Business & Economy

Why it's getting more expensive to do business in California

The study ranked the 20 most expensive cities to do business in the West, taking into account both taxes consumers pay and ones that companies pay directly, such as property taxes for their offices.
The study ranked the 20 most expensive cities to do business in the West, taking into account both taxes consumers pay and ones that companies pay directly, such as property taxes for their offices.
Mae Ryan/KPCC

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California has long been known as an expensive state to do business, but it's about to get even more pricey, according to a report released Monday from Claremont McKenna College's Rose Institute of State & Local Government.

Claremont McKenna's 21st annual "cost of doing business" survey ranks cities in the Western U.S. based on how expensive they are for business owners. Larry J. Kosmont, president & CEO of Kosmont Companies, which conducted the study, said California business owners should expect to pay more taxes in the coming years, and some will incur additional costs because of environmental regulations.

The report pointed to the November election, where 427 local tax and bond measures appeared on ballots up and down the state. Voters approved 343 of them, according to the report. Some of those measures raised sales taxes, which effectively makes merchandise more expensive. Other measures raised parcel taxes, which companies pay directly.

“It’s just a convergence of everything, new taxes added and the extension of prior taxes that were high in the first place," said Larry J. Kosmont, president & CEO, Kosmont Companies, who conducted the study. 

The study ranked the 20 most expensive cities to do business in the West. They include 12 California cities:

Kosmont said less prosperous cities such as San Bernardino and Inglewood made the list because they have raised taxes to pay for city services.

Only two California cities – Brea and Lake Forest – made the list of least expensive cities to do business in the West. Both are in Orange County and have relatively low sales and property tax rates.

In addition to new taxes, Kosmont said businesses will face new costs due to environmental laws. SB 32 mandates statewide greenhouse gas emissions be reduced. SB 350 requires 33 percent of energy in buildings over 50,000 square feet come from renewable sources.

"The state may achieve sustainability and greenhouse gas reduction, but it will come at a cost to all sectors," said Kosmont.