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Richard Rider

The new state “business tax climate” rankings are out. Uh oh.

In the states’ race to the bottom, California is always one of the front-runners.  Such is the case once again in the latest Tax Foundation survey, ranking the states’ “business tax climate.”

Sadly, this past year we’ve moved from our dismal 48th rank down to 49th.  Or up to 2nd, if you think of it as a race.  CA is now worse than corrupt New York. We are closing in on the “champ” — Tony Soprano’s New Jersey.

This Tax Foundation survey of the business TAX climate is based exclusively on the five big state taxes:

  • Corporate income tax
    Individual income tax
    Sales tax
    Property Tax
    Unemployment Insurance Tax

So to be fair, let’s stipulate that the survey does NOT include other important factors affecting the overall business climate of a state.  So CA may not be 49th.  It may be — uh . . . er . . . .

For instance, California in 2017 was rated the “2nd worst state judicial hellhole” in U.S. – better than only Florida.
Legions of CA lawyers file frivolous class action and ADA lawsuits against businesses annually.  And the lawyers own the state legislature of the Golden State.

Then there’s the cost of CA real estate — roughly triple the national average.  This costs the businesses more, PLUS it means their employees have to be paid more in CA than in other states to offset this huge housing cost disparity.

Of course, there’s the soaring cost of California electricity.  CA residential electricity costs an average of 51.3% more per kWh than the national average. CA commercial rates are 64.6% higher.  For industrial use, CA electricity is an astonishing 105.2% higher than the 50 state average – an average which includes CA! (June, 2018).

Consider the water supply.  It is far more expensive AND a less reliable commodity in CA than in other states.  Perpetually tightening water rationing is now the official state policy.

CA has a job licensing fetish.  We needlessly license more occupations than any state – 177. The second worst state is Connecticut at 155.  The average state is 92. But CA is “only” the 2nd worst licensing state for low income occupations.

Gas taxes?  CA excels at high gas taxes. Plus the stringent gasoline formulation rules make CA gas more expensive than any state but Hawaii.  Details:

CA has the nation’s 2nd highest “gas pump” tax at 73.62 cents/gallon (July, 2018). Add in the unique 10-12 cent CA “cap and trade” tax per gallon, and CA is the worst – 6 to 8 cents more than PA. The national average is 51.73 cents. Yet CA has the 9th worst highways (41 states are better).

Perhaps more important to many businesses is the cost of diesel.  With the new gas tax law, our record high diesel tax is 10% higher than the 2nd highest state.  Indeed, CA diesel taxes are 83% higher than the national average.

The regulatory climate in California is extremely anti-business — large and small business alike.  The regulatory delays and uncertainty cost companies big bucks.  CA politicians couldn’t care less.

Last but NOT least are the California countless “fees” on everything — really “taxes” by a less offensive and dishonest name.  The general rule of thumb is that CA fees are triple the national average, but CA construction fees are far higher than that — as indeed are business fees in general.

Looking to the near future, no relief for California companies is in sight.  Au contraire.  After this November 2018 election, CA Democrats will have a 2/3 lock on a veto-proof state legislature, and a committed socialist as governor.  Next year at this time we’ll be pining for the “good governor” — Jerry Brown.

CONCLUSION:  Not only is CA easily the worst state for business, but it’s going to get even worse quickly.  As I see it, in this day and age, any board of directors of a CA public corporation that can move (most all non-retail businesses can move) out of the Golden State but chooses not to move is guilty of fiscal negligence and should resign.  CA sunshine doesn’t help a corporation’s balance sheet, or income statement.

Lest you think my conclusion is not widely supported, consider this:
The nation’s top CEO’s surveyed rank CA “the worst state in which to do business” for the 14th straight year.