funds are also extremely attractive, especially for startups.” This makes the state a salient alternative to other start-up friendly states, like California.
Beyond corporate benefits, the state’s tax structure can also benefit company leadership and employees, particularly in the tech sector. “[For] a lot of people in the startup [and] technology world, the big money makers for those founders and employees is if the company goes through [an] exit,” Carroll says. But if an employee or founder lives in a high-tax state, “that could be millions of dollars’ difference for you in terms of take-home when the company you work for or the company you founded goes public or has an exit,” he says.
Overall, Carroll says, moving to Texas or another low– or no–state tax state can be a big material benefit to those who stand to make the most from a sale or IPO.
Size matters when considering a headquarters move
For small business owners, the decision to relocate requires careful consideration. Because of this, Carroll advises them to think twice before making the move.
“Usually, it makes the most sense to incorporate your business in the state that you live in, ” he says. “If I lived in California and wanted to start a small business, if I incorporate [it] in Texas, that doesn’t save me from paying state income tax… in California. All that it’s doing for me is adding an extra administrative burden where I have to file annual reports with the state of Texas and pay a franchise fee.” As a result, moving may not make sense for smaller businesses.
However, as businesses grow, the financial benefits become more compelling. “Take 10% multiplied by… let’s call it $500,000 or [$1 million] in profit for your business,” Carroll says. “We’re talking $50,000 to [$100,000] in income tax that you are just paying to California.” A business owner could save that money by moving to Texas, which could mean extra profit or more money to fuel the business’s growth.
Legal reasons for relocating
Companies must carefully evaluate their legal obligations in both their current state and in Texas before moving. “Legally, what a company should do when they’re making the complete move is… [to] do a dissolution of wherever they are incorporated… then do the filing in the new state,” Haque says.
Some companies, like Meta, move only specific departments rather than their entire operations. This strategic approach can help businesses take advantage of Texas’s employer-friendly laws.
“When it comes to non-competes, California is more employee-friendly than Texas,” Haque says. With mass layoffs and ongoing shifts in the political climate, moving to an employer-friendly state may create significant savings on legal costs and other HR-related matters.
Other considerations for relocating your business to Texas
Before making the final decision to relocate, businesses should consider several key factors beyond just the potential tax savings. “If you’re selling [a] product, where is the product coming from?” Haque asks. ”Do you want to be near any ports?”
For instances, one of her legal clients sells luxury timepieces, so they headquartered in California—but since they were “wasting [money] on freight expenses,” she says, they moved to Virginia, another tax-friendly state.
Carroll adds that lifestyle factors should also play a role for small business owners. “There’s more to life than just optimizing your taxes,“ he says. “If you’re from California [or] have friends and family in California, just saving thousands of dollars on taxes [is] probably not worth packing up and moving.”
However, the savings could justify the move for single entrepreneurs or growing businesses with significant profits. “If you’re a single guy or gal and you have a successful business, and you’re paying $100,000 in income tax to California, you could probably do a lot of things with an extra $100,000 per year,” Carroll says. “Maybe it’s worth moving to Austin.”
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