The Bottom Line on California Taxes

The most basic information about California taxes is often misunderstood or miscast in the arena of public debate. Here in graphic form are some of the basics of the state’s tax system. They show, among other things, that California’s overall tax burden has remained relatively stable for three decades, though the mix of taxes has shifted substantially as the state has come to rely much more heavily on personal income taxes and less on property taxes. Comparisons with other states show that, as a percentage of personal income, California taxes fall about in the middle, with a lower-than-average property tax burden and a higher-than-average personal income tax. Here is a short description of each of the general taxes paid by Californians.

Total Personal Taxes

Percentage of total California personal income paid in state taxes 1961-1991. 1961: 6.99% 1978: Prop. 13 passed 1991: 7.15% Includes: personal income, vehicle registration, fuel, estate, horse racing, cigarette and alcohol taxes, plus, based on state estimates, 65% of total sales taxes and 76% of total property taxes.

Source: California Dept. of Finance and State Board of Equalization.

Where the Money Comes From

While the overall burden of California taxes remains about what it was 30 years ago, the relative mix of state taxes has shifted substantially. In 1961, the personal income tax was the sixth largest source of revenue for the state. In 1991, the personal income tax was the largest. The property tax went from being the largest funding source, contributing half of all tax revenues, to the third largest in 1980--after voters approved Proposition 13. It has steadily risen and in 1991 property taxes were the second largest revenue source.

1961 Total: $4,390,161 Property: 50% Sales/use: 16.2% Personal income: 6.1% Other: 7.1% Fuel: 7.9% Bank/corporation: 6.2% Motor vehicle fees: 6.4% All dollar amounts in thousands Property: $2,196,000 Sales/use: $711,702 Fuel: $350,801 Motor vehicle fees: $278,983 Bank/corporation: $272,718 Personal income: $269,103 OTHER Estate (inheritance): $76,803 Insurance: $66,745 Cigarette/tobacco: $66,024 Alcoholic beverage: $64,022 Horse racing: $37,260 *

1975 Total: $16,924,093 Property: 43.6% Sales/use: 19.9% Personal income: 15.2% Other: 5.4% Fuel: 4.4% Motor vehicle fees: 3.9% Bank/corporation: 7.4% All dollar amounts in thousands Property: $7,383,000 Sales/use: $3,376,078 Personal income: $,579,676 Bank/corporation: $1,253,673 Fuel: $752,234 Motor vehicle fees: $664,453 OTHER Cigarette/tobacco: $261,975 Estate (inheritance): $242,627 Insurance: $202,991 Alcoholic beverage: $120,749 Horse racing: $86,637 *

1980 Total: $24,717,791 Property: 22.9% Sales/use: 26.8% Personal income: 26.3% Other: 5.9% Fuel: 3.4% Motor vehicle fees: 4.4% Bank/corporation: 10.2% All dollar amounts in thousands Sales/use: $6,623,521 Personal income: $6,506,015 Property: $5,661,000 Bank/corporation: $2,510,039 Motor vehicle fees: $1,096,640 Fuel: $852,752 OTHER Estate (inheritance): $465,611 Insurance: $446,228 Cigarette/tobacco: $290,043 Alcoholic beverage: $138,940 Horse racing: $127,002 *

1991 Total: $59,923,426 Property: 27.4% Sales/use: 23.1% Personal income: 28.1% Other: 4.5% Fuel: 3.3% Motor vehicle fees: 5.8% Bank/corporation: 7.6% All dollar amounts in thousands Personal income: $16,848,927 Property: $16,398,000 Sales/use: $13,839,426 Bank/corporation: $4,545,384 Motor vehicle fees: $3,495,194 Fuel: $1,987,203 OTHER Insurance: $1,286,198 Cigarette/tobacco: $746,401 Estate (inheritance): $498,774 Horse racing: $148,279 Alcoholic beverage: $129,640

Sources of Revenue

The personal income tax, the property tax, the sales tax, and the bank and corporation tax are the largest revenue sources for state and local government in California. Here is a snapshot of all the major general taxes imposed in California, how much they bring in, California’s ranking among the states for each tax, the percentage of revenues each tax raises and which agency administers the tax:

PERSONAL INCOME TAX

* 1991 Revenue: $16.9 billion

* Where Calif. Ranks: 16th

* Percentage of State Taxes: 28.1%

* Administration: Franchise Tax Board

California’s personal income tax is considered the most progressive in the nation and ranges up to 11% on income of $200,000 and more for single filers and $400,000 for joint returns. Because it is weighted so heavily toward high-income taxpayers, the lowest-income filers often pay no tax at all and those in middle brackets pay moderate amounts--less than residents of most other states with comparable incomes, national experts say.

PROPERTY TAX

* 1991 Revenue: $16.4 billion

* Where Calif. Ranks: 29th

* Percentage of State Taxes: 27.4%

* Administration: County Assessors and State Board of Equalization

California used to have one of the nation’s highest property taxes, especially as land and home values soared during the 1960s and 1970s. This led to the Proposition 13 property tax revolt in 1978. The initiative measure set the maximum tax rate at 1% of assessed value, with increases in assessments limited to 2% a year. Property is reassessed only if it changes hands, when the sales price becomes the new assessed value. As a result, identical homes can have drastically different property tax bills, depending on when they last were sold. Historically, a major source of revenue for local government in California, most property tax revenues now go to the state’s public schools.

SALES TAX

* 1991 Revenue: $13.8 billion

* Where Calif. Ranks: 24th

* Percentage of State Taxes: 23.1%

* Administration: Board of Equalization

The sales tax has become the workhorse of both state and local governments in recent years. The state collects up to 8.5% on all sales of goods in California, keeps 6% for state purposes and passes on the rest to local governments for a variety of programs. Half a percentage point of the 6% state tax is temporary, but it will become permanent if approved at a special statewide referendum in November, with the proceeds going to local governments. The California sales tax rate is among the highest in the nation, but it is levied on a relatively narrow base because the tax does not apply to many services that are taxed in other states.

BANK AND CORPORATION TAX

* 1991 Revenue: $4.5 billion

* Where Calif. Ranks: 6th

* Percentage of State Taxes: 7.6%

* Administration: Franchise Tax Board

California collects 9.3% on taxable income earned by all corporations doing business in the state, one of the highest state corporation tax rates in the nation. Banks and other financial institutions pay the same 9.3%, plus a surcharge calculated annually (1.8% in 1993) that is an “in lieu” tax compensating for the fact that financial institutions are exempt from personal property and local business taxes. Because the corporation tax is levied on net profits, after all the costs of doing business are deducted, this tax has shown little or no growth in recent years, especially during the ongoing recession. Insurance companies are taxed under a separate system (described below).

MOTOR VEHICLE FEES

* 1991 Revenue: $3.5 billion

* Where Calif. Ranks (License Fees): 31st

* Percentage of State Taxes: 5.8%

* Administration: Department of Motor Vehicles

Motor vehicle fees include vehicle license fees, registration, weight fees for commercial vehicles, driver’s license fees and taxes on some common carriers. These fees were increased substantially in the 1991 budget and tax package. The license fee takes the place of a personal property tax on autos and trucks, and amounts to 2% of the vehicle’s market value, depreciated annually. The registration fee is a flat $28 for each motor vehicle. Most of the money is distributed to local governments for street and highway work. The rest goes to help cities and counties finance those health and welfare programs shifted from state to local agencies in 1991.

FUEL TAXES

* 1991 Revenue: $2 billion

* Where Calif. Ranks: 47th

* Percentage of State Taxes: 3.3 %

* Administration: State Board of Equalization

California taxes gasoline and diesel fuel at 17 cents a gallon, scheduled to rise to 18 cents a gallon on Jan. 1 under Proposition 111, which was approved by California voters in 1990. This is the major revenue source for building and maintaining state highway and transportation facilities.

INSURANCE TAX

* 1991 Revenue: $1.3 billion

* Where Calif. Ranks: 18th**

* Percentage of State Taxes: 2.1%

* Administration: State Board of Equalization, Controller and Department of Insurance

Unlike the federal government, the state does not tax insurance companies on their net profits. Most insurance written in California is subject to a 2.35% tax on gross premiums, a rate that has held steady with small changes since 1947. Insurance company executives argue that their levy is among the highest in the country.

CIGARETTE / TOBACCO TAX

* 1991 Revenue: $746 million

* Where Calif. Ranks: 38th**

* Percentage of State Taxes: 1.2%

* Administration: State Board of Equalization

California’s cigarette tax is 35 cents a pack. It includes 25 cents a pack levied under a voter initiative, Proposition 99 of 1988, most of which is earmarked for spending on anti-tobacco advertising and a variety of health programs. The tax will go up by another 2 cents per pack Jan. 1 under 1993 legislation to finance breast cancer research.

ESTATE TAXES

* 1991 Revenue: $500 million

* Where Calif. Ranks: 24th**

* Percentage of State Taxes: 0.8%

* Administration: Controller

California voters repealed the old inheritance and gift tax law in 1982 through Proposition 6. The California estate tax law now exempts the first $60,000 of any estate and taxes the balance at rates that range from .8% to a maximum of 16% depending on the value of the estate. However, the estate receives credit for all state taxes due when it computes its federal estate tax. Thus, the total tax is no more than it would be if the estate was paying federal tax only.

HORSE RACING FEES

* 1991 Revenue: $148 million

* No ranking available

* Percentage of State Taxes: 0.2%

* Administration: Horse Racing Board

Horse racing license fees are based on the amount wagered, the location of the track, the breed of horses racing and whether the wager is made at the track or at a satellite facility. Revenues are expected to decline as more bets are placed at satellites. The state license fee for off-track wagering is about half that of license fees for betting at the tracks.

ALCOHOLIC BEVERRAGE TAX

* 1991 Revenue: $130 million

* Where Calif. Ranks: 49th**

* Percentage of State Taxes: 0.2%

* Administration: State Board of Equalization

The state collects a tax of 20 cents a gallon on the sale of beer and wine, 30 cents on champagne and other sparkling wines, $3.30 for distilled spirits of 100 proof or less and $6.60 for spirits over 100 proof. Recent increases in these taxes will push estimated revenue in this fiscal year to about $307 million. Wine taxes remain among the lowest in the nation. Beer and liquor taxes now are comparable with many states.

** 1990 rankings, the most recent available. Rankings are based on the amount of tax paid as a percentage of personal income except where noted.

Sources: California Department of Finance, State Board of Equalization, Assembly Revenue and Taxation Committee, Assembly Office of Research, U.S. Advisory Commission on Intergovernmental Relations, U.S. Bureau of the Census and California Horse Racing Board

How California Ranks

Overall, California ranks in the middle among all states in the amount of taxes it collects. Taxes are ranked relative to personal income, a statistical comparison that makes it possible to compare California to high salary states and low salary states. Here is how California compares to other states, overall and among specific major taxes.

Per $1,000 Personal Income, 1990-91 State: Total State Taxes 1. Alaska: $210.31 2. New York: $151.54 3. Hawaii: $143.57 4. Wyoming: $140.46 5. Wisconsin: $128.04 22. California: $111.96 State: Property Taxes 1. New Hampshire: $64.03 2. Alaska: $57.81 3. Wyoming: $56.87 4. Vermont: $53.04 5. Oregon: $52.09 29. California: $31.36 State: Sales Taxes 1. Washington: $75.61 2. Hawaii: $73.83 3. New Mexico: $68.57 4. Nevada: $67.64 5. Louisiana: $59.12 24. California: $38.96 State: Personal Income Taxes 1. New York: $43.61 2. Maryland: $41.09 3. Oregon: $40.70 4. Massachusetts: $39.35 5. Hawaii: $38.31 16. California: $27.32 State: Corporation Income Tax 1. Alaska: $22.05 2. New York: $9.52 3. Michigan: $9.35 4. Delaware: $8.84 5. West Virginia: $7.78 6. California: $7.21 Sources: U.S. Census Bureau, Advisory Commission on Intergovernmental Relations.