Tax havens

The Lone Star State is known for the do-it-yourself gumption that goes along with cowboys and wide open spaces -- and low taxes are part of the package. The Texas Constitution actually forbids an income tax.

"The state has made a concerted effort not to be stringent," says R.J. DeSilva, spokesman for the Texas Controller's Office. "The spirit of entrepreneurship is inherent in the Texas business community."

The Texas economy was largely dependent on revenue from big oil companies in the 1980s. "When the oil industry bust in the 1980s, the state really took a hit," DeSilva says. That made Texas officials more active in encouraging growth across a wide range of industries: "The diversification effort really took off back then."

While the Lone Star State has no corporate income tax, it does have what's called a "gross receipts" or "franchise" tax, charging businesses 0.5% of revenues if they are in retail and 1% of revenues for non-retail businesses. But small businesses are exempt from the franchise tax -- and to help companies weather the recession, the state legislature recently raised the revenue exemption level to $1 million, up from $300,000. The change will take effect in January 2010, according to DeSilva.

Low taxes make Texas fertile ground for sprouting businesses. Kyle Gayler, CFO of Smartfield in Lubbock, says he has found Texas to be proactive in encouraging business growth with other programs as well.

A developer of irrigation monitoring systems, Smartfield applied for and was awarded a Texas Emerging Technology grant, good for as much as $1 million over time, as long as the company stays put in Texas.

"The idea was to identify companies in the technology industry that need those funds to grow and create jobs," Gayler says. -Catherine Clifford

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