As a company, we’ve been looking at expanding our footprint to the Western United States. Some reasons for it are purely selfish, a few are health related and some of the reasons deal with doing business with organizations that are two or three hours different in terms of time with the Eastern United States.
I want to start writing a few blog posts about this endeavor. We’ve been looking at opening an office in Tucson, AZ and even though the geography is strikingly beautiful, the realities of opening a business in Tucson is strikingly difficult.
Tucson is not very business friendly.
True. This city is known for its open hostility to businesses. This is well known out in the Western United States but not so much back in the Midwest or Eastern U.S. Tucson is basically a resort town with a few limited large businesses. The large employers seem to be University of Arizona, Raytheon (a missile systems developer), a medical complex and City and County Government. Note how many of the mentioned are either government entities or are attached to government funding. In other words, they tend not to create or produce capital but instead consume capital.
University of Arizona (UA) is probably the jewel in the city. But what is sad is that the vast majority of students who graduate from UA, cannot find a job in Tucson. They are forced to look for work in Phoenix, Los Angeles and the State of Texas. I guess there’s nothing smarter than spending the money to educate them and then throwing them out of the nest to seek work and develop products elsewhere!
Taxes are a mess. We still have not figured out what kind of states sales tax we would have to charge if we opened a business in Tucson. Each jurisdiction has a different sales tax rate and figuring out what your jurisdiction is (Tucson incorporated, unincorporated, are you north or south of River Road) is really tough. We’ve called twice and gotten two different answers. It also seems that sales taxes or Transaction Privileges Tax can change from month-to-month. If you go to the Tucsonaz.gov website, you will see tax tables for February and March.
As a small business or mid-sized business, we don’t want to spend our time trying to figure out how much the privilege costs us to sell a product from month-to-month. Also, when you compete nationally as well as globally, taxes have a big impact on your customers. Taxes have to be passed through to the customer if you want to survive.
The Transaction Privilege Tax Sales taxes is very high. Local municipalities add their own tax on to the state tax and when combined can be astronomical! In Tucson, you pay 8.1% sales tax. Probably one of the highest in the country.
There’s also a huge disconnect between the politicians/bureaucrats and the small business owners here in Tucson. We’ve talked to lots of small and mid-sized business owners and upper level managers, and just about every person we’ve talked with has felt that city and county government is a significant hindrance to the success of Tucson and the business economy.
One thing that I can’t stand is for folks to criticize and not offer suggestions or some possible solutions to the issues. So here are a few to start the discussion.
Suggestions for Improvement
The City has to become more business friendly. They are not going to be able to grow or even sustain the current economy unless they can bring in business from the outside. They cannot grow the economy to the level they need by developing the existing businesses.
Create a One Stop Business Center where potential companies can go to get the correct answers on what taxes they have to pay, the amount of sales taxes they have to pay, the licensing that is required, and other filing requirements. The city and county should set up a little store front that is in conjunction with companies like Comcast, Bank of America, the phone company, Office Max/Office Depot where there is an all-in-one business center. Here you can find out what kind of licensing, permits and taxes that you will be required to attain and pay. The private sector companies can have a small footprint to help new and even existing companies find out about services that they will most likely need and to sign them up. What company doesn’t need internet and banking services? We have not been able to locate such a source and as such, feel that the risks are quite high that we would miss something and be liable for fines and penalties.
Tucson should take a look at neighboring communities and see what is working for them. We see a huge difference between Oro Valley or the city of Marana in contrast to Tucson in terms of business climate and health. We have been steered many times to these communities by realtors, lawyers and bankers as the place you want to be in locating a small or midsized business.
Accentuate the positive. Craft a national story about how the educational resources (UA) is an asset to growing technology businesses. Talk about what kind of research is being done at the local level and by small businesses in the area. Talk up success stories. Discuss the low cost to lease office space.
Advertise in major publications like Fortune, Forbes and Bloomberg about Tucson and the business opportunities and the resources available in Tucson.
Do something about the sour state of education in the area. Elementary and High School is poorly funded. Same goes for community colleges. As a matter of fact, we just learned that the state of Arizona has stopped all funding of community colleges except for one county. As a business owner, I don’t want to have pay to attract talent from other states and help pay relocation costs. Support for education has to become a priority over support for state prisons.
Take advantage of the contacts and expertise of the Snow Birds and other wealth that is located in the Catalina Foothills. There is some amazing wealth in the Foothills. We’ve met folks who have run and sold large businesses who spend time in the Foothills who are worth tens and hundreds of millions of dollars. They grimace and grin almost as if it’s sport at the missteps that the city and county have taken in the last decade or two as it pertains to creating a viable and sustaining local economy. These folks are amazingly well networked and have the ability to move businesses here as well as encourage businesses to locate here.
Poach businesses from other States. Property taxes are very low in Arizona. Businesses are sensitive to labor rates, real estate costs, property taxes and educational resources for their employees as well as for the growth of the business. Tucson needs to set up a highly visible group that does nothing but pursue large companies to relocate to the area. Start raiding California for the technology companies by offering tax incentives as well as building an environment for cross-pollination of ideas, networking, concierge services for new businesses, free site location services, seven day permit approvals, etc…
The two questions I have to ask Tucson is “Does a Liberal leaning political government mean that it has to be at odds over the creation of jobs or even synonymous with the lack of jobs? Is there a conflict over creation of wealth by attracting small and mid-sized businesses and does that inherently mean that there’s an ever expanding gap of those who have vs. those who have not?” It doesn’t appear to be that way for liberal cities like San Francisco or Seattle, but it does seem that way for Tucson.
About the author: Phil Rack is President of MineQuest Business Analytics, LLC located in Grand Rapids, Michigan. Phil has been a SAS language developer for more than 25 years. MineQuest provides WPS and SAS consulting and contract programming services and is a authorized reseller of WPS in North America.