you confirmed the name was not used by checking your state website search and no one is using "skateboard apparel" in your state
Registering a business name is done on the state level. But trademarks, especially if you intend to sell your products beyond your own state, are done on the federal level. So you probably should have done a broader search right from the beginning. Searching the USPTO website should have been a top priority.
then you find a business called "sk8board apparel" this business is on the west coast you are on the east coast
As mentioned above, trademarks are registered on a federal level. So it doesn't matter which coast you are on. If your brand names are too similar, it could be a legit problem at some point. The USPTO identifies trademarks based on sight, sound and meaning. In your example of SKATEBOARD APPAREL versus SK8BOARD APPAREL, there may be a slight difference in sight; but the sound and meaning of the two marks are identical. That will be plenty of reason to cause confusion and the USPTO will likely not allow both marks to be officially registered.
neither are registered or trademarked yet
"First use in commerce" is what defines ownership a trademark. If the other company can prove first use of their mark before you, they will be granted ownership of the trademark (even if you are first to actually apply for a trademark).
should you stop what you are doing and find a new brand name
Yes, you should probably stop and find a new original brand name.
can two business have the same name in the same industry?
Two businesses - in different states - can have the same "corporate name" in the same industry. But "brand names" or "trade names" are different. Technically, you both can operate independently and never have any issues. But if one of you take legal issue with the other, only one of you will be granted the legal rights to the trademark. And as mentioned, first use in commerce will likely win out.
I am in the middle of launching my brand which is a word spelled the correct way and recently I stumbled onto a business selling low end quality designs for the same niche with the same word spelled different
The spelling difference would have to so unique that there would be no confusion between the two marks. In your example of SKATEBOARD APPAREL versus SK8BOARD APPAREL, the two marks would likely be considered too similar.
while I know I can design and market better they are already established so will this cause me issues later when I go to register/trademark my brand?
The USPTO doesn't care who designs or markets better. They only care who started using the mark first. So if the other company is already established, it's best to steer clear of using the mark. If the other company has not applied for a trademark, technically, you could go ahead and apply for a trademark registration. You may not have any problems because the USPTO will not find any issues based on any existing trademarks. But if the other company ever finds out about you and wants to take action, they can. And if they can prove first use, they will likely win ownership of the mark. If it turns out that the other company does in fact have an existing trademark, then you will likely have problems trying to register your trademark from the beginning. Either way, it's best to just come up with a new name.
Hope this helps and good luck!