By Levi Sumagaysay, CalMatters
When oil giant Chevron said over the summer that it would be moving its corporate headquarters to Houston from San Ramon, the headlines were dire. “Chevron Dumps California for Texas After 145 Years,” read one. Another called the move a “Snub to California.” A third noted that the departure came “as Regulations Mount in Golden State.”
The gloomy headlines illustrate how the press and corporate leaders often oversimplify big-company departures from California, leading citizens and state officials to under-examine the factors that lessen the impact of corporate departures and overstate their importance. The same type of doomsaying has played out with other big companies whose headquarters are leaving or have left the state, including Tesla, Oracle and SpaceX.
In Chevron’s case, discussions of the exit tended to miss or downplay a few key points. Despite talk tying the move to regulations and climate-change litigation in California, CEO Mike Wirth said repeatedly that the relocation was about moving to “the energy capital of the world,” not policy differences with state officials. Also, Chevron already had three times as many workers in Texas as in California at the time it decided to move. And few observers bothered to note the major operations Chevron would retain in the state, including refineries and oil fields.
With other exits, pundits often don’t examine the true effects on state tax revenue. Or take into account the fact that some companies leave key people in California or eventually return. And expansions by companies or startups that pop up here don’t get as much attention, either, the governor and some economists say.
“This is a long narrative in California — about businesses moving out,” said Ted Egan, chief economist for San Francisco. “At the same time, you need to talk about businesses starting up.”
Understanding the nuances of corporate exits is important because the departures can influence state policy and affect confidence among consumers and businesses. For example, the prospect of tech companies fleeing the state was raised this year by opponents of a California bill, eventually vetoed by the governor, that would have made tech companies test for critical harms from large artificial intelligence systems. Similarly, when Democratic Assemblymember Alex Lee of San Jose proposed a wealth tax last year, the California Chamber of Commerce said in a letter to him that the tax would likely contribute to “California’s business and resident exodus.” It did not pass. The Chamber used identical language in 2022 when successfully opposing various tax increases to fund a single-payer state health care program.
Despite complaints about high taxes, expensive housing and burdensome regulations — grousing that has been going on for decades — the state remains the national leader both for tech startups and for its share of big companies.
“I agree California is a more onerous place to do business,” said David Neumark, a UC Irvine economics professor who has studied relocations. “But it’s not like we’re some basket case.”
When leaving looks like staying
Some companies that recently made high-profile headquarters exits from the state have also either added more California employees or kept the lion’s share of workers here. Any remaining employees in California will continue to pay the state’s personal income tax.
Take Oracle, for example. The tech company announced in 2020 that it was moving its headquarters to Austin from Redwood City, leading to headlines like “Oracle Moves Headquarters to Texas, Joining Valley Exodus” and worries over “California’s higher operational costs and hefty taxes,” not to mention “steeper cost of living,” according to a couple of articles about the news. And yet Oracle as of this past spring still had almost triple the office workers in California than it has in Texas, 6,900 vs. 2,500, Bloomberg reported. A company spokesperson did not return a request for comment. But Redwood City’s data showed the company was still its biggest employer as of 2023. Though Oracle eliminated about 3,000 jobs in Redwood City over the past decade, it retains about 3,757 workers there, or more than 7% of the city’s workforce.
Oracle continues to pay taxes in California, though because tax records are confidential, it’s hard to know exactly how much. That includes not just sales taxes but corporate income taxes too; moving a headquarters does not necessarily mean a company escapes those.
“Corporations’ tax has very little to do with where their headquarters or employees are located,” said Brian Uhler, deputy legislative analyst with the state. “For a multinational business, they earn profit in California and outside California. California attributes profits to the state based on what share of a company’s national sales occur here.”
The state taxes corporations based on their sales, property and investments. So if a company earns revenue from sales or transactions in California, the company will pay taxes here regardless of where its headquarters is based. Companies also have to pay employment taxes for their workers based here. And certain types of companies, such as banks and other financial institutions, pay higher or additional taxes.
Another tech company that continues to contribute tax revenue to the state: Hewlett-Packard Enterprise, which announced it was relocating its headquarters to Texas in 2020. Even so, company spokesperson Adam Bauer said last month that the company has about 3,700 employees in Texas and about 3,600 in California. And on the company’s website, there were recently more job openings in California (45) than in Texas (34), including a few sales positions, a Northwest account executive and a “supplier relationship owner” for Nvidia, which is based in California.
“Corporations’ tax has very little to do with where their headquarters or employees are located.” – Brian Uhler, deputy legislative analyst, state of california
A third company that “left” California without really leaving is Tesla, which has actually grown in the state since its departure. The electric car maker moved its headquarters from Silicon Valley to Austin in 2021. CEO Elon Musk told shareholders that the company’s factory in Fremont was “jammed” and that housing costs in the state were high, making it tough for workers to live near the facility. Musk had also clashed with local health officials about COVID-related shutdowns. The New York Times framed the relocation as a “Blow to California.”
But three years later it doesn’t seem like a particularly severe blow. In 2022, the year after the move, the company “grew to 47,000 employees” in California, it said in a blog post, and ”our production footprint continued to increase.” Then, the next year, Tesla announced it would put its engineering and AI headquarters in Palo Alto, reportedly expecting to locate 1,400 employees in Hewlett-Packard’s former headquarters there.
California’s Tesla experience makes it hard not to wonder how impactful two other recently announced Musk-related relocations will be. In July, the billionaire said he was moving the headquarters of social media company X and rocket builder SpaceX to Texas from California. Musk cited a law recently signed by Gov. Gavin Newsom that bans the state’s school districts from requiring parents to be notified of a change in their child’s gender identification. Musk has a transgender daughter and has been publicly critical of transgender people’s rights to choose preferred pronouns. He called the law “the final straw” on top of “many others that preceded it, attacking both families and companies.”
It’s not clear how many California X and SpaceX employees will actually end up in Texas. A source told the Washington Post that the 120 employees at X headquarters in San Francisco will move to Musk-linked offices in San Jose and Palo Alto, but since then the company has reportedly said in legal filings that it will move X’s headquarters to Bastrop, Texas. LAist quoted experts saying that moving SpaceX to Starbase, Texas, will be complicated and time-consuming since the company’s headquarters in Hawthorne is a huge aerospace facility. X and SpaceX did not respond to requests for additional information.
Similarly, Chevron spokesperson Randy Stuart said the company has not yet decided which of its positions in San Ramon will relocate to Texas. The relocation is not effective until Jan. 1 and the company expects it will take five years to migrate most corporate functions to Texas. Some 2,000 Chevron employees work in California versus 7,000 in Texas but that includes people outside of headquarters working on Chevron’s operations in this state, including crude oil fields, technical facilities and two refineries, which range from the San Joaquin Valley to Richmond to El Segundo.
Growth can be hard to notice
While big departures like Musk’s get a lot of attention, expansions and new businesses within California tend not to.
In a recent Instagram post, Gov. Gavin Newsom tried to combat what he labeled “misinformation” about California’s economy by touting in-state expansions by well-known companies such as Visa, Ford Motor, Nintendo and Disneyland. He added that “the world’s leading AI companies are expanding right here in California.”
The governor may have a point about those expansions. There weren’t very many headlines — if any — about Visa recently opening a big new office in San Francisco; Ford’s plans to roll out a new electric-vehicle development center in Long Beach early next year; Nintendo’s intention to open a store in San Francisco next year; and Disneyland’s multibillion-dollar expansion over the next decade that promises jobs and community benefits for the city of Anaheim.
Statewide, about 291,000 new business entities have registered in California this year, according to the secretary of state’s office, compared with 215,000 a decade ago. And that number does not include sole proprietorships, which do not register with the state.
Egan, San Francisco’s chief economist, noted that new AI companies are taking office space in San Francisco, helping the city’s slow recovery from the pandemic-induced boom in remote work. PitchBook, which keeps track of capital markets, recently ranked San Francisco the top city in the world for startups. New York and Beijing were second and third. And a report from PitchBook and the National Venture Capital Association showed that the Bay Area and Los Angeles combined had a total of 746 venture capital deals in the fourth quarter of 2023, compared with 402 deals in New York, the runner-up.
In addition, for the first time since 2014, California as of June has the highest number of Fortune 500 companies, 57, while Texas and New York have 52 each. Newcomers to Fortune magazine’s annual ranking of the world’s biggest companies based on their revenue included California-based companies DoorDash, Workday, Prologis and Clorox.
“I agree California is a more onerous place to do business. But it’s not like we’re some basket case.”- David Neumark, economics professor at UC Irvine
Sarah Bohn, labor economist at the Public Policy Institute of California, said the headquarters moves “warrant attention, at a minimum. These moves make headlines, and that’s an important force for how people are feeling about doing business in California.”
Bohn said she is currently doing research to quantify the effects of corporate departures, but that it’s important to remember that there are always businesses moving out of, starting up in, or dying in the state.
Neumark, the UC Irvine professor, is working with Bohn on that research. He also co-authored a couple of research papers that examined the issue in 2004 and 2007, so he knows the concern about businesses leaving the state is not new. Neumark saw the same worries back then, during the Arnold Schwarzenegger era. There was a lot of talk about companies moving out of California and some “crazy political stuff,” he said. That included the actor-turned-governor showing up at a Las Vegas business with a van marked “Arnold’s Moving Co.” to symbolically help that company move back to California.
Neumark and his fellow researchers found in 2007 that California did not lose a significant number of workers due to business relocations, only about 11,000 jobs a year out of more than 18 million jobs from 1992 to 2004. In the same period, total employment in the state rose by around 106,000 jobs per year, driven by the creation and expansion of new businesses, according to data presented in the paper. The researchers found no evidence of a mass business exodus, saying that the net losses in the number of businesses that left and jobs lost as a result were negligible: 0.05% of businesses in California moved to other states during each of the two worst years, 1993 and 1994; and 0.1% of jobs were lost to relocation during each of the two worst years, 1997 and 1998. He mentioned that a substantial portion of California’s economy is service-oriented, “and restaurants and hospitals don’t move to other states.”
Complaints from departing corporations
There is no denying that some business executives are fed up with the state.
After Chevron’s exit last month, the president of moderate business group Bay Area Council, Jim Wunderman, said in a written statement: “It’s an embarrassment for California that we’ve lost so many global companies because of misguided policies that make it incredibly difficult to do business here.”
In an interview with CalMatters, Wunderman said it’s time for a “reckoning.” He said lawmakers and officials need to rethink policies that make it hard to build housing, or drive up the cost of energy. “I understand we’re going through an energy transition. Do we have to do it in a way that we exacerbate economic problems in the state?”
He pointed to a bill, recently signed into law by the governor, that aims to curtail traffic and air pollution from warehouses. “We’re constantly regulating things to make it more difficult for businesses. (The warehouse bill) particularly affects the Inland Empire, whose economy is built around that industry.” By possibly reducing the number of job opportunities at warehouses, Winderman said the new law could hurt the very people it’s trying to protect.
California’s flat corporate income tax rate of 8.84% of a company’s net income is the sixth highest in the country, according to the right-leaning think tank Tax Foundation. Conservative legislators also criticized a recent decision by the governor and Legislature to suspend certain business tax deductions and limit tax credits for three years to close the budget deficit, saying such suspensions have become too common.
On the other hand, the state’s corporate tax rate has actually declined over the past few decades, with state lawmakers slashing it from 9.6% to 9.3% in 1987, then to its current rate in 1997. The California Budget & Policy Center, a left-leaning think tank, said in a 2022 analysis of state data that corporate tax breaks have lessened the tax burden on California businesses over the years.
“We’re constantly regulating things to make it more difficult for businesses.” – Jim Wunderman, president of Bay Area Council
Ahmad Thomas, CEO of Silicon Valley Leadership Group, which advocates for big tech companies, said, “The challenge we have is the cost of doing business and operating in California continues to increase. How do we mitigate that?”
Thomas said California’s “competitive advantage continues to be chipped away at year after year by competition” that is global. He mentioned that there needs to be “more innovative solutions… around our cost structure connected to our tax policy,” as well as more affordable housing.
He wants industry and policymakers to work together to drive down the cost of living here, while trying to minimize additional taxes to businesses.
Still, business leaders get something in exchange for grappling with those challenges: access to capital, a skilled workforce, world-class universities and more.
“Full stop, I believe there is no better place to locate, grow and scale a company than in California,” Thomas said.
And not all state policies and laws drive business away. They help create them.
Bohn of the Public Policy Institute of California said the state continues to have policy levers, such as tax credits, that it can use to target businesses it wants to keep in the state.
“Full stop, I believe there is no better place to locate, grow and scale a company than in California.” – Ahmad Thomas, CEO of Silicon Valley Leadership Group
Case in point: Newsom boasted last year during a press conference with Musk about Tesla’s partial homecoming that California legislation and policies on clean vehicles helped spur the company’s rise to electric-vehicle dominance. It is the most valuable automaker in the world and responsible for the bulk of Musk’s wealth, which reportedly will soon stretch beyond $1 trillion. Tesla’s success wouldn’t have happened without California, where the company has received at least $3.2 billion in direct and indirect subsidies from the state, with the bulk of those being tax credits for zero-emissions vehicles, according to estimates from Newsom’s office reported by the San Francisco Chronicle.
At the press conference, Musk stood stiffly by as Newsom bragged about the state’s pivotal role. But then the billionaire also made an admission that might startle those who think California businesses are beset by red tape and entitled workers: Tesla’s Fremont factory is the most productive automotive plant in North America.
“It will probably be about 600,000 or more cars this year,” Musk said. “California is a tremendous manufacturer as well as a place of engineering innovation.”
That’s a point, Newsom added, “which is, again, often so lost.”
This article was originally published by CalMatters.
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Good riddance to Musk. He buys his way into companies with good engineering and ideas, and then starts thrashing around meddling with what they do well. It will be interesting to see how long the people working for SpaceX can continue to do great things while fending off his crazier notions and fascist social tendencies..
Over time, more and more companies and individuals will gradually leave California due to the high cost of living and elevated tax rates. This will create a long-term trend. As a result, California may be left with a population consisting largely of low-income and retired residents who contribute little or no taxes, but continue to enjoy the beaches and sunshine.
However, this raises an important question: who will pay for California’s pensions?
CITIZENSB – I doubt that very much. Why would the wealthy leave their coastal homes to move to a flyover state while the low-income and retired people stay in an increasingly expensive place?
Agree with most of that but the desirability of Ca always has brought in innovators and business even as other ones leave. Speaking of taxes – prop 13 is a disaster. But I digress…
Have a nice life in Texas.
Yeah, enjoy Texas, where you’ll find some of the highest property taxes, biggest bug populations, and huge utility bills.
As an added bonus, nobody will bat an eye if you or your children are ardent fascists:
https://www.asumag.com/safety-security/article/20853671/students-at-texas-high-school-give-nazi-salute-in-senior-photo
Yup. California is too popular. No one goes there any more…
When you’re under appreciated, over regulated, and over taxed, along with being sued on a regular basis it’s no wonder companies that can leave will. California is becoming a good place to be from.
When are you leaving? A whole lot of people are anxious to occupy the space you’re leaving behind. As for Musk taking his Teslas to Texas (there’s a song lyric in there somewhere), fine. The car company is in decline, and his space tourist business is a disruption to the community. Good riddance to both of you.
“California is becoming a good place to be from.” I’m hearing this from a lot of people I know that have already left. As to SB. Way back when, the old days, these same people and others began talking about SB appearing to become a town of the rich and the poor. Sadly, slowly but surely, this seems to be happening.
Speaking of “slowly but surely.” Election day is fast approaching and I’ll start accepting orders for my “crow” and “humble pie” that I will be serving. Of course, this applies only to those that will choose to vote for Harris, the only incompetent and person that is way in over her head attempting to become president. The list of you that appear eligible is long but not very distinguished. Just give my comment a negative reply and we’re good to go.
I…what? TFG has had how many bankruptcies? (6) Obviously is suffering from dementia. Does not pay his contractors. (Nor, apparently, bus drivers.) Did not accomplish “building a wall” nor “replacing Obamacare”. But a FEMALE former Senator, District Attorney, Attorney General, and VP is incompetent. Yeah, okay. Gee, what is different about her? I can’t put my finger on it…
Do_u_lie about everything, or only politics? You’re not living in California,, you’re living in an orange fantasy bubble.
It’s just an opinion man. Agree or don’t agree but you can’t label someone a liar when you simply disagree with their personal opinion. We are seeing this from a poster or two ALL THE TIME HERE. A couple folks can’t seem to distinguish opinions from factual/nonfactual statements. Easier to call folks liars left and right I guess. Sad.
BI, master of projection and armchair truthiness.
Another option is for people to simply ignore the troll and say what they want.
Trump may win. If so, the world will be vastly worse off for it. Chortling over it, in addition to being extremely immature, would be sociopathic.
dalgorf – Part of the problem with people in your corner is that you don’t have a sense of humor. Lighten up. Soon that dead weight on your shoulders via Biden/Harris will be lifted and you can see the return of a positive and prosperous country again. What did that big bad “orange man” you fear so much do in his first term as president you did not like? It’s not that Trump “may” win, Trump will win. I’ll bet you a piece of “crow/humble” pie. Your choice. Or, is this being “extremely immature?”
So many words. Cry on.
YOULIE – when Harris wins, will you eat your own crows? Will you finally explain to us all why you insist on avoiding facts and the truth like a vampire avoids the sun? Now THAT would be a slice of pie I’d enjoy serving.
As I said, Trump will win. But to answer your question, yes. I will eat my own pies if he loses. I would never ask someone to do anything I’m not ready to do myself. I didn’t ask you to serve anything to me. Just be ready to eat what you will have earned.
Not a good sign when one of the most innovative and smart men on the planet feels he has to move away.
Actually, if you are referencing Musk, it is good. We need fewer people in CA who own multiple homes and over consume and pander to media and wanna be dictators. California would be hugely better if a couple of million folks decided to swelter in AZ, stew in Tx and get blown away in FL.
Musk is not particularly brilliant. He’s just obscenely rich, and that lets him buy companies with good ideas, and ruin them if he’s allowed free rein. He got rich by having worked on a startup that was bought by PayPal, but they got rid of him because he was only marginally competent, and a disruptive employee.
Musk was born on 3rd base. His mother was a model and his father owned an emerald mine.
“As a result of this, the teenage Elon Musk once walked the streets of New York with emeralds in his pocket. His father said: “We were very wealthy. We had so much money at times we couldn’t even close our safe,” adding that one person would have to hold the money in place with another closing the door. “And then there’d still be all these notes sticking out and we’d sort of pull them out and put them in our pockets.””
Just had a conversation this past weekend with a group of millennials. Some were from CA, some had come to CA for school and never left, some had come for the weather/beach/mountains/jobs/lifestyle, and none were homeowners. All are hoping the $25K/1st time homeowner plan being announced by Kamala Harris will apply to them. Most of them have good employment, paying more (maybe a lot more, in a few cases) than the national average. I asked why they didn’t move to other states that have more affordable housing. The sentiment expressed was along the lines of ‘”a bad day here is a lot better than a good day anywhere else”…
SB Hillbillies, if you are going to argue, get your facts correct.
Texas may have one of the highest property taxes, but there is no income tax. California may be paradise, and that is likely why most of use live here, including the bums. California has tons of rules and regulations and taxes, and boy it has taxes; one of highest income taxes of all states. Electricity is ridicuously expensive in California and IT IS NOT MORE EXPENSIVE IN TEXAS.
Just a thought…. and unrelated to this topic…. Anonymous, are you on the payroll?
Oh and here’s an opinion, Musk is not only probably smarter than all of us, but with a select few, all combined.
You don’t know anything about Musk, except the fanboi stuff in your orange bubble, eh?
You aren’t aware of what Musk has accomplished? That dude may be a bit different, but he is way smarter than the average Edhat anonymous poster like you, and the average citizen. He’s an elite entrepreneur, whether you like him personally or not. Forget your personal politics and don’t be jealous dude. Hey, I’m not a Tesla fan either but that’s just because so many of the drivers are freaks on the road. Not Musk’s fault.
Musk’s acquired employees are the heroes here, not Musk. Engineers at Tesla have had to push back against some of his lamebrain suggestions with regard to sensors and “Full Self Driving”.
Musk recognizes good ideas and buys them, but his own ideas are often quite astonishingly off target.
https://pbs.twimg.com/media/FhEjHPUUoAEFpK5?format=jpg
Elon may be leaving, but just think- Kamala will be moving BACK in a couple months time…!!!
Somewhere between 48 and 96, if we’re sane.