Startup City: Tips from Your Tax Accountant
Posted by Erica Bell on July 23, 2013 in Business Management, Startups, Taxes [ 0 Comments ]
In real estate, there are three words you need to know: location, location and location. The same, however, goes for startups and new business owners. The location you start your new business makes a major impact on your overhead and your bottom line. GoodApril, a San Francisco-based tax-planning startup, ranked seven startup cities in the U.S. based on data including employee earnings, personal income tax, property tax, housing costs, and the cost of office space. Breaking it down, by each of these factors, we share some tips should you choose to start your new business in one of the places that didn’t get the gold and rank #1.
Median Tech Wage
Of the 7 cities that GoodApril took a look at, the city with the lowest median tech wage is Austin and the highest is San Francisco, with almost a $30,000 spread between the two. If you’re looking to hire a team of 10, you could end up paying $300,000 more just by choosing San Francisco over Austin. Starting small and hiring only as needed is your first step in saving on salaries. Another option is to adjust your hiring strategy and focus on actionable work experience, not just degrees. You may find a recent graduate is a better fit than a manager at another company, and more willing to accept a lower starting salary.
Income Tax Max
Austin and Seattle both come in at 0% on the low end. California generally has higher income tax maximums than other states and this is no different for startup mecca San Francisco at 13.3%. While California does have higher tax rates than some of the other locations on the list, this state is rich in startup opportunities. You can find talented employees and partners, funding, and a number of resources geared towards startup success. If income tax rates are a major factor in where you setup your startup, make sure you also analyze the resources available and weight out whether or not one location is worth the cost.
Sales tax can affect your startup’s overhead costs and your product pricing. Boston, home to a number of major marketing players, is on the lower end at 6.25% while Seattle, a tech startup haven, comes in on top at 9.5%. No matter where you start your business, be sure to register to collect sales tax by applying for a sales permit for each separate place of business you have in the state before you ever open your doors.
Property taxes are often under the discretion of the county government where the property is located. Boulder comes in .66%, the lowest of the 7 seven cities that Good April looked at. The highest property tax rate goes to Austin at 1.74%, though it’s followed closely by Seattle. Unless your team is entirely remote and plans on staying where they are, you’ll need to be aware of the property taxes of a city before making a move and setting up shop.
Housing costs can affect employee salaries, both in attracting and retaining top talent. Austin had the lowest average housing cost while San Francisco, had the highest. Keep in mind that housing costs for where a business is located influence the salaries it pays to employees. Areas with higher housing costs could mean higher salary expenses for businesses.
Office Space Costs
Again, unless your entire team works remotely, you’ll need to take the cost of your office space into consideration. Washington D.C. had the highest office space cost, approaching $50 per square foot. Boulder, the lowest of the seven, came in at under half that, $21.50 per square foot. You can find office space steals with some serious commercial real estate research or save costs with co-working. Determine your needs first and then decide what type and size office you’ll need.
Related: Get commercial real estate quotes.
Each of these 6 factors contribute to your startup’s spend on salaries, office space, operations costs, your ability to purchase a house and more. One area that GoodApril didn’t cover was the choice of investors, which can make an impact in whether or not your business grows at the rate you want it to. Smaller cities, such as Boulder in comparison to San Francisco, are gaining traction, but your reach to investors should also be considered.