Blake Christian, HCVT Tax Partner | Seth Quinn, HCVT Tax Principal | Austin Bowen, HCVT Tax Manager

January 22, 2026

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, the tax would apply only to residents of California, as of 1/1/2026, whose net worth exceeds $1 billion.

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.

Who Would Be Directly Affected

Based on the current version of the proposal:

• The tax would apply to individuals whose net worth exceeds $1 billion. Other assets (trusts, assets held by dependents) may also be factored into that calculation.
• The tax would be calculated only on the value of assets exceeding the $1 billion threshold.
• Net worth generally includes worldwide assets, not just assets located in California.
• Assets in consideration will likely include:
• All assets owned by the taxpayer and their spouse (including interests in entities, valued in accordance with the 2026 Billionaire Tax Act),
• Assets held in or transferred to any grantor trusts,
• The entire value of assets transferred to non-grantor trusts during 2026, and 75% of the value of assets transferred to non-grantor trusts during 2025,
• The value of any philanthropic pledges made after October 15, 2025 as well as any pledges that are not legally enforceable, and
• Most transfers of property exceeding $1 million for less than fair market value after October 15, 2025.

Why The Wealth Tax Matters, Even If You’ll Never Pay the Tax

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:

• Difficult budget decisions
• Delayed or reduced public projects
• Broader conversations about new or expanded taxes

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.

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:

1. Abandonment of the prior domicile,
2. Physical relocation to the new state, and
3. Intent to remain permanently or indefinitely, as evidenced by actions rather than statements.

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:

1. Clearly Establish a New Primary Home
   • Purchase or lease a residence in the new state
   • Designate it as your primary residence where applicable
   • Remove any property tax homestead exemption on any retained California property
   • Reduce use of any California residence, especially year-round use, ideally renting the property out or at least holding it out for rental
2. Change Legal and Government Records
   • Obtain a driver’s license in the new state
   • Register to vote in the new state
   • Register vehicles in the new state
3. Move Day-to-Day Life
   • Redirect mail to the new state
   • Move banking relationships and safe deposit boxes
   • Update addresses with financial institutions and advisors
4. Track Your Time
   • Keep detailed records of days spent in each state
   • Maintain travel or flight logs, especially for California visits
5. Reduce Ongoing California Ties
   • Review business involvement, professional licenses, and social connections
   • Be mindful of where work is performed and income is earned
   • Understand that income tied to California may remain taxable even after a move

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:

• A business sale
• A major investment event
• Retirement or compensation changes

Poor timing or incomplete steps can result in continued California tax exposure even after relocation.

Bottom Line

While California’s proposed wealth tax may only apply to few residents, its implications are broader. It heightens the focus on residency, underscores the importance of careful planning when moving, and may influence future tax policy decisions.

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.