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California Tax On Dividends Capital Gains Interest

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Q: I' m thinking about the California tax on dividends, capital gains, interest. If this isn't the right newsgroup, please direct me to the correct group if you know it. But it seems that if you have a lot of dividends, capital gain, and interest, you pay an extra 9.3% tax that people in other states don't have to pay. This seems to violate the equal protection clause of the 14th amendment. Is there any way around such excessive taxes?

A: -You incorrectly assume that only CA taxes these types of income. I know of at least four other states (DC,IL,KS,MD) that also tax them as ordinary income, and I suspect almost all that have an income tax do. -Georgia also taxes them as ordinary income The starting point is federal AGI and there are no adjustments or exceptions for dividends, interest (save for other state muni) or capital gains. Some states, like South Carolina, allow for an exclusion of a portion of capital gains but tax the remainder at ordinary tax rates. -All states that impose comprehensive individual income taxes, not just California, tax these kinds of income. That includes all states except for Alaska, Washington, Nevada, South Dakota, Florida, Texas, Wyoming, New Hampshire and Tennessee. New Hampshire and Tennessee tax individuals only on interest and dividend income. There is nothing unique or unusual about California's taxation of income from intangibles. There are a few state-federal differences. For example, interest income from U.S. federal obligations is taxed by the federal government, but is exempt from state income tax. On the other hand, the federal government does not tax interest income from bonds issued by state and local governments, but most states tax interest from other states' bonds. Many states, including California, tax capital gains at the same rate as ordinary income, rather than at a special rate similar to federal. .

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