Over the past few years, there has been a surge in companies relocating their operations to Arizona, primarily the Phoenix Metro Area. Align Technology, an orthodontics company specializing in manufacturing digital scanners and clear aligners, and Moov Technologies Incorporation, a semiconductor supplier, are some of the companies that have relocated their headquarters to Arizona in the recent past.
But why are companies favoring the Grand Canyon State over other regions? Read on to find out why businesses are flocking to Arizona.
1. Business Taxes
One of the main reasons businesses are ditching other states for Arizona is because of the state’s tax friendliness for businesses. The state ranks ninth in the United States for tax friendliness because of its relatively low tax burden attributed to its low corporate income tax, sales tax, property tax and other business taxes.
Arizona levies lower corporate income tax rates than most places in the country. It has a tax rate of 4.9%, which is one of the lowest. New York’s corporate tax rate is 6.5%, while Los Angeles and San Francisco both have a corporate tax rate of 8.84% because they are in the same state.
Although Seattle doesn’t have a corporate tax, businesses are subject to business and occupation or public utility tax based on gross receipts, which are more taxing than corporate income tax.
These figures indicate that Arizona is more business-friendly. The low corporate tax rates encourage more businesses to invest in the state. The low rates also promote business growth through increased investments and savings. No wonder businesses are moving to the Phoenix Metro Area to take advantage of the relatively low corporate income taxes.
2. Right to Work State
Arizona is a right-to-work state, implying that it implements right-to-work laws. The labor laws, otherwise known as workplace freedom laws, forbid union security agreements between labor unions and employers. The laws also give employees the freedom to join or not join labor unions in their places of work.
Many businesses are attracted to areas with a right-to-work law because these laws prevent employees from becoming members of labor unions not supported by their employers. Since business don’t pay union fees, they make high corporate returns and give employees higher incomes and benefits. The right-to-work laws also increase corporate earnings and augment economic growth.
Nevertheless, the right-to-work laws have potential disadvantages when they get abused. The right-to-work laws make companies less competitive in the market. Lack of bargaining power also gives businesses more control over employees’ salaries and benefits. These effects could adversely affect employees and the economy in general.
3. Affordable Housing
Affordable housing is another major factor prompting businesses to move their headquarters and operations to Arizona. In Los Angeles, the median price of a home is $795,000, and the median income is only $67,418, which equates to a cost ratio of 11.8 times the median wage.
On the other hand, the median price of a home is $383,924 in Arizona, and its median salary is 64,436, producing a cost ratio of 5.98 times the average salary.
Housing in Arizona is generally more affordable than in other parts of the country. The average price of a home for sale in Buckeye, AZ (one of the state’s fastest-growing cities) is $430,000 as of March 2022.
Businesses are attracted to the low housing rates because they greatly reduce fixed costs. They, in turn, use the savings to invest in other areas, such as procurement of raw materials and employment of a talented workforce.
4. Tax Incentives
Arizona has favorable tax incentives that make the state suitable for business operations. The state has a quality jobs tax credit of up to $9,000 per job for companies making capital investments and offering employment opportunities that meet particular wage requirements. Quality facility tax credits are available for businesses that make a capital investment of no less than $250,000 and create new full-time employment opportunities in manufacturing, research and development and corporate facilities. Companies are also legible to research and development income tax credits and can receive 15% credit on qualified research expenditures costing at least $2.5 million.
Apart from tax credits, grants and tax exemptions are other incentives available for businesses in Arizona. Arizona Competes Fund is a grant offered to companies that create new employment opportunities whose wages are equal to or more than the set median wage. In addition, machinery and equipment used in research and development or manufacturing are exempt from sales tax. Electricity and natural gas used by manufacturing businesses also receive the sales tax exemption.
These tax incentives make Arizona suitable for new and established businesses. The incentives reduce the taxes businesses have to pay, allowing them to decrease operating costs. As such, tax incentives help to attract and retain businesses in Arizona.
5. Talented Workforce
Arizona’s large pool of talented workforce partly explains why many businesses are moving to the Phoenix Metro Area. The large pool is because of consistent population growth in the area. Its current population is 7.2 million and is predicted to reach 8.2 million by 2030, thanks to its annual population growth of 42,000 people in a year.
The majority of working-age people in Arizona are talented and educated, meaning that companies can effortlessly get employees. The high education level is associated with the area’s high number of post-secondary institutions. Maricopa County alone has no less than ten colleges that produce 20,000 graduates every year, and Arizona ranks second among states attracting and retaining top talent. The high number of potential employees lures companies in Arizona.
Bottom Line
Arizona, particularly the Phoenix Metro Area, is attracting many businesses because of its business-friendly nature. The state has impressive business taxes, right-to-work laws, affordable housing, tax incentives, and a talented workforce. Businesses are flocking Arizona to take advantage of these benefits. If the trend continues, Arizona will grow into a significant hub for businesses and rival other established hubs like Los Angles, New York and San Francisco.