California wealth tax - Kugelman Law

California Billionaire Tax: What Proposition 40 Means for You

Kugelman Law — Tue, 22 Sep 2026 17:25:19 GMT

The California billionaire tax, Proposition 40 on the November 3, 2026 ballot, proposes a one-time 5% tax on the net worth of state residents worth $1 billion or more. As written, it would reach only a few hundred people. Its real significance for the broader high-net-worth community is what it signals: California is sharpening its focus on wealthy residents and on those who leave. If you have serious wealth in the state, the enforcement climate around residency and valuation is the part to watch. To discuss your exposure with an attorney, call (415) 968-1780.

What is the California billionaire tax?

Proposition 40, formally the 2026 Billionaire Tax Act, qualified for the November 2026 ballot after supporters gathered roughly 980,000 signatures. If voters approve it, it would impose a one-time wealth tax of 5% on the net worth of California residents, and certain trusts, with a net worth of at least $1 billion. Proponents estimate the measure would affect roughly 200 taxpayers and raise funds directed toward Medi-Cal, food assistance, and public education. Two dates drive the measure. Residency is measured as of January 1, 2026, and net worth is valued as of December 31, 2026. In other words, whether you are subject to the tax turns on your residency at the start of 2026, and the amount turns on what you are worth at the end of it. This is a proposed law, not an enacted one. Voters decide on November 3, 2026, and the analysis below describes the measure as written.

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How the California wealth tax would be calculated

Rate and threshold

The headline rate is 5%. The measure sets $1 billion as the entry point, with the full rate phasing in just above it, so the effective rate near the threshold is far lower than 5% and climbs to the full rate around $1.1 billion. The precise phase-in math matters at the margins and is one of several drafting details that opponents argue could push the effective burden higher than the headline number suggests.

What counts toward net worth

The tax base is broad. It reaches nearly all personal and financial wealth, including publicly traded securities, private equity and carried interests, cash, cryptocurrency, and intellectual property. Directly held real property is excluded, but interests in entities that own real estate remain in scope, which limits the value of simply holding real estate directly.

Valuing private business interests

For interests that do not trade publicly, the measure supplies a default valuation formula: fair market value equal to GAAP book value plus 7.5 times average annual book profits over three years, multiplied by the ownership percentage. Control presumptions can increase attributed value where voting rights exceed economic share. A taxpayer can override the formula with a certified appraisal, which is why documentation and professional valuation would be central to any billionaire tax dispute.

Trusts

The measure also reaches “applicable trusts,” generally non-grantor trusts that received assets from a California resident who had $1 billion or more in net worth as of January 1, 2026. That design is meant to limit the use of trusts to sidestep the tax.

Paying the tax

The measure allows the tax to be paid up front or spread over five years, with deferral charges. Supporters describe it as temporary. Skeptics question whether a tax like this, once in place, is ever truly allowed to expire.

Can you avoid the billionaire tax by leaving California?

This is the question we hear most, and the answer is more complicated than a moving truck. As written, the measure keys liability to residency on January 1, 2026, and does not appear to contain an explicit exit or trailing-tax provision for people who leave later in the year. On its face, that suggests residency at the start of 2026 is what controls. The catch is that residency itself is contested territory, and the measure’s residency provisions are widely viewed as vulnerable to legal challenge. Whether someone was truly a California resident on a given date is exactly the kind of fact the Franchise Tax Board (FTB) audits aggressively, and it turns on substantive life changes rather than the date on a driver’s license. Reporting has noted that several billionaires left California ahead of the 2026 deadline. Expect the state to scrutinize those departures closely. For most high-net-worth Californians, the practical lesson is not about the billionaire tax at all. It is that leaving California does not end California tax exposure. The FTB can examine your residency and your California-source income for years after you move. We cover that in detail in California Residency Audits and the Billionaire Tax and in Moving Out of California Without Triggering an FTB Audit.

What Prop 40 means if you are wealthy but not a billionaire

Only a small number of taxpayers would owe the billionaire tax itself. Yet the measure matters to a much wider group of high earners and high-net-worth families, for three reasons. First, it reflects and reinforces an enforcement climate. When the state pursues its wealthiest residents this openly, residency audits and valuation disputes tend to intensify across the board, reaching centi-millionaires and successful business owners, not just billionaires. Second, the debate raises the profile of California-source income, equity compensation, and business-sale planning, all areas where people who move still owe California tax on the right facts. We address those in California Source Income After You Move. Third, it is a reminder that residency planning done casually, or at the last minute, invites exactly the audit you were trying to avoid.

Constitutional and legal challenges ahead

Even if voters approve Proposition 40, passage would likely be the beginning of the fight rather than the end. Opponents have already questioned the measure’s constitutionality, and analysts expect serious litigation over who may be taxed, on what, and to what degree, with the residency provisions among the most exposed. A measure that survives the ballot could spend years in court before anyone writes a check. For a taxpayer, that uncertainty cuts both ways. It means you should not assume the tax will take effect exactly as written, and it means you should not assume you can ignore it. The prudent path is to understand your position now and to be ready to document it.

How to protect yourself now

Whether or not Proposition 40 passes, the same fundamentals protect high-net-worth Californians. Treat residency as a matter of substance, not paperwork, and be able to show where your life actually centers. Keep clear records supporting the value of private business interests, since valuation is where these disputes are won or lost. Coordinate any move with your income tax, equity compensation, and business-sale timing rather than handling them separately. And if the FTB opens a residency inquiry, involve counsel before you respond, because early answers shape the entire audit. Our results reflect what disciplined advocacy achieves in high-stakes tax disputes. In one federal matter, two IRS Notices of Deficiency proposing more than $557,000 across six years were settled in U.S. Tax Court down to roughly $38,000, and with avoided interest and California exposure the client effectively saved over $1.2 million. Results depend on specific facts. Past results do not guarantee future outcomes.

If leaving California is part of your plan, our Residency Audit Risk Assessment helps make sure the move holds up if the FTB reviews it.

Talk to a California tax attorney about the billionaire tax

If you have substantial wealth in California, are planning a move, or are already facing FTB scrutiny, get ahead of it. Kugelman Law represents high-net-worth individuals and business owners in California residency audits, tax audits, U.S. Tax Court litigation, and complex tax matters across California and nationwide. See our Los Angeles tax attorney page for how we help Southern California clients. Schedule a paid, privileged consultation by calling (415) 968-1780 or visiting our contact page.

Talk to a Tax Attorney

Get clear, confidential answers about your tax situation.

Schedule a paid, privileged consultation with Kugelman Law. Everything you share is protected by attorney-client privilege.

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Frequently asked questions

Who has to pay the California billionaire tax?

As proposed, Proposition 40 applies to California residents, and certain trusts, with a net worth of at least $1 billion, measured by residency on January 1, 2026 and net worth on December 31, 2026. Proponents estimate roughly 200 taxpayers would be affected.

Is the billionaire tax a one-time tax or an annual tax?

The measure is written as a one-time 5% wealth tax, payable up front or over five years with deferral charges. Supporters call it temporary. Critics question whether it would truly expire. It is proposed law and would take effect only if voters approve it on November 3, 2026.

Can I avoid the tax by moving out of California?

The measure ties liability to residency on January 1, 2026 and does not appear to include an explicit exit tax for later departures. However, residency is heavily contested and closely audited by the FTB, and leaving California does not end California tax exposure generally. Anyone relying on a move should expect residency scrutiny.

Does the billionaire tax apply to cryptocurrency and private business interests?

Yes, as written. The tax base includes nearly all financial wealth, including cryptocurrency, publicly traded securities, private equity, carried interests, and intellectual property. Private business interests are valued under a default formula unless a certified appraisal is provided.

When do Californians vote on Proposition 40?

The measure is on the November 3, 2026 statewide ballot.

What should I do if the FTB questions my residency?

Involve a tax attorney before you respond. Residency audits turn on substantive facts about where your life centers, and your early responses shape the entire examination. Call Kugelman Law at (415) 968-1780 to discuss your situation in a privileged consultation.

About the author

Alex Kugelman is the founder and managing attorney of Kugelman Law, with nearly two decades of federal tax controversy experience, including U.S. Tax Court and U.S. District Court litigation. He is admitted in California and before the U.S. Supreme Court, the U.S. Tax Court, and the U.S. District Court for the Northern and Eastern Districts of California, and served as San Francisco Chair of the Federal Bar Association Tax Division in 2018. He has been quoted in the Financial Times and the New York Post on California’s billionaire tax and the state’s residency audits of departed wealthy residents. For business owners facing IRS examinations, his colleague Otto Bosch, a former IRS Revenue Agent from the Global High Wealth group, leads the firm’s audit-defense work. This article is attorney advertising and general information, not legal advice, and it describes a proposed ballot measure as of its publication date. Every tax matter turns on its own facts. Contacting Kugelman Law does not create an attorney-client relationship.

California Residency Audits and the Billionaire Tax: What High-Net-Worth Residents Need to Know

Kugelman Law — Tue, 28 Jul 2026 16:34:38 GMT

California’s proposed billionaire tax has put the California residency audit back in the national spotlight, and made it the single most important issue for wealthy individuals who have recently left the state or are thinking about it.

As Proposition 40, the 2026 Billionaire Tax Act, heads toward a statewide vote, the California Franchise Tax Board (FTB) is preparing to scrutinize whether departing residents have truly cut ties with California or merely rearranged them on paper. If you have a substantial net worth and a California history, the question is no longer whether you moved — it is whether you can prove it.

Kugelman Law founder and managing attorney Alex Kugelman was quoted on exactly this issue in the Financial Times, in reporting that was subsequently picked up by the New York Post. His assessment of what is coming is blunt, and it is worth understanding before an audit notice ever arrives.

What the California Billionaire Tax (Proposition 40) Actually Proposes

As proposed, the 2026 California Billionaire Tax Act would impose a one-time 5% tax on the global net worth of individuals with wealth exceeding $1 billion, keyed to California residency as of January 1, 2026. The measure is headed to a statewide vote in November 2026, and its drafters of tax law academics advising the initiative have projected it could raise tens of billions of dollars earmarked largely for healthcare and education.

The detail that matters most for planning is the residency date. Because the tax is tied to residency as of the start of 2026, simply relocating afterward does not necessarily remove someone from its reach. That is precisely why the conversation has shifted from the tax itself to how California will decide who was, and who still is, a resident. (Proposition 40’s terms are as proposed and remain subject to voter approval and possible legal challenge. Anyone affected should get advice on their specific facts.)

Why Leaving California Doesn’t End the Tax Question

California is one of the most aggressive states in the country when it comes to residency, alongside New York. Leaving is not a one-time event the state simply accepts. When the financial stakes are high, the FTB opens a California residency audit to test whether a former resident genuinely abandoned California or kept a foot in the door.

Recent coverage has focused on three high-profile names said to be likely targets — Google co-founder Sergey Brin, venture capitalist and White House adviser David Sacks, and Uber co-founder Travis Kalanick — but the enforcement playbook that applies to them is the same one the FTB uses against far less famous taxpayers every year. The billionaire tax simply raises the dollar figures and the intensity.

How the FTB Decides Whether You Really Left

A California residency audit goes well beyond counting the days you spent in the state. According to the FTB’s own guidance, examiners look at whether a person “substantially severed” their California connections on departure — or whether they “maintained” California connections “in readiness for a return.” In practice, that means the FTB examines factors such as:

Where your children are enrolled in school
Where your vehicles are registered
Where your doctors, dentists, and even veterinarians are located
Where your bank accounts and financial relationships are maintained
The location and relative value of your homes, and where you spend your time
Where your professional, social, and family ties remain

The takeaway is that surface-level moves do not carry the day. As one law professor advising the initiative put it in the Financial Times, “Sending your assistant to get a driving license in Nevada, spending Christmas at your home in Miami and writing a mean tweet about California are only moves on paper.” Residency turns on the substance of your life, not the paperwork you generate around a move.

“These Fights Will Go All the Way” — Alex Kugelman in the Financial Times

Speaking to the Financial Times about how California is likely to pursue collection if the tax passes, Kugelman Law’s Alex Kugelman was direct:

“If the tax goes through, the [Franchise Tax Board] will not be afraid to try to collect it. And obviously people of that means will have the top tax litigators. These fights will go all the way.”

— Alex Kugelman, quoted in the Financial Times (and reported by the New York Post)

That is the reality high-net-worth Californians should plan around. The FTB is expected to treat these matters as worth pursuing, and taxpayers with the means to fight will do so — through the audit, through administrative appeals, and, where necessary, into court. Preparing for that reality is very different from hoping an audit never comes.

What This Means If You’ve Moved — or Are Considering It

Whether you are a billionaire named in the headlines or a business owner, executive, or tech professional with a nine-figure or eight-figure net worth, the same principles apply. A defensible change of residency is built well before an audit begins, through a consistent, documented pattern showing that your life actually moved. The worst position to be in is discovering after a notice arrives that your day counts, filings, property use, and family ties tell an inconsistent story.

If the billionaire tax passes in November, expect residency scrutiny to intensify across the wealth spectrum, not just at the very top. And even if it does not pass, California’s existing residency rules and the FTB’s appetite for high-value tax audits are not going away.

To see how your own move would hold up, start with a Residency Audit Risk Assessment, which evaluates each residency factor the way the FTB would.

How Kugelman Law Helps With California Residency Audits

Kugelman Law is a boutique tax controversy firm serving clients throughout California and nationwide from offices in San Rafael, San Francisco, and Irvine. We represent individuals and businesses facing high-stakes California residency audits and related matters, including:

Tax audit defense, including FTB residency examinations
Tax collection matters when the state moves to collect a disputed liability
Tax litigation when a dispute cannot be resolved administratively
General tax help for individuals and businesses navigating complex state and federal exposure

We do not offer free consultations. We offer paid, privileged consultations with Alex Kugelman that are fully protected by attorney-client privilege; the appropriate setting for discussing something as sensitive as your residency position and net worth.

Notable Results

Our tax controversy work has included reducing a $365,000 tax debt to a zero-dollar liability, resolving a multi-year audit and non-filing matter with a minimal payment, and successfully resolving ten years of unfiled returns. Results depend on specific facts. Past results do not guarantee future outcomes.

Talk to a Tax Attorney

Get clear, confidential answers about your tax situation.

Schedule a paid, privileged consultation with Kugelman Law. Everything you share is protected by attorney-client privilege.

Schedule a Consultation Call (415) 968-1780

Frequently Asked Questions

What is a California residency audit?

A California residency audit is an examination by the Franchise Tax Board to determine whether you were a California resident for a given tax year and therefore taxable in California. It typically arises when a high-income or high-net-worth taxpayer claims to have left the state, and the FTB tests whether the departure was genuine and complete.

Can California tax me after I move away?

Potentially, yes. If the FTB concludes you remained a California resident or did not sufficiently sever your ties, it can assert that California income and, under the proposed billionaire tax, California-linked wealth remain within its reach. This is why the timing and substance of a move matter so much.

What factors does the FTB look at to decide residency?

The FTB weighs the totality of your connections: where you spend your time, where your home and family are, where your children attend school, where your vehicles are registered, where your doctors and financial accounts are, and where your professional and social life is centered. No single factor controls; the FTB looks at the overall pattern.

Is the California billionaire tax already law?

No. As of this writing, the 2026 Billionaire Tax Act (Proposition 40) is a proposed measure headed to a statewide vote in November 2026. Its terms are subject to voter approval and potential legal challenge. Even so, the residency-audit issues it highlights already exist under current California law.

Should I get advice before I move?

Ideally, yes. A defensible residency change is much easier to establish when it is planned and documented in advance than when it is reconstructed after an audit notice. If you have already moved, it is still worth reviewing your position before a dispute arises.

About the Author

Alex Kugelman is the founder and managing attorney of Kugelman Law, a boutique tax controversy and cryptocurrency tax firm serving clients throughout California and nationwide. Admitted to the California Bar in 2008 (No. 255463) and before the U.S. Supreme Court, he has nearly two decades of federal tax controversy experience, including litigation in the U.S. Tax Court and U.S. District Court. He served as San Francisco Chair of the Federal Bar Association Tax Division in 2018 and is a member of the Marin County Assessment Appeals Board. Alex is nationally recognized for his work on cryptocurrency tax matters and has been quoted in outlets including the Financial Times and the New York Post. He earned his J.D. from Chapman University Fowler School of Law.

Talk to a California Tax Attorney About Your Residency Position

If you have left California, are planning to, or have received notice of a residency audit, the time to build your position is now — not after the FTB opens a file. Schedule a paid, privileged consultation with Alex Kugelman to discuss your specific facts under the protection of attorney-client privilege.

Call (415) 968-1780 or contact Kugelman Law to schedule your consultation.

This article is provided for general informational purposes only and is not legal or tax advice. Results depend on specific facts. Past results do not guarantee future outcomes. Reading this article does not create an attorney-client relationship.