On the Naughty List Again: California Ranks 48th for Worst Tax Climate in the U.S.

California received the low ranking again with an ‘uncompetitive tax structure’

Having one of the highest costs of living in the country, California’s tax climate is the third-worst in the country, AGAIN, ahead of New Jersey and New York, the Tax Foundation recently reported.

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This is the 14th year California is on the naughty list – formerly known as the “Business Tax Climate Index” and this year referred to as the “2026 State Tax Competitiveness Index.”

The Tax Foundation’s State Tax Competitiveness Index enables policymakers, taxpayers, and business leaders to gauge how their states’ tax systems compare. While there are many ways to show how much state governments collect in taxes, the Index evaluates how well states structure their tax systems and provides a road map for improvement.

The 10 best states in this year’s Index are:

1. Wyoming
2. South Dakota
3. New Hampshire
4. Alaska
5. Florida
6. Montana
7. Texas
8. Tennessee
9. Idaho
10. Indiana

The absence of a major tax is a common factor among many of the top 10 states. Property taxes and unemployment insurance taxes are levied in every state, but there are several states that do without one or more of the major taxes: the corporate income tax, the individual income tax, or the sales tax. South Dakota and Wyoming have no corporate or individual income tax; Alaska and New Hampshire have no individual income or state-level sales tax; Florida, Tennessee, and Texas have no individual income tax; and Montana has no sales tax.

This does not mean, however, that a state cannot rank well while still levying all the major taxes. Idaho and Indiana, for example, levy all the major tax types, as do all the other states that rank 11^th to 16^th: North Dakota, North Carolina, Missouri, Arizona, Utah, and Michigan.

The 10 lowest-ranked, or worst, states in this year’s Index are:

41. Hawaii
42. Vermont
43. Massachusetts
44. Minnesota
45. Washington
46. Maryland
47. Connecticut
48. California
49. New Jersey
50. New York

“The states in the bottom 10 tend to have a number of issues in common: complex, nonneutral taxes with comparatively high rates,” the Tax Foundation explains. “New Jersey, for example, is hampered by some of the highest property tax burdens in the country, has the highest-rate corporate income tax in the country, and has one of the highest-rate individual income taxes. Additionally, the state has a particularly aggressive treatment of international income, levies an inheritance tax, and maintains some of the nation’s worst-structured individual income taxes.”

Competitiveness

The Tax Foundation notes that When a state imposes higher taxes than a neighboring state, businesses will cross the border to some extent, which certainly is the case of California. “Therefore, states with more competitive tax systems score well in the Index because they are best suited to generate economic growth.”

California received the low ranking again with an “uncompetitive tax structure.” “California combines high tax rates with an uncompetitive tax structure, yielding one of the worst rankings on the Index.”

California isn’t doing so well on competitiveness – the state remains static at 48th for 2025-2026 State Tax Competitiveness Index:

Click here to read the full article in the California Globe