A study conducted by the non-partisan Tax Foundation reports that California's business tax climate is among the nation's worst, with only New Jersey and New York having higher business tax burdens than the Golden State.
The Tax Foundation's 2010 State Business Tax Climate Index study, released September 22, found that South Dakota has the most "business-friendly" tax system. The index measures the competitiveness of the 50 states' tax systems and ranks them based on the taxes that matter most to businesses and business investment: corporate income, individual income, sales, property and unemployment insurance taxes.
"When policymakers are considering tax changes in their states, they should remember two rules: Taxes matter to business, and states do not enact tax changes – increases or cuts – in a vacuum," said Kail Padgitt, who authored the report.
The report noted that California ranks poorly despite having the 13th best score on property taxes.
A note on California's status explains: "With such a low ranking, it may not assuage California taxpayers to hear that the state's tax system has improved one spot this year and now ranks 48th best. Unfortunately, even this slightly good news does not come because of improved tax policy. New York implemented even worse policies, dropping below California. In fact, California's raw score dropped substantially because it added 0.25 percent to each personal income tax rate and increased its statewide sales tax to 8.25 percent, now the nation's highest state-level rate."
(Cal-Tax: Note that this ranking doesn't take regulations into effect, and as the previous story in this week's Cal-Taxletter indicates, regulations add significantly to the cost of doing business in California. Also, the study does not account for tax policies like the 20 percent "understatement penalty," which has the effect of forcing law-abiding businesses to overpay their taxes.)
Cal-Taxletter, September 25, 2009
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