The Facts on California’s Business Tax Climate for 2014

According to The Tax Foundation’s 2014 edition of the State Business Tax Climate Index, which enables business leaders, government policymakers, and taxpayers to gauge how their state’s tax systems compare, the State of California ranks 48 out of 50 with the nation’s third worst tax climate for it’s businesses.  Each state’s combined tax ranking can be seen in the following map.  The top 10 best are colored in gray.  The top 10 worst are in dark blue — California ranking #48 out of 50.

The 10 best states in this year’s Index are:

1. Wyoming
2. South Dakota
3. Nevada
4. Alaska
5. Florida
6. Washington
7. Montana
8. New Hampshire
9. Utah
10. Indiana

The absence of a major tax is a dominant factor in vaulting many of these ten states to the top of the rankings. Property taxes and unemployment insurance taxes are levied in every state, but there are several states that do without one or more of the major taxes: the corporate tax, the individual income tax, or the sales tax. Wyoming, Nevada, and South Dakota have no corporate or individual income tax; Alaska has no individual income or state-level sales tax; Florida has no individual income tax; and New Hampshire and Montana have no sales tax.

But this does not mean that a state cannot rank in the top ten while still levying all the major taxes. Indiana, which ousted Texas from the top ten this year (see p. 5), and Utah have all the major tax types, but levy them with low rates on broad bases.

The 10 lowest ranked, or worst, states in this year’s Index are:

41.  Maryland
42.  Connecticut
43.  Wisconsin
44.  North Carolina
45.  Vermont
46.  Rhode Island
47.  Minnesota
48.  California
49.  New Jersey
50.  New York

The states in the bottom 10 suffer from the same afflictions: complex, non-neutral taxes with comparatively high rates.

As noted above, the states were ranked on the map for their overall tax standing.  California ranks 48th in the Tax Foundation’s State Business Tax Climate Index. The Index compares the states in five areas of taxation that impact business: corporate taxes, individual income taxes, sales taxes, unemployment insurance taxes, and taxes on property, including residential and commercial property. The ranks of neighboring states are as follows: Oregon, 12th, Nevada, 3rd, Arizona, 22nd, and Hawaii, 30th.

Table 1 below gives you a break-out by type of tax how each state ranks.

As you can see from the breakdown in Table 1 above, California ranks 48th overall, 31st in corporate taxes, 50th in individual income tax rank (the highest in our entire nation), 41st on sales tax, 16th on unemployment insurance tax, and 14th on property tax ranking.

Here are a couple more charts from the Tax Foundation on California.