Digital Brands Group CEO Hil Davis bluntly told Fox News Digital, “Doing business in California is simply terrible!” It is this sense of frustration that prompted Davis to relocate the company’s headquarters to Texas, 1300 miles away.
Digital Brands Group is a clothing and e-commerce company, which has moved its headquarters to Round Rock, north of Austin, Texas, and has leased approximately 70,000 square feet of warehouse and office space to expand its collegiate sports apparel business.
Davis mentioned that the new facility in Texas is very spacious, and the rental costs are roughly equivalent to those in Vernon, California, about 5 miles south of Los Angeles, where the company was previously located. Lower rent is just one of the considerations.
Davis cited the high cost of living in California, employees’ long commute times, and increasing business costs (including legal fees) as factors. “Putting all these factors together,” he said, “it’s just not feasible or cost-effective, the difficulty is too great.”
At a time when the company relocation is happening, California is facing a more serious issue: whether its cost, tax, and regulatory policies are forcing the businesses and wealthy residents it relies on to leave.
Amidst a proposal to levy a one-time 5% tax on California residents with assets exceeding $1 billion, the related disputes have intensified.
Supporters believe that this tax on billionaires can raise billions of dollars for healthcare and other public programs by requiring the wealthiest residents in the state to pay more taxes. Opponents warn that this move could lead to major taxpayers leaving, taking away future tax revenue.
Democratic Governor Gavin Newsom also publicly opposes the measure, warning it could result in an exodus of wealthy residents and investments from California.
California has already seen a phenomenon of taxpayers and their income leaving. According to the latest data from the IRS, Los Angeles County leads the nation in the number of taxpayers lost: a net outflow of 17,496 taxpayers, resulting in nearly $1.9 billion in lost income.
Population losses are not limited to Los Angeles. Orange County lost 11,618 taxpayers, followed by San Diego County losing 9,401 people, Riverside County losing 8,968 people, and San Bernardino County losing 8,462 people.
Uber co-founder and former CEO Travis Kalanick officially moved to Texas on December 18 last year, emphasizing that he left California before the new tax took effect. If he stayed, once the “wealth tax” proposal comes into effect, he might have to pay around $180 million in wealth tax.
Former PayPal COO David O. Sacks criticized California’s “wealth tax” proposal on social media, calling it a “blanket confiscation of 5% of individual assets.”
Several tech giants, including founders or co-founders of Meta, Google, Palantir Technologies, and Oracle, have chosen to relocate to Florida.
This outward migration may have financial consequences. When taxpayers leave, they take away income, reducing the tax base for the state and local governments, which are the sources of funding for schools, public safety, and infrastructure.
Davis does not anticipate a mass exodus from California and expects the process of migration to be slow and continuous. “I don’t know if there will be that kind of ‘explosive’ exodus,” he said, “I just think it will be more like a continuous ‘leak.'”
California still holds strong appeal. Silicon Valley remains a hub for tech talent and capital, while Los Angeles boasts a wealth of creative industry talent. Davis acknowledges that the “hub” of these industries is difficult to replicate elsewhere.
Despite relocating the headquarters to Texas, the company will still maintain some production business in Los Angeles.
However, Round Rock offers Davis another choice: lower operating costs, a geographically convenient location for shipping to colleges nationwide, and access to Austin’s pool of creative talent. He also mentioned that the approval process for the new facility has been very quick.
Now, employees also face their own choices. Davis noted that some employees are eager to follow the company to Texas, while others, deeply rooted in California, may choose to stay.
As the debate continues in California on how to tax the wealthiest residents, Davis believes that this story is still unfolding, with each chapter featuring specific businesses as the main characters.