It's not the personal income tax

Why do some companies choose to locate their businesses  in Texas rather than Oklahoma? During the first two meetings of the Task Force on Comprehensive Tax Reform, co-chair Representative David Dank has stated repeatedly that the absence of the personal income tax accounts for the cases where Texas wins out in relocation and investment decisions.

Finding hard evidence to support his case, however, has proven elusive. At a recent Task Force meeting, Wes Stucky, CEO of the Ardmore Development Authority and a widely respected leader in the economic development field, spoke of his long-standing efforts to bring investment and jobs to Ardmore. Stucky told the Task Force:

For 24 years, I’ve been conducting interviews with executives of companies that we tried to recruit to Ardmore that ended up locating elsewhere. Not once in all those years did a company that rejected Ardmore base its decisions on taxes.

Chairman Dank brought up the case of oil companies such as Conoco and Phillips Petroleum that moved their headquarters from Oklahoma to Houston in recent decades. According to the Tulsa World:

Dank in particular pressed Stucky on the matter, asking why many energy companies have moved their headquarters to Houston in recent years. Dank suggested that it was because top executives did not want to pay personal income tax. Stucky said the moves had more to do with “excellence” and Houston “being the center of the oil industry.”

Stucky’s assessment corresponds with the explanation of the oil company executives themselves. In 2001, Phillips Petroleum, then based in Bartlesville, announced a merger with Houston-based Conoco, Inc., with the new company’s headquarters to be located in Houston. Phillips President Jim Mulva stated:

I will tell you that state income tax had absolutely no impact in terms of the decision of merging the company and where the corporate headquarters is located.

Here is how Mulva explained the decision:

Mulva said the merger “could not happen” unless the headquarters moved from Bartlesville to Houston.

Houston “is viewed as the — almost the world capital for the oil companies, and to some extent also for petrochemical companies. The service industries are there . . and it would be most difficult from the Conoco perspective to be moving the headquarters back.

Being situated in an industry hub will matter for oil companies, as it will for high-tech companies drawn to Silicon Valley or financial companies based in New York. At the same time, many other factors, including proximity to markets, a skilled workforce, cultural amenities, ease of airline travel, climate, targeted business incentives, and the full range of business operating and production costs will influence where companies decide to base their headquarters and create jobs. Substantial economic research on what drives company location decisions consistently ranks taxes as among the least significant considerations.

At the same meeting, former House Speaker Chris Benge, now serving as Vice-President of the Metro Tulsa Chamber of Commerce, stated:

If our ability to educate and train employees for a 21st century economy is damaged through lack of funding, if we can’t maintain our roads and bridges, strong health care system, robust research and technology infrastructure, safe streets, etc., then the benefits of a reduction in the income tax rates may be limited.

In the competition with Texas and other states to attract businesses, Oklahoma is going to win some and lose some. Making sure that we have a quality workforce, infrastructure, health care system, and overall favorable business climate is a far more sensible strategy to generate wins than doing away with the personal income tax.