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If a new company wants to establish in the US, with lots of branches all around the country, is it a matter where (in what state) they register their company, in regard to tax and other costs?

For example, I saw news about Musk moved to Texas to save $2.5B/year on tax and this came to my mind to ask this question.

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    If you can save$2.5B, then it clearly matters.
    – minou
    Aug 24, 2022 at 16:48
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    It's Musk saving on tax, not Tesla. California has state income tax at about 10% rate, Texas has none.
    – littleadv
    Aug 24, 2022 at 17:05
  • @littleadv: So the income tax depends on where the payer lives, not where the income source company is placed?
    – GoodMan
    Aug 25, 2022 at 2:36
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    @GoodMan "income source company"? That's a legal term I'm not familiar with. Musk's income is from capital gains (appreciation of his shares of TSLA). Capital gains are taxed based on where the taxpayer lives.
    – littleadv
    Aug 25, 2022 at 3:05
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    @GoodMan that's what residency determination rules are for, and that's why Musk is moving the HQ of his company and relocating bunch of people across the country - all to save on his personal taxes. When the amounts are so high, both sides are very much incentivized to prove their points, CA is not going to give up that easily and Musk will have an army of lawyers fighting the FTB for every dime and nickel he's trying to save. I hope he loses that fight.
    – littleadv
    Aug 25, 2022 at 6:07

1 Answer 1

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The choice of headquarters location has several consequences, but just to clear some things up about Tesla:

  • The company (like most large companies) is actually registered in Delaware, which has advantages not related to taxes (court structure, expertise, etc.)
  • Corporate taxes are highest at the federal level. States can have corporate taxes too, although Texas does not.
  • For Musk personally, residing in Texas has huge income tax benefits as Texas has no individual income or capital gains taxes - they make up for it in property and other taxes. That's probably where the "$2.5B in tax savings" is coming from.

So the choice to move the headquarters to Texas likely benefits Musk more financially that the company, but also likely has other advantages for the company other than taxes.

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  • So the income tax depends on where the payer lives, not where the income source company is placed?
    – GoodMan
    Aug 25, 2022 at 2:43
  • Also I like to know more about other advantages if they relate to financial things.
    – GoodMan
    Aug 25, 2022 at 2:45
  • @goodman. State income tax may by applied where the work is done, or where you live. It depends on the states involved. The issue is reciprocity. Capital gains taxes are based on where you live. People have capital gains unrelated to the income from their job.
    – mhoran_psprep
    Aug 25, 2022 at 10:45
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    @GoodMan I'd just be speculating about other advantages, but I suspect payroll costs, regulations, proximity to other departments (e.g. the new "giga" plant), ease of travel, etc would all be factors. What I mean by that is I highly doubt the move was just about saving taxes for Musk.
    – D Stanley
    Aug 25, 2022 at 13:14

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