Many companies and individuals prior to the pandemic began to consider reducing their presence in high-cost business hubs (e.g., New York City, San Francisco, and Los Angeles). In addition, the limitation on the state and local tax itemized deduction imposed under the 2017 federal tax reform legislation also led individuals to consider relocating to lower or no income tax jurisdictions.
In fact, according to the US Census Bureau, the states with the largest population decreases in 2019-2020 were New York, Illinois, and California, whereas North Carolina, Florida, and Texas saw the largest population increases. Relocations by individuals have created wider talent pools (quality and quantity) in areas businesses previously may not have considered, driving companies to follow suit and invest in new jurisdictions, further spurring more job opportunities and encouraging even more people to move.
On the other side of the equation, Miami, Austin, Nashville, Denver and Salt Lake City are among the jurisdictions trying to attract those individuals and companies leaving expensive jurisdictions. Hefty state and local tax credits and incentive packages, as well as lower tax rates, are becoming more attractive for companies as they decide where to invest their business.
The pandemic has accelerated these trends, giving individuals and organizations another reason to consider other markets. As hybrid working (a blend of onsite and remote working) emerges as the most likely working model for many companies, employees are given more freedom to relocate to areas with lower costs of living and higher quality of life. Companies are following suit by expanding geographic recruitment bases, thereby reducing the need to pay high rent prices for large office spaces. As businesses in high-cost states contemplate a non-remote work environment, other states are becoming more attractive in their offerings of a wide talent pool, lower cost considerations for employees and employers, including lower taxes, and desirable credits and incentive packages.
For companies considering moves outside of large metropolitan areas, decision-making requires a balance between costs, talent, and regulations. However, even though some companies are expanding their presence elsewhere, they are not completely exiting high cost states such as New York and California, and their locations in these states remain strategic hubs.