This. I run a sole proprietorship LLC for platform engineering consulting services.

I’ve had CA companies give me a hard “no” until they learned I was incorporated in AZ, living in AZ, and that a majority of the work would be performed remotely from AZ.

As I understand it (second hand from these companies) they open themselves up to liability under California labor law if it’s later determined that contracting/consulting work was “misclassified” and “should have been employment.”

I don’t personally know the reason for this, or what the liability is, but it seems like some companies are worried about having consultants/contractors later reclassified as employees. Me being in AZ has been the turning point for closing contracts though.