Is California ranked as one of the worst states from the perspective of business taxation? The Tax Foundation, an independent tax policy research organization, recently published its annual State Business Tax Climate Index. The Tax Climate Index “enables business leaders, government policymakers, and taxpayers to gauge how their states’ tax systems compare.” Furthermore, the index shows how well states structure their tax systems and is meant to provide “a road map to improving these structures.” The index ranks the states from best to worst for business taxes.
California ranks low in 2015 State Business Tax Climate Index
The results are not favorable for the State of California. For a second year in a row, California ranked 48th in the nation, just ahead of New York (49th) and New Jersey (50th). The top performing state is Wyoming, followed by South Dakota and Nevada, respectively.
In addition to overall rankings, the State Business Tax Climate Index provides five other categories in which states are ranked, including corporate tax, individual income tax, sales tax, unemployment insurance tax, and property tax. Other than the unemployment insurance tax category where California ranks 14th, California ranked poorly in all other categories, ranking 34th or lower. Notably, California ranks dead last for individual income taxes.
One common factor among the states ranking in the top 10 is the lack of a major tax: the corporate tax, the individual income tax, or the sales tax. While all states levy property and unemployment insurance taxes, not all states impose each of the major taxes. Conversely, according to The Tax Foundation, many states ranking in the bottom half suffer from “complex, non-neutral taxes with comparatively high rates.” For example, New Jersey received such a low ranking because it “suffers from some of the highest property tax burdens in the country, is one of just two states to levy both an inheritance and an estate tax, and maintains some of the worst structured individual income taxes in the country.”
California is not all bad for businesses
A state’s tax system is just one of many considerations that any business must consider when deciding in which state to operate. Other factors to consider include infrastructure, education, cost of living, access to capital, quality of life, workforce, and technology and innovation. A recent study performed by CNBC.com took all of these factors into consideration and developed its own ranking for America’s top states for business.
While California did not rank in the top 10 of the best states, it did come in at a more respectable 32nd overall. Again, California ranked quite low (48th) in the cost of business category, which analyzed the state and local tax burdens in each state, including individual income and property taxes, as well as business taxes and gasoline taxes. California, however, ranked high in other categories, including innovation and technology (1st), access to capital (1st), and economy (9th).
Contact a California corporate attorney
If you have any questions regarding starting or operating a business in California, Janathan L. Allen, APC’s corporate law and tax attorneys can help. From corporate law and compliance issues, to mergers and acquisitions, to tax planning, we can provide the legal advice that your business needs.
Our firm is located in San Diego, with offices throughout Southern California. Contact us today for a free consultation.