Skip to content

California Scheming

1 min readBy: Curtis S. Dubay

As we go about updating each state’s individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. , corporate tax, sales tax, and excise tax rates on our website each January, invariably we come across an amusing anecdote from at least one state’s taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. system. Last year it was Hawaii’s exceptional tree deduction.

While there may be more to come in the near future, California’s attempt to disguise its top 10.3% top rate on individual income is the leader so far.

In the 2006 and 2007 editions of the State Business Tax Climate Index, California was correctly scored as having a top rate of 10.3% on individual income greater than $1 million-the highest in the country.

However, California’s 2006 Individual Income Tax Schedules (page 6) shows no sign of the highest-in-the-country rate, although the 9.3% rate on income above $43,467 is still high.

Only when we dig through the instructions (page 4 of the PDF) do we find the so-called “millionaire’s tax.” Only it is not called the millionaire’s tax or even alluded to as part of the standard individual income tax code. Instead it is called the Mental Health Services Tax and made to look like a 1% surtaxA surtax is an additional tax levied on top of an already existing business or individual tax and can have a flat or progressive rate structure. Surtaxes are typically enacted to fund a specific program or initiative, whereas revenue from broader-based taxes, like the individual income tax, typically cover a multitude of programs and services. .

Apparently California lawmakers do not want it known that they have a 10.3% rate. What is actually more surprising than California’s deceptiveness is that more states do not try to cover punitive taxes with euphemistic monikers like the Mental Health Services Tax. Watch out for the “Cute Puppy Protection Act” in a state near you soon. No doubt it will take a bite out of your wallet.

Look for the latest state tax rates on our website in the near future.