Our view: California ranks last in tax fairness

For years, California has ranked among the highest-taxed and most heavily regulated of states. It's unsurprising to find California now ranked the absolute worst state when it comes to "balanced, fair and effective" tax laws.

California ranked dead last, and was the only state to receive a D-minus grade, from the Council on State Taxation, a nonprofit trade group of 600 corporations engaged in interstate and international business, including Johnson & Johnson, Sprint, Coca-Cola Co., Prudential Financial and AT&T.

Every three years COST rates states by how they treat their taxpayers. In 2007, the organization ranked California 46th of 50 states. Rankings are based on how fairly disputes are administered, whether practices create inefficiencies for business and government, how even-handed statutes of limitations are for assessments and refunds, whether interest rates are applied equally to assessments and refund claims, among other practices.

Alaska, with a letter grade of A, and Delaware, Idaho, Minnesota and Montana, with A-minuses, were top-ranked in the report: "The Best and Worst of State Tax Administration." California trailed D grades registered for Louisiana, Florida, Rhode Island, Alabama, Illinois, New Mexico and Pennsylvania.

Just as burdensome taxes can result in lower tax revenue by chasing taxpaying businesses out of state and discouraging business expansion, a perception of unfairness in tax administration similarly can result in taxpayers justifying nonpayment of taxes.

Nevertheless, faced with declining tax revenue last year, the California Legislature imposed an historic tax increase and within months asked voters to double that burden by approving more taxes by ballot initiative.

Now after years of turning a blind eye, the state is beginning to force businesses and individuals to pay "use" taxes on out-of-state purchases. Why now? It's not a matter of fairness. The state previously didn't enforce the use-tax provisions.

But now the state faces a $20 billion deficit and what once wasn't worth the government's time suddenly is a high priority. That's not fairness. It's entirely arbitrary.

California was singled out in the COST report for lacking an independent forum to handle taxpayer disputes, charging higher interest on tax assessments than it pays on refunds when the state owes taxpayers and requiring taxpayers to pay disputed taxes and file for a refund as a condition of appealing a tax in court, among other things.