Which of the following does California tax according to state law?

California taxes various forms of income and benefits under its state tax laws. The selected answer pertains to railroad benefits paid by individual railroads, which are indeed subject to state taxation. California typically taxes benefits and income that are paid out or received, thereby including railroad benefits within its scope of taxable income.

Meanwhile, the other options represent scenarios that California typically does not tax in the same manner. For example, long-term capital gains on stocks are generally taxed at a reduced rate, similar to the federal capital gains tax structure. The sale of primary residences, when certain conditions are met, can qualify for exclusion from taxable income, specifically under the federal tax code and corresponding state provisions. Income derived from municipal bonds, which is often exempt from both federal and state taxation, represents another type of income that California does not tax.

This comprehension of California's tax structure highlights the state’s approach to taxing different types of income and benefits, which is essential for understanding state tax obligations in real estate and financial dealings.