The Tax Foundation

California

The Facts on California's Tax Climate

Here are some basic facts on California's tax system and how it compares to other states:

Tax Freedom Day Arrives on May 7th in California
Tax Freedom Day is the day when Americans finally have earned enough money to pay off their total tax bill for the year. In 2007, California taxpayers had to work until May 7th to pay their total tax bill (ranked 7th highest nationally), 7 days later than national Tax Freedom Day (April 30). The Tax Freedom Days of neighboring states were: Oregon, April 24th (ranked 27th nationally); Nevada, May 8th (ranked 6th nationally); and Arizona, April 24th (ranked 26th nationally).

Tax Freedom Day has been projected using the most up-to-date economic and budget projections from official government agencies. However, Tax Foundation estimates of average state and local tax rates for 2008 will not be released until later this spring as we await more up-to-date data from various government agencies.
Full study of Tax Freedom Day, nationwide and in each state

California's State/Local Tax Burden Above National Average in 2007
Estimated at 11.5% of income, California's state-local tax burden percentage stands at 12th highest nationally, above the national average of 11.0%. Californians pay $4,965 per capita in state and local taxes, and per capita state income is $43,338.
California's State and Local Tax Burden, 1970-present

California's 2008 Business Tax Climate Ranks 47th
California ranks 47th 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: Washington (11th), Oregon (10th), Arizona (25th), Nevada (3rd) and Hawaii (22nd).
50-State Comparison of Business Tax Climates (data only)
2008 State Business Tax Climate Index, Fifth Edition (full study)

California's Top Individual Income Tax Rate is the Highest in the Nation
With six official brackets (and an unofficial bracket for those earning over $1,000,000) and a top rate of 9.3 percent (and an unofficial top rate of 10.3% for millionaires), California's individual income tax has the third-highest rate and one of the most highly progressive structures in the nation. In 2005, California's individual income tax collections were $1,189 per person, which ranked 7th highest nationally. Since most small businesses are S Corporations, partnerships, or sole proprietorships, they pay their business taxes at the rates for individuals. That makes California's taxes on small businesses some of the most burdensome in the nation.
50-State Table of Individual Income Tax Rates
50-State Table of State Individual Income Tax Collections
50-State Table of State and Local Individual Income Tax Collections Per Capita

California's Corporate Income Tax Rate is the Highest in the West
Corporations looking to relocate, or even establish, a business in the West may shy away from California, as the state's 8.84% flat rate is the highest corporate tax rate in the West. Nationally, only nine states have a higher top corporate tax rate than California. In 2006, state-level corporate tax collections (excluding local taxes) in California were $282.97 per capita, which ranked 7th highest nationally.
50-State Table of Corporate Income Tax Rates, 2000-2008
50-State Table of State and Local Corporate Income Tax Collections Per Capita and Per Household, 2005
50-State Table of State Corporate Income Tax Collections Per Capita, 2006

California's Sales Tax Rate Exceeds National Median; Gas Tax Highest in Nation
California levies a 7.25% general sales or use tax on consumers, which is above than the national median of 5.4% and local governments are permitted to another 1.5%. State and local governments combined collected $1,362 per capita in general sales taxes in 2005, which ranks 14th highest nationally.  California's statewide gasoline tax stands at 45.5 cents per gallon and is the highest in the nation, while its cigarette tax stands at $0.87 per pack of twenty (29th highest nationally). Additionally, California's general sales tax and various municipal sales taxes are levied on the sale of gasoline. The sales tax was adopted in 1933, the gasoline tax in 1923 and the cigarette tax in 1959.
50-State Table of Sales and Excise Tax Rates
50-State Table of State and Local General Sales and Gross Receipts Tax Collections Per Household and Per Capita, Fiscal Year 2005

Property Tax Collections: Slightly Below Average
Despite Proposition 13, California ranks in the middle of the pack when the states are ranked on combined state/local property tax collections. Proposition 13 favors people who have owned the same property many years by only permitting re-evaluations at resale. As in most states, local governments in California collect far more in property taxes than the state does. California's localities collected $32,419,978,000 in property taxes in fiscal year 2004, the latest year for which the Census Bureau has published state-by-state data. At the state level, California collected $2,079,326,000 during FY 2004. That brought its combined state/local property taxes to $34,499,304,000, or $963 per capita.
State property tax collections per capita by state

Federal Tax Burdens and Expenditures: California is a Donor State
California taxpayers receive less federal funding per dollar of federal taxes paid than the average state. In 2005, California taxpayers received only 78 cents in federal expenditures for every dollar in federal taxes. In 1995, by contrast, California taxpayers were receiving 94 cents in federal expenditures for each tax dollar.
Comparing the amount of federal taxes sent to Washington with the amount of federal spending coming back to the state

Related Blog Entries