CFO State Tax Survey: Tax Directors Struggle to Meet States' Demands, Keep Pace with Changes.

California Tops the List as the Country's Worst Tax Environment, New Jersey a Close Second

BOSTON -- Aggressive state auditors and inconsistent tax regimes ranked among corporate tax directors' biggest headaches in this year's edition of the CFO State Tax Survey. Respondents singled out California and New Jersey as the worst offenders in nearly every category. The study, CFO's fifth state tax survey since 1996, asked corporate tax officials for their impressions of states' handling of a range of tax issues, including the fairness of their audit departments and the independence of their appeal processes.

California narrowly edged out New Jersey as the worst overall tax environment, in a reversal of 2004's results. California also took top honors as the most aggressive state in levying sales and use tax and was named the most aggressive state in forcing business to file consolidated tax returns.

Tax directors rated New Jersey as having the most negative influence of any state on businesses' expansion plans as the state has raised sales taxes and continues to struggle with a fiscal crisis. They also pegged New Jersey as the state with the least fair auditors and the most aggressive standard for determining whether a business should pay corporate income tax.

Massachusetts, which usually fares badly on the survey and has a generally high-tax reputation, fared better than in 2004's survey, falling out of the top five in multiple categories but still ranking as the country's fourth-worst tax environment. Tax directors' favorite tax regimes remained consistent, with Nevada and Delaware receiving kudos for their business-friendly tax policies.

CFO 2007 Survey Highlights

* The bottom five states with the least fair and predictable tax environments include California, New Jersey, New York, Massachusetts and Michigan.

* The top five states with the most fair and predictable tax environments include Nevada, Delaware, Wyoming, South Dakota and Alaska.

* Survey respondents indicated that those states with the most negative influence over a company's decision to locate or expand there include New Jersey, California, New York, Michigan and Massachusetts.

* Those states with the most positive influence over a company's decision to locate or expand there include Nevada, Delaware, Wyoming, Oregon and Virginia.

* The state audit departments voted for having the least ability to settle "gray issues" at the auditor level include New Jersey, California, Massachusetts, New York and Pennsylvania.

* Those states voted for having the greatest ability to settle "gray issues" at the auditor level include Delaware, Nevada, Maine, Wyoming and Alaska.

KPMG distributed the survey on behalf of CFO to some 5,500 tax directors nationwide, and 282 responded, for a response rate of 5.1 percent. For full results showing the scores of each state, visit www.cfo.com/statetax.

About CFO Publishing: CFO and CFO.com are owned by CFO Publishing, an Economist Group business. With a rate base of 450,000, CFO is the leading business publication for C-level and senior financial executives. It reaches an international audience of corporate leaders with its global group of magazines, including CFO Europe, CFO Asia and CFO China. For more information, visit www.cfo.com.

About the survey: This is the fifth CFO survey of corporate tax officials since 1996. To determine the five best and worst states in each category, CFO calculated the average score for each state on each question, calculated the mean of all the states' scores, and then identified the five who fell furthest from the mean on either side.