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Crossing the Line: Would Oregon or Idaho be a better fit for your business? |
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Written On: May/June 2005 |
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Written By: by Ron Dalby |
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Editor’s Note: As this issue goes to press, the Washington Alliance for a Competitive Economy is putting the finishing touches on a report tentatively titled Across State Lines. This is a comprehensive three-part review of the costs of doing business in Washington, Oregon and Idaho. AWB received a preview of portions of this report to review in this issue. The complete report will be unveiled on May 25 at the AWB Spring Meeting in Spokane.
Are you better off setting up a business in Washington or a neighboring state? It might well depend on what kind of business you envision and where in relation to Washington’s borders you want to locate. These are just two of the conclusions from a competitiveness report soon to be issued by the Washington Alliance for a Competitive Economy.
In general terms, the report indicates that Washington’s tax structure tends to cost businesses more than either Oregon’s or Idaho’s. However, a high-margin, low volume business may be better able to survive Washington’s gross receipts tax and might actually be better off based in Washington. Low-margin, high-volume businesses, on the other hand, will almost certainly do better in Oregon where the corporate income tax offers a better deal.
Nothing, though, is as simple as it seems, according to WashACE.
Legislatures
Perhaps the most appealing factor in where to locate a business was best described by C.J. Buck, president and CEO of Buck Knives, in a January 2003 article published by the Spokane Spokesman Review. He said: "What tipped the scales to Idaho was the conservative, business-friendly legislative environment. It was really close between Post Falls [Idaho—just outside of Spokane] and Bend [Oregon].We just had more faith in the Idaho Legislature."
Buck later expounded on this in Newsmaker Q&A on Business Week Online in late 2003: "e looked at the Pacific Northwest as a matter of lifestyle. In the end, [it was] the legislative climate in Idaho, [which] is incredibly business-friendly. There is an understanding that making life easier on local business benefits the state...so the Legislature in Idaho is not passing onerous business legislation."
WashACE presents several other anecdotes like this one in the report as well as a large collection of facts and figures to bolster the case that Washington is sometimes its own worst enemy when it comes to luring new business to the state or keeping existing businesses from moving out of state.
The report cites the Milken Institute Cost of Doing Business Index which currently ranks Washington as the eighth-most-expensive state in the nation to do business. Idaho comes in at 46th and Oregon is 30th. Of the five factors considered in making this determination—wages, taxes, cost of electricity, industrial rent and office rent—Washington exceeds the U.S. average on four of the five, scoring lower only on electricity, long Washington’s biggest plus for business. However, electric rates are rising in Washington of late, and how long low electricity costs remain a benefit may be a subject of interest to all businesses in the state.
Besides the cost of doing business, the WashACE report details two other areas where Washington appears to be at a disadvantage—incentives and attitudes.
Incentives
For nearly a year and a half, starting in August 2003, Spokane, Wash., and Coeur d’Alene, Idaho were competing for Empire Airlines, which operates and services a fleet of airplanes. The company wanted to build new and larger facilities to expand their maintenance and conversion work.
Washington and Spokane working together put together a financing plan offering a $200,000 in grants and $3 million in low-cost loans. "It was the best deal Washington could have offered," said Dave Bruckardt, an executive at Sterling Savings Bank and a member of the Spokane Airport Commission, "but it wasn’t good enough."
Idaho won, in part by offering $5.8 million in grants, including the cost of expanding a runway at the Coeur d’Alene airport, plus access to low-interest loans.
Attitudes
Washington’s attitude toward small businesses was a factor when Liz Cosko moved her business, Potting Shed Creations, from Pullman, Wash., across the border to Troy, Idaho. Certainly, she said, she liked being out from under Washington’s convoluted B&O tax and high minimum wage—as well as she appreciated the incentives, including a low-interest loan, that Idaho offered, but some intangibles came into play as well.
"It seems Washington is against small business," Cosko told WashACE. "In Washington I’m considered insignificant with my business size [21 employees]." Idaho, on the other hand, met her with enthusiasm in addition to the incentives.
Regardless of whether it’s attitudes, costs or incentives, a lot of what weighs on decisions on where to locate comes down to the actions of Washington’s Legislature, which, as this is being written, is actually undoing some of the business-friendly legislation of the recent past.
Mark Sonderen, president of Sonderen Packaging in Spokane, believes Spokane to be, "one of the greatest places in the world to live," but he also believes Washington has become an increasingly difficult place in which to do business.
Sonderen Packaging, according to the WashACE report, has been at break-even for five years. In Idaho that means there would be no income tax liability. In Washington, the B&O tax, based on gross receipts, applies even when you are not profitable. Sonderen is actively considering moving a few miles across the border to Idaho, well within commuting range for his employees.
Policy swings by Washington’s Legislature cause Sonderen to question the commitment of Washington’s leadership to job creation. People tell him not to overreact, that in Washington the pendulum always swings back, sometimes favoring business, sometimes not. "In Idaho," he responds, "the pendulum doesn’t swing. You don’t have these large shifts in policy."
Thus border-county businesses can often find cost relief by moving a few miles east into Idaho or south into Oregon, not exactly a good thing for Washington. Each business that moves across a state border costs the state jobs, tax monies and credibility as a good place to do business.
WashACE sums the report up rather neatly at the end of the Idaho section when they write: "Many of the decisions affecting businesses throughout the state are being made by Puget Sound-area legislators meeting in Olympia. They should realize that their actions have consequences that reverberate down the line."
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