North Carolina benefitted from the COVID-19 pandemic in terms of small business migration. That’s according to a new Bureau of Labor Statistics report.
BLS looked at trends in single-establishment business migration from the early 1990s using quarterly census data on employment and wages. Focusing on data between 2020 and 2021, the report found that states with higher taxes, cost of living, and stricter lockdowns saw companies leaving in high numbers.
Small businesses that made the move were in the professional, scientific, and technical services sectors, which included law, accounting, and consulting firms. Finance firms like small family investment offices also saw a large surge in moving.
There were 5,524 businesses that moved across state lines in 2020, compared to 3,677 in 2010. In 2021, the number grew to 6,384. The South, in particular, saw its net migration from the Northeast double between 2020 and 2021. The West had a reputation for attracting businesses from other states over the last 30 years, but that has come to an end. It lost a net 175 in 2021, with most of those businesses leaving California.
New York ranked No. 1 for small businesses leaving the state, with 487, followed by California (456), Illinois (208), Maryland (50), and Pennsylvania (33).
Florida saw the most gains with 399 small businesses, followed by North Carolina with 148, Nevada (103), Texas (103), and Tennessee (92). North Carolina is the only state among the five that has an income tax, which is 4.75%, lower than many other states. Those in the state legislature want to see it go even lower.
Senate leaders introduced S.B. 651, Tax Relief For All, in April. If the bill becomes law, it would drop the rate even further this year to 4.5% and eventually to 2.49% after 2026.
The state’s current 2.50% corporate tax rate will be lowered to 2.25% in 2025 and will be phased out in 2030, which may continue the trend of attracting more businesses.
The Wall Street Journal also said the report’s figures most likely underestimate the business migration that occurred early in the pandemic since they don’t take larger firms shifting headquarters or workforces to other states into account.
This isn’t the first time North Carolina has been recognized as a great place to do business. Numerous magazines, including most recently, Business Facilities magazine, named the Tar Heel State the 2022 State of the Year. Many large companies, like Google and Apple, have taken notice and are setting up shop.
In July, CNBC named North Carolina as the best state for business. Pewtrusts.org profiled North Carolina in August as having one of the best rainy-day funds in the country. In November, The Tax Foundation ranked North Carolina 10th in the nation for its tax environment.
In addition to low tax rates, a highly skilled workforce, and great universities like N.C. State, Duke University, and the UNC System are also things that companies are looking for.
Leasing office space is also another factor. For example, the price per square foot for leasing office space in Raleigh is currently $29 a square foot, while in New York City, it is about $90 a square foot.
The cost of living is also enticing. Using Raleigh again, it is 140% less expensive to live in the City of Oaks than San Francisco, which has seen its share of businesses, including hotels, and people leaving. The median home price in Raleigh is $444,000, while San Francisco’s is $1.3 million.
Other reasons the state is so attractive to businesses are great infrastructure, including fiber internet; available areas of land for expansion; an excellent transportation system, including four international airports, two seaports, and Amtrak train service; and of course, great weather with a moderate climate.