Out of all 50 states, California ranks as having the worst tax system in the U.S., according to a Small Business & Entrepreneurship Council study. California’s high tax burden signals major obstacles to small business growth and well-being in the state.
California scored in last place with the worst personal income, capital gains, and dividends and interest tax rates, all at 13.3 percent. Since 94 percent of businesses file as individuals on taxes, California’s high personal income tax rate indicates heavy costs on how businesses function, save, invest, and take risks. Accessing capital is one of the biggest hurdles for start-ups and California’s steep capital gains tax makes it all the more challenging.
Although California sits in last place, its tax system scorecard isn’t strictly made up of losses. California has the lowest adjusted unemployment tax of all 50 states and a manageable state and local property tax rate.
As small businesses look to Congress to reform the federal tax system, it’s important to also keep pressure on elected officials for tax reform on the state and local levels. In order for California to improve in its ranking, the state’s overall tax burden needs to be lowered substantially, which can be done by reducing taxes on capital gains or by not taxing income.