Hil Davis, CEO of Digital Brands Group, has relocated his company's headquarters from California to Round Rock, Texas, citing the prohibitive costs associated with doing business in the Golden State. The apparel and e-commerce company leased approximately 70,000 square feet of space in Texas, a facility that Davis noted costs about the same as their former office in Vernon, California, near Los Angeles.
Davis highlighted California's high cost of living, lengthy employee commutes, and the increasing expense of defending against lawsuits as key factors in his decision. "You start to add all those things up," he stated. "It doesn’t work. It doesn’t make sense. It’s too hard."
This move occurs as California grapples with its high costs, taxes, and regulations potentially driving away businesses and affluent residents. A proposed one-time tax of up to 5% on Californians worth more than $1 billion is central to this debate. Proponents argue the tax could generate billions for public programs, while opponents caution it might prompt major taxpayers to leave, taking future tax revenue with them.
California has already experienced significant taxpayer migration. IRS data indicates that Los Angeles County saw a net loss of 17,496 tax filers who relocated to other states, taking nearly $1.9 billion in income with them. Orange County, San Diego County, Riverside County, and San Bernardino County also recorded substantial net losses in tax filers.
The departure of taxpayers can diminish the state and local tax base that funds essential services like schools, public safety, and infrastructure. Davis anticipates this trend will continue as a gradual "leak" rather than a sudden exodus.
Despite the challenges, California retains significant economic anchors, including Silicon Valley's draw for tech talent and capital, and Los Angeles's robust creative workforce. Davis acknowledged these industry centers are difficult to replicate elsewhere.
Digital Brands Group will maintain some production operations in Los Angeles while its headquarters are now in Texas. Round Rock offered Davis lower operating costs, a more central shipping location for a company serving universities nationwide, and access to Austin's talent pool. The permitting process for the new facility in Texas was also reportedly swift.
Some employees are choosing to move with the company to Texas, while others with deep roots in California may remain. Davis indicated that the full impact of these decisions is still unfolding, company by company.