Gone to Texas: why Texas is the right choice for international companies.

For over 200 years, Texas has been the destination for pioneers and entrepreneurs. Amid the panic of the first US financial crisis in 1819 and the early 1820s, indebted Americans abandoned their homes in pursuit of new beginnings on the Texas frontier. The only thing these hopeful Americans left behind was a simple message carved into their doors or fences, “GTT” or “Gone to Texas.”

“Gone To Texas” is now the slogan for thousands of companies – both big and small – who have relocated their headquarters to Texas. With the relocation of Caterpillar Inc. from Deerfield, Illinois to Irving, Texas in June 2022, Texas is now the top state in the nation for Fortune 500 headquarters, surpassing California and New York. Caterpillar follows other notable corporate moves to Texas, including Tesla, Hewlett Packard Enterprise, Oracle, Charles Schwab and CBRE. In addition, Texas has been attracting many innovative companies from the West and East Coast who now call Austin, Houston and Dallas home. In fact, Texas is ranked number One in the United States for company relocations from other US states.

This business migration is not only due to Texas’ world-famous BBQ and Tex-Mex cuisine – Texas also offers the best business ecosystem in the United States and is frequently considered the best state in which to start a business. Texas’ leading business climate and favourable regulatory and tax environment provide a strong framework for businesses and entrepreneurs to grow, succeed and thrive. The low cost of living, combined with a highly educated and motivated work force, readily available capital and a continued migration of new residents into the State,only add to the favourable business environment in Texas. The Texas “can do” spirit is pervasive both in the individual work force as well as the local and state government.

While nothing is certain except death and taxes, Texas is as tax friendly of a state as you will find in the United States. Texas is one of the few states without a state, corporate, or personal income tax. Instead, businesses are generally subject to a low franchise tax, which only applies to businesses with annual Texas revenue in excess of $1,230,000, subject to annual inflation adjustments. This benefits small businesses and companies in the early years of growing their business in Texas who can avoid additional tax costs. The franchise tax regime is also generous towards mid-size and larger businesses. A business entity with less than $20 million in annual Texas revenue generally pays 0.331% in franchise taxes. A retail or wholesale entity that exceeds $20 million in annual Texas revenue generally pays about 0.375% in franchise taxes. Entities other than retail or wholesale that exceed $20 million in annual Texas revenue are taxed at 0.75%. This compares extremely favourably with almost every other state in the United States.

Texas also has easy-to-navigate business laws which allow businesses to stay in compliance without expensive third-party assistance. Forming an entity in Texas is a simple and straightforward process, and can be accomplished relatively quickly and without paying unreasonable fees. Only a limited amount of information must be disclosed by a business entity formed in Texas. The governing persons, typically managers or directors, are listed in the Certificate of Formation and on an annual Public Information Report, but generally no other personal information is required to be disclosed. If an out-of-state entity plans to operate its business in Texas, it will need to register with the State of Texas and provide some additional disclosures in excess of the requirements for an in-state entity.

The Texas business statutes are largely patterned from (and improve upon) Delaware statutory law and case law, but without the focus on public companies which you see in Delaware. In Texas, the freedom of contract reigns supreme, and courts and judges are in most instances willing to defer to businesses’ written documents rather than applying theoretical legal rules. This adds to the “what-you-see is what-you-get” business environment, reducing risk and uncertainty for Texas businesses.

For many clients – both foreign and domestic – Texas is a gateway to global trade and a leading location for foreign direct investment. Texas is one of the most diverse states in the US, with Houston ranked as the most ethnically diverse metropolitan area in the United States. The state’s diverse population, strategic geographical location and robust infrastructure offer companies easy access to worldwide customers. In fact, the Port of Houston ranks first in the United States with respect to foreign waterborne tonnage.

While the motive for relocating to Texas may have changed since the 1800’s, the Texan spirit of openness, opportunity and freedom remains. Combined with a relatively simple regulatory environment and low taxes, it is easy to see why so many businesses, old and new, are moving to the Lone Star State.