A new report from the Council on State Taxation says California has the worst tax administration in the country. The study was part of COST's effort to monitor state tax appeals processes and administrative practices.
Several factors contributed to California receiving a "D-" on the COST report card. The study said the state does not have an independent tax forum, and noted that neither the Board of Equalization nor the Franchise Tax Board members are required to have expertise on taxation.
Also, California's "pay to play" requirement and inequitable interest rates (interest demanded for overdue payments is higher than interest paid on refunds) hurt the state's rankings. Other issues cited included retroactive enactment of the 20 percent "understatement penalty" and the 50 percent post-amnesty penalty.
The only area in which the state scored well was how the state requires federal tax reporting changes.
The report said that when taxpayers believe a tax system is "balanced, fair and effective," they are more likely to participate and comply with the tax system. The report notes: "The clear message to state legislatures is that they must be sensitive to the compliance implications and competitiveness concerns created by poor tax administrative rules and ineffective tax appeals systems."
The top-ranking states were Alaska (A), Delaware (A-), Idaho (A-), Minnesota (A-) and Montana (A-). The worst states were California (D-), Louisiana (D), Florida (D), Rhode Island (D), Alabama (D), Illinois (D), New Mexico (D) and Pennsylvania (D).
The study is intended to complement a similar study conducted by CFO Magazine. The 2009 study by that magazine also ranked California as having the most unfair and unpredictable tax system.
The COST study based its rankings on several criteria: independent appeals forum; forced payment prior to a hearing or resolution of a dispute; appeals must be established before an independent body; individual presiding over a hearing must be well-versed in state tax laws and theories; fair statute of limitations for refunds and assessments; equalized interest rates on refunds and assessments; sufficient time to file a protest before an independent dispute forum; reasonable and clearly defined procedures for filing amended state income or franchise tax returns following an adjustment to a taxpayer's liability; other burdens or ineffective practices.
Cal-TaxReports, March 15, 2010
© 2010 California Taxpayers'
Association.
All Rights Reserved.