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K. Lloyd Billingsley - Contributor
[Courtesty of Pacific Research Institute]

K. Lloyd Billingsley is Editorial Director for the Pacific Research Institute and has been widely published on topics including on popular culture, defense policy, education reform, and many other current policy issues. [go to Billingsley index]

State Greed Has Consequences
Driving productivity out of the state…

[K. Lloyd Billingsley] 8/6/04

Everyone knows California is a high-tax state. But most residents and visitors alike remain unaware of the ways in which the state extracts its pound of flesh.

A salesman from Phoenix who has spent 10 days on the road in California may be unaware that, even though safely back in Arizona, he has now run up a tab with California’s Franchise Tax Board. This is part of the state’s nonresident tax, also called the “jock tax.”

As Kathy Kristof of the Los Angeles Times recently noted, when Alex Rodriguez of the New York Yankees plays a California team, the Franchise Tax Board will divide his $22.5 million annual salary into “duty days” spent in California and bill him accordingly – $224,857 for nine days working in California.

A salesman earning $50,000 a year, about $200 a day, would owe 9.3 percent of that – $18.60 a day. Kristof found that most people were unaware of the “duty days,” which would also apply to a blues singer from Chicago, a home-care nurse, and a novelist from Montana who opted to spend the winter in Coronado.

While athletes and entertainers are the prime targets, California is stepping up efforts to bag everybody. Despite the $1.3 billion California brings in from nonresident taxes, this is not a welcome development.

The nonresident tax is hardly an incentive for workers and business to come to California on a temporary basis. As Kristof notes, it also prompts retaliation by other states, which have also stepped up enforcement. But there is evidence that California pioneered the practice. This is the state which during the 1970s taxed companies for their earnings, not just in the state but everywhere. In the 1990s the state tried to slap a “laugh tax” on cartoons. In California, government greed is infinite.

Though the nonresident laws have been around since the 1950s, supposedly the hey-day of laissez-faire, it was in the early 1990s that California stepped up its targeting of athletes. Now by targeting others, as Kristof put it, “more ordinary folks are getting nabbed by taxes that they’d never have imaged were due.” Even for the diligent taxpayer, the laws are not exactly clear on how to proceed. And the Franchise Tax Board is hardly a model of efficiency.

Several years ago, this writer owed an extra $20 in state taxes, which he promptly paid. Then a delinquent notice came. A call revealed that the FTB had the check but the amount of time it took them to cash it – weeks, it turns out – tripped the deadline for the delinquency notices. So the state wastes more money sending out these notices for checks it already has but has failed to cash.

The state income tax itself already drives productive people and businesses to other states. As PRI explained in Taxing Times: How California's Steep Income Tax Stifles Economic Growth, the tax needs to be flattened and compressed. Whether we should have a state income tax at all needs to be debated. In California, everyone spends far too many “duty days” working for the government.

copyright 2004 Pacific Research Institute




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