In the restaurant industry, the cost of opening a new establishment is closely tied to the state's minimum wage rates.
Recent research by Restaurant Furniture highlights this trend, pinpointing the most expensive states for restaurant openings. The study considered various factors, including food permit costs, liquor licensing fees, sales and corporate taxes, rent, and, notably, the minimum wage levels.
California, New York, Colorado, Illinois, Arizona, Alaska, New Jersey, New Mexico, Hawaii, and Washington are leading the list of the most expensive states.
Notably, each state enforces a minimum wage ranging from $12 to $15.74, significantly impacting the overall cost of starting a restaurant. This correlation sheds light on restaurateurs' financial challenges in regions with higher labor costs.
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Surprising Exclusions in Most Expensive States for Restaurants
Despite its small size and the nation's highest minimum wage of $16.28 per hour, Washington, D.C. surprisingly did not appear on the list of most expensive states for opening a restaurant.
This revelation comes as an anomaly given D.C.'s economic profile. The absence of the top three states with the highest state sales tax is equally intriguing.
According to the Tax Foundation, Tennessee, Louisiana, and Arkansas, sales taxes of 9.548%, 9.547%, and 9.44% were not featured in Restaurant Furniture's study. In contrast, states like Washington, California, and New York, which rank high for sales tax, did make the list.
Meanwhile, Alaska, with the nation's lowest sales tax, and Hawaii, ranking 45th in this category, were also included.
These rates were a factor in the rankings on the corporate tax front. New Jersey, with the highest corporate tax at 11.5%, Illinois at 9.5%, and Alaska at 9.4%, were noteworthy mentions. California also had the seventh-highest corporate tax rate at 8.84%.
Nick Warren, the head of e-commerce at Restaurant Furniture, emphasized the complexity of the restaurant industry in these states. "The states listed in the top 10 combine high living costs, competitive markets, and distinct challenges, impacting the expense of starting and running a restaurant," Warren stated. He advises aspiring restaurant owners to thoroughly analyze these aspects and perform extensive market research before entering the competitive culinary scene of these states.
High Rents Challenge Restaurateurs in the Top States
In the top 10 most expensive states to open a restaurant, Hawaii and New York stand out for their steep rental costs. Restaurant spaces in these states demand more than $66 and $69 per square foot annually, making them some of the priciest locations for restaurateurs.
On a brighter note, certain states are taking steps to ease the financial burden on those looking to start a restaurant. Washington, for instance, offers a financial reprieve by not imposing corporate taxes. New Mexico follows a similar supportive approach, eliminating fees for the annual renewal of food permits.
Additionally, California provides relief by waiving the fees for renewing annual liquor licenses, a significant saving for restaurant owners in the state. These measures show a commitment to supporting the restaurant industry by reducing some of the financial challenges new business owners face.
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