Most are keenly aware of the challenges of doing business in California, which are causing increasing numbers of companies to seek full or partial relocation of their headquarters outside the state. These include well-known (and not new) factors such as increasing minimum wage, suppressive regulatory environment, and high cost of living. Factors that have emerged in recent months add additional fuel to the fire. In early January, the Federal Emergency Management Agency (FEMA) put Los Angeles County at the top of its new National Risk Index. California is a COVID-19 pandemic epicenter with overflowing hospitals and increasingly tight social restrictions that have completely shut down or severely impacted business revenues. At the same time, legislators are desperate to increase the state’s coffers and are considering measures (i.e., tax increases in one form or another) to bolster the general fund. Of course, California personal and business taxes are already among the highest in the U.S.
All this creates the perfect storm for a “Reverse Gold Rush”—companies looking east for economic relief and opportunity in the U.S.
East—but not too far east. Popular relocation options for California companies include neighboring southwest states Arizona and Nevada. Unsurprisingly, oft-cited factors in the initial determination of these states include favorable time zone, convenient flight access to California (access to other divisions/suppliers/distributors), affordable cost of living, less oppressive tax and business climate, and lower wage rates.
Of course, Ryan has negotiated several solid incentive support packages in these states as well, which often factors in. In this COVID/post-COVID era, however, there is a new consideration that Ryan is navigating on behalf of our clients. As companies look to relocate headquartered employees in an increasingly virtual/telework environment, it’s critical to understand how these states are looking at remote workers in their evaluation of projects. Furthermore, the state’s stance also impacts existing contracts that may need to be adjusted—or in some cases, renegotiated—depending on the impact COVID-19 has had on the business. Where does each of these states currently stand on the issue of teleworkers?
Existing Contracts – The Qualified Facilities Tax Credit was updated to allow for remote workers associated with a specific location. The Quality Jobs Tax Credit program is allowing for remote workers who have to telecommute as a result of the COVID-19 crisis. On a case-by-case basis, deadlines have been extended and allowances for temporary worksites have been made.
New Projects – As of present, the state has not formally changed its statutory programs to address remote workers; however, the state may extend some latitude with the definition of “Designated Location” at which qualifying job duties are to be primarily performed.
Existing Contracts – As of present, the state does not have any kind of policy on remote workers; however, the state may consider that “employed at the location of the business” could include those working from home in the same community as the business’s physical location.
New Projects – New applicants are being advised to only include in their applications employees who are physically located at the facility.
As the economic and political climate continues to evolve, having a suite of subject matter experts in your corner, as do Ryan clients, will ensure your company limits risk exposure from both known and developing concerns, such as telework.
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