This method that California uses to determine the tax in this manner seems to run afoul of US Code Title 4, Chapter 4, Section 114(a). If the income from the IRA distribution was not involved in the calculation at all, the California tax is much lower than when the IRA distribution is used to calculate the tax, then removed by prorating the amount. This results in a net effective tax on the IRA distribution. (In my specific case, my California total tax was more than $1800 using the tax form as instructed, and was less than $700 if the IRA distribution was removed from my California taxes completely, so the effective net tax on my IRA distribution was over $1100). According to US Code Title 4, Chapter 4, Section 114(a), my net tax on this distribution should be $0, so California is using some shady (and probably illegal) accounting practices to get around this law.
