State Your Case Many states are luring small businesses with big promises--so what's in it for you?

Bruce Cowan is a California native. He graduated from theUniversity of California, Los Angeles, and started electronics chipand computer products distributing company Acclaim Electronics fiveyears ago in Carlsbad, California.

But his state of mind changed as California enacted legislationhe felt was increasingly anti-business. Eventually, Cowan, 38,reached a breaking point. In November 2003, he moved the20-employee company to Las Vegas. "I'm a political andeconomic refugee from California," says Cowan, who contendsCalifornia has "created a hostile environment towardbusinesses."

"Entrepreneurial refugees" such as Cowan seek greenerbusiness pastures, and many states paint them a pretty picture.Last fall, Oregon's governor sent 250 letters to small andmidsize California companies. Nevada is bombarding California withbillboards and newspaper ads. South Dakota's economicdevelopment site--www.sdgreatprofits.com--lets entrepreneurs compare thestate's tax rates, crime index and educational statistics tothose of other states.

Interstate tug-of-war over companies isn't new--in fact,it's been going on for decades. But the IBMs aren't thecenter of attention anymore. It's become politically attractivefor budget-strapped states to lure nonpolluting, profitableentrepreneurial companies that create jobs locally. Entrepreneurialfirms, meanwhile, are looking for a margin boost and lesspaperwork. "Even a small tax incentive providing a little morecushion here or there can make the difference for a firm,"says Peter Rodriguez, who studies economic development issues andis an associate professor of business administration at theUniversity of Virginia in Charlottesville.

Somer Hollingsworth spends his days courting entrepreneurs asCEO of the Nevada Development Authority (NDA), a nine-person LasVegas office that sells out-of-state companies on Southern Nevada.NDA generates comparison data within 24 hours of a company'sinquiry, and it's working: Between 2003 and 2004, 38 Californiacompanies relocated or expanded operations to Nevada, creating1,500 new jobs. "California has been a happy hunting groundfor us," Hollingsworth says.

Charleston, South Carolina, sells entrepreneurs on incentivessuch as waived fees for building renovations. "I'm veryoptimistic, very bullish," says Ernest Andrade, executivedirector of the Charleston Digital Corridor (CDC), an economicdevelopment initiative launched in 2001.

CDC has attracted 22 companies since 2001, including Digital LifestyleOutfitters, a 4-year-old firm that produces computer anddigital music player accessories, with annual sales of $20 million.The company relocated its eight-employee headquarters from Raleigh,North Carolina, to Charleston in August. Its 33-employee warehouseand distribution center stayed in Durham, North Carolina.

The move was mostly about life-style for CEO Jeff Grady, 36. Hetalks about the thrill of working in a vibrant downtown, then goingboating at the end of the day. He also thinks the move increasedthe company's visibility. In Raleigh-Durham, "you caneasily get overlooked," he says.

For Cowan, Nevada's tax and regulatory structure was the bigdraw. The state doesn't collect corporate taxes, franchise,capital gains or inventory taxes. Workers' compensation costsin California are at least twice those in Nevada. The move hassaved Acclaim Electronics 40 percent in annual operating costs.

But a move could mean rebuilding relationships from scratch.Cowan lost a few employees in the move. Grady had to adjust to asmaller city with fewer service providers to choose from.

Before moving, ask yourself hard questions, Rodriguez advises.Will moving solve problems, or simply mask strategic decisionssurrounding the product or service? Are the hidden costs worth thetax savings? How will the company communicate its brand andreputation in a new place?

As far as reputation goes, California has work to do. BarbaraHayes, executive director of the Sacramento Area Commerce and TradeOrganization, thinks California's business climate isimproving with Gov. Arnold Schwarzenegger in office."There's a very supportive environment in the state ofCalifornia for entrepreneurs," Hayes says.

But Cowan isn't California dreaming--far from it."You'd have to be brain damaged to go back," he says.Looks like what happens in Vegas stays in Vegas, at least fornow.