Tesla CEO Elon Musk recently predicted that Austin, Texas is “going to be the biggest boom town that America has seen in 50 years, at least—a megaboom.” Musk chose Austin last year as the location for Tesla’s $1 billion Cybertruck factory and has moved to Texas himself. He’s not alone—companies across the nation are making the move to the Lone Star State.
“I have been on the phone on a weekly basis with CEOs across the country, and it’s not just California,” Texas Governor Greg Abbott told CNBC in December 2020. “They are looking for a state that gives them the independence, the autonomy, and the freedom to chart their own course.”
Texas has long offered a business-friendly climate—no corporate income tax and no personal income tax, along with a highly skilled workforce, easy access to global markets, robust infrastructure, and predictable regulations. But the number of companies relocating to Texas has accelerated in recent months, due in part to the coronavirus pandemic.
So what does it take to move an electric car manufacturing company from California to Texas?
The site where Tesla is building its factory consists of about 2,100 acres of land east of the Austin-Bergstrom International Airport, with about two miles of exposure to Texas’ Colorado river—which suggests the company may need to register with or obtain permits or licenses from the Texas Commission on Environmental Quality.
Tesla will need to be licensed by the TxDMV to manufacture new motor vehicles for sale in Texas. Texas law prohibits manufacturers from selling new motor vehicles directly to Texas consumers. Tesla has repeatedly tried and failed to convince Texas lawmakers to lift the dealership prohibition, most recently during the 2019 legislative session.
Tesla will have to obtain a Texas Sales and Use Tax Permit from and pay annual franchise taxes to the Texas Comptroller. The Comptroller serves as Texas’ chief financial officer, acting as tax collector, chief accountant, chief revenue estimator and chief treasurer for all of state government, in addition to administering a number of other programs. Tesla will also have to pay local business and property taxes, which run through the county’s appraisal district and tax assessor-collector. In the November 2020 election, Travis County voters approved tax breaks for Tesla worth at least $14.7 million.
Since Tesla will be employing people working in Texas, it has to register with the Texas Workforce Commission, the state agency charged with administering unemployment benefits. Employer-paid state unemployment taxes and reimbursements pay for state unemployment benefits.
There is no general business license in Texas, but the state requires individuals to obtain licenses for a variety of trades and professions. Engineers working for Tesla in Texas will need to be licensed by the the Texas Board of Professional Engineers. Tesla lawyers moving from California to Texas will have to be admitted to practice by the State Bar of Texas. If the Tesla campus employs massage therapists, dietitians, barbers, or cosmetologists for their staff to enjoy, those professionals will need to be licensed in Texas, too.
Physically relocating your company to another state doesn’t automatically change your state of incorporation/formation, so Tesla will have to consider whether it wants to change its state of formation. If the company doesn’t want to change its state of incorporation/formation, it will need to register with the Texas Secretary of State to do business in Texas. This is known as foreign entity registration. To change a corporation or LLC’s state of formation, there are at least three options: (1) dissolve the out-of-state entity corporation or LLC and form a corporation or LLC in Texas; (2) do a reorganization, where a corporation or LLC is formed in the new state and the out-of-state entity corporation or LLC is merged into it; or (3) convert or “re-domesticate” the out-of-state entity to a Texas entity of the same type (the law of your “home” state must permit conversion).
While Texas has a business-friendly climate, companies are still subject to extensive regulation at the state, county, and local levels and thus should consult local counsel and advisors to ensure they are in compliance.
Cobb & Counsel are Texas Government Lawyers, and we have extensive experience in regulatory compliance, risk analysis, and business & professional license/permit defense. If you are considering moving your company to Texas and need help navigating Texas’ complex regulations and requirements, contact us today.