Does Massachusetts Hate Business?

in Entrepreneurship, Faculty, Faculty in the News, News
June 19th, 2013

CEO magazine says yes, SMG’s Vinit Nijhawan says no

Excerpts from BU Today:

A generation after Massachusetts was dubbed “Taxachusetts” for its putative hostility to business, the charge has been resurrected in the magazine via its latest state rankings, determined by a survey responded to by 736 CEOs. The commonwealth was rated 47th among states for the warmth of its business climate, slightly better than New York, Illinois, and dead-last California. Texas won the best-of designation.

“If I were designing Hell for a company, I couldn’t do as good a job as Massachusetts has,” one anonymous CEO told the magazine. Another groused that the company was moving operations out of Massachusetts and three other states and firing employees there, as “the regulatory and tax environment has become untenable.” The magazine itself slammed Governor Deval Patrick’s plans to raise income taxes and eliminate corporate deductions (coupled with a cut in the sales tax), proposals that legislators may scale back.

We ran the matter by Vinit Nijhawan, managing director of BU’s Office of Technology Development and a School of Management lecturer. He has started or served on the boards of about a dozen technology companies since coming to Massachusetts from Canada a quarter century ago. “The biggest one grew to 400 people worldwide,” he says, “and it had about $60 million in sales.”

BU Today: California and Massachusetts are hubs for technology companies. If theyre so awful for business, why would CEOs cluster in those states?

Nijhawan: It’s really clear why: because a lot more emphasis is placed in those states on human capital and lifestyle. If you’re starting a technology company, you have enormous access to technology and people in those places, more than anywhere else. That suggests that the CEOs they interviewed were from bigger companies, especially companies in low-margin commodity markets, like retail. There, the difference between having a 6 percent state sales tax versus a 3 percent tax probably makes a difference to your bottom line, because your margins are thin.

But retail’s very complex, because your outlets could be all over the country. Your income gets taxed differently if you’re here, so who gets affected? Basically, in-state shareholders and management. In the past 30 years, CEO salaries have increased dramatically. So I could see CEOs getting a big personal hit if they were here, versus, say, New Hampshire, which has no sales or income tax. But people aren’t going to move out of Massachusetts to Texas because of sales or income tax.

Read the full article on BU Today.