New York vs. California Taxes: A State Breakdown

New York and California are consistently ranked among the highest-taxed states in the U.S. Choosing between them from a financial perspective requires understanding more than just top tax rates. The tax structures in these two states are intricate, with each employing a different mix of levies that can result in vastly different outcomes depending on one’s income, spending habits, and assets. The total tax burden is a composite of multiple layers, including income, sales, and property taxes, while businesses must also consider corporate income taxes and franchise fees.

Comparing Personal Income Taxes

For most residents, personal income tax is the most significant state tax. Both New York and California use a progressive tax system, where tax rates increase as income rises. This marginal system means that portions of income are taxed at different rates as they fall into higher brackets.

New York’s system has nine brackets for the 2024 tax year, with rates starting at 4% and climbing to a top rate of 10.9% on income over $25 million. A significant factor in New York is the imposition of local income taxes. Residents of New York City face an additional income tax with rates from 3.078% to 3.876%, and the city of Yonkers also levies its own income tax.

California is known for the highest top marginal income tax rate in the country, reaching 13.3% for income over $1 million. The state’s progressive system features ten tax brackets starting at 1%, so lower and middle-income individuals may find their liability more moderate.

To illustrate, a single individual earning $90,000 in New York would pay approximately $4,488, while in California the same individual would owe about $4,867. The gap widens at higher incomes; a married couple earning $250,000 in New York would pay around $12,553, while the same couple in California would owe approximately $16,778.

Both states fully exempt Social Security benefits from state income tax. New York also offers an exclusion of up to $20,000 for certain pension and retirement account income for those over age 59½.

New York 2024 Single Filer Income Tax Brackets
| Tax Rate | Taxable Income |
| — | — |
| 4.00% | $0 to $8,500 |
| 4.50% | $8,501 to $11,700 |
| 5.25% | $11,701 to $13,900 |
| 5.50% | $13,901 to $80,650 |
| 6.00% | $80,651 to $215,400 |
| 6.85% | $215,401 to $1,077,550 |
| 9.65% | $1,077,551 to $5,000,000 |
| 10.30% | $5,000,001 to $25,000,000 |
| 10.90% | $25,000,001 and over |

California 2024 Single Filer Income Tax Brackets
| Tax Rate | Taxable Income |
| — | — |
| 1.00% | $0 to $10,412 |
| 2.00% | $10,413 to $24,684 |
| 4.00% | $24,685 to $38,959 |
| 6.00% | $38,960 to $54,081 |
| 8.00% | $54,082 to $68,350 |
| 9.30% | $68,351 to $349,137 |
| 10.30% | $349,138 to $418,961 |
| 11.30% | $418,962 to $698,271 |
| 12.30% | $698,272 to $1,000,000 |
| 13.30% | $1,000,001 and over |

Analyzing Sales and Use Taxes

State and local sales taxes directly affect what consumers pay for goods and services. Both New York and California have statewide sales tax rates that are augmented by local taxes, leading to a final rate that varies by city or county.

New York has a statewide sales tax rate of 4%. The average combined state and local sales tax rate in New York is approximately 8.53%.

California’s statewide sales tax rate is 7.25%, the highest base rate in the nation. The average combined rate in California is 8.85%, placing it among the highest in the country.

In New York City, the total sales tax rate is 8.875%. California cities often have higher rates, with Los Angeles at 9.75% and some cities like Alameda reaching 10.75%.

The tax base also differs. Both states exempt necessities like most grocery food items and prescription drugs. New York provides an exemption for clothing and footwear items sold for less than $110, which applies to the 4% state tax and in many local jurisdictions, while California taxes clothing at the full combined rate.

Understanding Property Tax Burdens

Property taxes are a significant cost for homeowners and a primary funding source for local governments, especially school districts. The tax is calculated by multiplying a property’s assessed value by the local tax rate, but the states differ on how value is determined.

In New York, property is generally assessed based on its current market value, meaning tax bills can rise with the local real estate market. The average effective property tax rate in New York is approximately 1.54% of the home’s value.

California’s property tax system is defined by Proposition 13. This law caps the general property tax rate at 1% of the property’s assessed value and limits the annual increase in that assessed value to no more than 2% or the rate of inflation, whichever is lower. A property is only reassessed at its full market value when it is sold.

This system creates a stark contrast between the tax bills of new homeowners and those of long-time residents. Because of Prop 13’s limitations, California’s average effective property tax rate is approximately 0.68%, creating a powerful incentive for homeowners to stay in their homes to retain their low tax base.

Taxation for Businesses and Corporations

The tax environment for businesses and corporations in New York and California is as complex as it is for individuals. Both states impose a corporate income tax but differ in their approach to other levies like franchise taxes.

New York’s corporate franchise tax is multifaceted, requiring a business to calculate its tax liability based on several methods and pay the highest amount. These methods include a tax on business income, a tax on business capital, and a fixed dollar minimum tax. For 2024, the business income tax rate is 6.5% for corporations with income of $5 million or less, and 7.25% for those with income over $5 million.

California imposes a flat corporate income tax rate of 8.84%. A defining feature of its system is the annual minimum franchise tax of $800, which nearly every corporation, LLC, and partnership must pay, even if the business operates at a loss.

For pass-through entities such as S-corporations, income passes to the owners’ personal returns. However, California imposes a 1.5% tax on the net income of S-corporations, in addition to the $800 minimum tax. Both states also require employers to pay state unemployment insurance (SUTA) taxes to fund benefits for jobless workers, with rates depending on factors like an employer’s claims history.

Estate Taxes and Other State Levies

New York and California have taken divergent paths on estate taxes. California is one of the majority of states that does not impose an estate or an inheritance tax. This means that upon a resident’s death, their assets can pass to heirs without any state-level tax, though the estate may still be subject to federal estate tax if its value exceeds the federal exemption ($13.61 million for 2024).

New York, in contrast, does have an estate tax. For 2024, the state exempts estates with a value of up to $6.94 million. Estates valued above this amount are subject to a progressive tax with rates ranging from 3.06% to a top rate of 16%. A unique feature of New York’s law is its “cliff” provision; if the value of an estate exceeds the exemption amount by more than 5%, the entire value of the estate is subject to tax.

Both states have some of the highest gasoline taxes in the country. California’s gasoline excise tax is 61.2 cents per gallon, while New York’s is 24.55 cents per gallon plus an additional sales tax. New York has one of the highest cigarette taxes at $5.35 per pack, while California’s is $2.87 per pack.