It’s been a month since Nestle USA announced it was moving out of Glendale, and still it bothers me.
Why? It occurred to me that Nestle’s publicly announced reason for moving to the Virginia suburbs of Washington, D.C. – to be nearer its vendors, factories and the like – doesn’t ring quite right. Oh, sure, there’s an element of logic to that explanation. But proximity to stakeholders is less important with today’s technology. Besides, the advantage of proximity will be outweighed by the disruption of moving or losing 1,200 headquarters employees.
I suspect the real impetus for Nestle’s decision to move is the burden of doing business in California. No doubt you know that the state is often held up as the poster child for heavy corporate taxes and regulations, so let’s not recite those again. Instead, let’s consider a couple of oft-overlooked challenges.
One is high individual income taxes. California’s personal tax rates are as high as 13.3 percent, by far the steepest and more than double Virginia’s top rate of 5.75 percent. And in November, voters passed Proposition 55, which extended a “temporary” tax hike on the highest earners. That means a C-level worker could well get tens of thousands of dollars more a year just for moving to Virginia. And remember, that C-level exec may be among the few making the decision to move.
Another oft-overlooked challenge: litigation. The state is a hive for anti-business lawsuits. Nestle got stung with one in late 2015, for example, challenging its right to continue bottling San Bernardino water under its Arrowhead brand. Nestle ultimately prevailed a few months ago, but it was costly and time consuming.
California is blessed in that it is a magnet for attracting entrepreneurs. It has a culture that fosters startups. But the ongoing challenge for the state is keeping businesses once they grow up.