California Has Nation’s Second-Worst Business Tax Climate, Report Finds

California has the second-worst business tax climate in the nation, topping only New Jersey, the Washington, D.C.-based Tax Foundation reported September 26. California’s tax climate has declined from third-worst in the past several years.

“Taxation is inevitable, but the specifics of a state’s tax structure matter greatly,” the report stated. “The measure of total taxes paid is relevant, but other elements of a state tax system can also enhance or harm the competitiveness of a state’s business environment. … The states in the bottom 10 tend to have a number of afflictions in common: complex, nonneutral taxes with comparatively high rates.”

The rankings are based on each state’s individual income tax, sales tax, corporate income tax, property tax and unemployment insurance tax as of July 1. California’s rank for each component: individual income tax (49th), sales tax (43rd), corporate income tax (31st), property tax (14th) and unemployment insurance tax (17th).

Although the property tax ranking (14th) appears to be a bright spot, it may be artificially high. The Tax Foundation’s rankings do not consider parcel taxes and Mello-Roos taxes, which are property and land taxes that cannot be legally tied to a property’s value, but often are based on parcel characteristics, and in some cases, may equal or exceed a property owner’s ad valorem tax. Parcel taxes are imposed locally by the state’s 58 counties, 432 cities, and more than 3,400 special districts, and are unique to California.


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