And besides, the reason so many startups go out to California is a larger tech talent pool. California has a lot of universities with excellent tech programs, very favorable laws and protections for tech workers, and very reasonable taxes for tech workers.
Incorporate wherever you want, your employees are going to look at the legal issues with working wherever you are. If your office is in a state that honors no-compete clauses, many people simply will not work there no matter how much money you offer them. Likewise, we've all got to pay our own private income taxes, and I'm not a big fan of New York's local taxes when your income rises above a certain level.
As far as I can tell, a few notable east coast bloggers are trying to spearhead a movement to call the East the new West for tech, and by and large it's failing because the reality is that despite the overhype and stiff competition, your engineers know they've still got a better shot in the Valley and surrounding areas than basically anywhere else in the country.