The Best States for Business in 2021? Sorry, It’s Not That Simple.

The pandemic’s impact on the economy lingers. Workforces, for now at least, remain geographically distributed. Labor shortages are driving businesses to desperate measures. And housing is soaring. 

That means this year, when analysts look at the best states for companies to do business in, they’ll have a lot to consider.

A Tale of Two States’ Tax Codes

Traditionally, the best state business began and ended with taxes and regulations. Or, as it’s often portrayed in some media, an ongoing war between high-tax nanny-state California vs. less-government, anything-goes Texas. 

In fact, the libertarian-leaning California Policy Center keeps a running tally of what it calls The California Book of Exodus of businesses and prominent individuals leaving the Golden State. 

The list of the lost includes tech behemoths like Hewlett-Packer Enterprise — who cite talent recruitment opportunities in Houston — and the starlet trio of Becca Tobin, Haylie Duff and Jamie-Lynn Sigler, who moved for more personal reasons.

But some question whether or not the whole of Texas is better for business narrative entirely. 

California’s gross domestic product has jumped 21% over the past five years, leaving Texas’ 12% gain in its shadow. 

Remember when Elon Musk threw a hissy fit regarding California’s COVID-19 mandate to close the Tesla plant? He threatened to pick up toys … er, his electric cars plant, rather, and move to Texas immediately. Well, that didn’t happen. Though Musk does own this tiny home near his spaceport, Tesla currently remains in sunny Fremont with no signs of going anywhere soon.

It’s More Than Just Taxes and Regulations

When serious business analysts compare the best states for business, they use a complex, multifactorial calculus, not simply its tax rate.

While low business taxes are good for business, factors like access to capital, available workforce, broadband access, quality of life and educational opportunities are also important. CNBC, which produces an annual America’s Top States for Business ranking, says it uses 85 different metrics to build a fair comparative analysis. 

Additionally, there is the business itself to consider. Not all sectors will have the same concerns. What seems like a burden to one company won’t affect another sector at all. 

Rank Doesn’t Mean Everything

So while Texas likes to tout its business-friendly climate, U.S. News and World Report didn’t rank it in the Top 10 for businesses in 2021. Their ranking is as follows:

1. Massachusetts
2. California
3. Washington
4. Colorado
5. Idaho
6. Delaware
7. Connecticut
8. Utah
9. Georgia
10.  Rhode Island

In fact, it’s worth asking if a list of “Best States for Business” is even meaningful. Perhaps questions that hone in on a specific industry, rather than a one-size-fits-all approach, is better. For instance, the financial site the Fool lists its Top 10 States to Start A New Business, which looks at categories like the tax climate and wages, yes, but also categories like the number of businesses that are still around after five years.

In that list, you’ll see that Texas is in the middle of the pack, and California doesn’t make the Top 10. 

1. Montana
2. South Dakota
3. Florida
4. Texas
5. Idaho
6. Utah
7. Arizona
8. Oregon
9. Wyoming
10. Nevada

The bottom line:  everyone loves a good listicle, but when it comes to figuring out what state is best to start a business, there are no easy answers. It is probably better to ask, “What state is right for my business?”