Disclaimer: This article was originally published on January 22, 2026 and has been updated to reflect additional guidance and clarifications contained in the proposed California Billionaire Tax Act (“BTA”) as supporters continue efforts to place the measure on the November ballot.
California is considering a proposed wealth tax that would apply to a very small group of residents (approx. 200) based on their net worth, rather than their annual income. Under the current proposal, any person who was a California resident on January 1, 2026 and has a net worth of $1 billion or more as of December 31, 2026 would be subject to the tax.
If an individual’s net worth exceeds $1 billion on December 31, 2026, the tax would apply to his or her entire net worth. If net worth is below $1 billion on that date, no tax would apply. For this purpose, husband and wife are treated as one person.
Although the tax would directly affect only a limited number of households, its structure and potential consequences raise issues that extend well beyond those taxpayers. California’s tax system already relies heavily on a small group of high net-worth individuals, meaning that tax changes affecting this group can have statewide implications.
The proposal represents a significant shift from California’s traditional tax system, which is built primarily on income, sales, and property taxes. A wealth tax, by contrast, is based on accumulated assets, many of which may be illiquid and may not generate current cash flow.
Based on the current version of the proposal:
Trusts
The updated proposal clarifies that certain trusts may also be directly subject to tax:
Grantor trust assets count toward the individual’s net worth. The treatment of non-grantor trusts in certain circumstances remains complex and may require additional guidance from the Franchise Tax Board.
Under the BTA, a 5% tax would be imposed on the net worth of an individual billionaire and on the net worth of Applicable Trusts.
The rules governing valuation differ in important ways from traditional estate and gift tax valuation principles.
Business Entities
The BTA provides a specific formula for valuing business entities:
Book value of the entity’s assets plus 7.5 times the entity’s average book profits over three years.
However:
Additional important provisions include:
Excluded Assets
Some assets are excluded from net worth for purposes of the BTA, including:
U.S. Treasury Obligations
Federal law prohibits states from imposing tax on U.S. Treasury obligations, yet the BTA does not expressly address this interaction. While Treasury securities may need to be considered when determining whether the $1 billion threshold is met, federal law may prohibit the 5% tax from being imposed on that portion of net worth. This remains an area of uncertainty.
Revenue Stability and Future Tax Policy
When a state depends heavily on a small group of taxpayers, revenue can become less predictable. If behavior changes, through relocation, restructuring, or timing decisions, revenues can fluctuate significantly.
Historically, revenue volatility often leads to:
As a result, even residents far below any proposed thresholds may experience indirect effects over time. In addition, future California legislators may very well lower the threshold and apply the wealth tax to taxpayers with net worths under $1 billion.
It is also important to note that, at this stage, no one knows whether the measure will qualify for the ballot, whether it will pass, or whether it would withstand constitutional challenges if enacted.
Increased Scrutiny for Taxpayers Moving to Another State
One of the most immediate responses to higher state tax burdens is relocation planning. Proposals like a wealth tax tend to increase scrutiny around who is considered a California resident for tax purposes. Even individuals who move for lifestyle, retirement, or family reasons, not taxes, may face increased scrutiny from the California Franchise Tax Board.
Residency, Domicile, and State-to-State Transitions
One of the most significant planning considerations raised by the proposed wealth tax, and by California’s broader tax structure, is residency and domicile planning. While changing domicile can substantially reduce long-term tax exposure, the process is heavily scrutinized and must be executed extremely carefully.
A taxpayer may be considered a resident of more than one state but can have only one state of domicile. Residency is generally controlled by evaluating the days a taxpayer and their spouse are present in a given state over the relevant tax year. Generally, being present in a state for more than 182 days will establish residency. Domicile is a much more subjective test and is generally defined as the place where an individual intends to remain indefinitely and to which they intend to return after any absence. Therefore, the state must show that the taxpayer still has long-term intent to return to that state. Retaining properties, especially housing, in the subject state, or having minors or other dependents/ family remaining in the state can complicate the analysis.
To establish a new domicile, taxpayers must clearly demonstrate:
Failure to satisfy all three elements can result in risk of continued taxation by the former state.
Key Steps When Transitioning to a New State
For individuals considering a move out of California, consistency is critical. No single step proves a change of domicile on its own, but taken together, these actions help support a successful transition:
Timing Matters
The timing of a move can be just as important as the move itself. Transitions that occur close to the following may receive additional scrutiny:
Poor timing or incomplete steps can result in continued California tax exposure even after relocation.
While California’s proposed wealth tax may only apply to few residents, its implications are broader. It introduces complex valuation rules, trust considerations, and residency planning issues that require careful analysis.
For those who may approach the $1 billion threshold under the BTA’s unique valuation methodology, early modeling is critical.
For Californians considering a move, or simply watching the state’s tax landscape evolve, the proposal is a reminder that where you live, and how well you document your state of domicile, can have lasting tax consequences.
Current states without an income tax are Alaska, Florida, Nevada, North Dakota, Tennessee, Texas, and Wyoming. Click here for a list of all states and their tax rates.
Additional information regarding other tax saving opportunities can be found on our website here, including this article about leaving California.
For detailed guidance on whether relocating or tax planning we encourage you to contact the HCVT team with any questions.
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