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California holds at No. 48 in annual ranking of state business tax climates

September 22, 2009 |  4:30 pm

California maintains its position as the state with the third-worst overall business tax climate, according to the annual study by the Tax Foundation think tank in Washington.

California ranks 48th among the states based on the foundation’s assessment of what businesses would consider a friendly tax climate, the tax watchdog said today. At the bottom of the listing is New Jersey, preceded by New York at No. 49.

The state with the best overall business tax climate is South Dakota, which moved up from the No. 2 position last year, the foundation said. Wyoming, No. 1 last year, slipped to No. 2.

The foundation ranks the states based on five taxes: corporate income, individual income, sales, unemployment insurance and property. Scores are based on the level of tax rates and how fairly the taxes are applied.

Sacramentodome

The foundation’s judgment: "Good state tax systems levy low, flat rates on the broadest bases possible, and they treat all taxpayers the same.

"Variation in the tax treatment of different industries favors one economic activity or decision over another. The more riddled a tax system is with these politically motivated preferences the less likely it is that business decisions will be made in response to market forces."

To that point, my colleagues P.J. Huffstutter and Richard Verrier have a good story today on how some states are reconsidering the tax breaks they’ve offered Hollywood studios to lure film and TV production.

Back to the Tax Foundation study: Not surprisingly thanks to Proposition 13, California scores high on property taxes, ranking 13th best among the states. It also ranks favorably, at No. 14, on unemployment insurance taxes.

But the state ranks 48th on individual income taxes, 48th on sales taxes and 34th on corporate income taxes.

In the overall rankings, South Dakota and Wyoming were followed in the top 10 by Alaska, Nevada, Florida, Montana, New Hampshire, Delaware, Washington and Utah.

From the bottom up, New York, New Jersey and California were followed by Ohio, Iowa, Maryland, Rhode Island, Minnesota, Wisconsin and Vermont.

-- Tom Petruno

Photo: The Capitol in Sacramento. Credit: Ricardo DeAratanha / Los Angeles Times 

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