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California's Business Tax Ranking Continues Its Poor Showing: 48th

By George Economides - Publisher

October 14, 2013 – For the third consecutive year, California ranks 48th out of the 50 states in the “Business Tax Climate Index” prepared by the Tax Foundation. The 2014 Index, released last week, “enables business leaders, government policymakers, and taxpayers to gauge how their states’ tax systems compare,” according to the Index’s authors, Economist Scott Drenkard and Vice President Joseph Henchman.

California beat out only New Jersey and New York in the rankings. These states “suffer from the same afflictions: complex, non-neutral taxes with comparatively high rates,” the authors claim.

Five tax systems are analyzed in the annual report. California ranks 31st for its corporate tax; 50th for its individual income tax; 41st for its sales tax; 16th for its unemployment insurance tax; and 14th for is property tax.

The best (low-tax) states in each of those categories are as follows:

  • Corporate tax: Nevada, South Dakota and Wyoming (each has no corporate tax);
  • Individual income tax: Alaska; Florida; Nevada; South Dakota, Washington; and Wyoming (each do not tax individual income);
  • Sales tax: New Hampshire (five states do not have a general sales tax: Delaware, Montana, Alaska, Oregon and New Hampshire, but all levy gasoline, diesel, tobacco and beer excise taxes);
  • Unemployment insurance tax: Arizona; and
  • Property tax: New Mexico.

The authors state: “The evidence shows that states with the best tax systems will be the most competitive in attracting new businesses and most effective at generating economic and employment growth. Other concerns, such as raw materials or infrastructure or a skilled labor pool, matter, but a simple, sensible tax system can positively impact business operations with regard to these very resources.”

To view the full 56-page report, including the methodology used in ranking states by each tax category, go to: http://taxfoundation.org/article/2014-state-business-tax-climate-index.

The Tax Foundation is a non-partisan tax research group based in Washington, D.C.