/California wealth tax proposal leaves billionaires with little way out
- A proposed California tax on the ultra-wealthy includes a provision that makes avoiding it extremely tough, according to tax attorneys.The Billionaire Tax Act, possibly on the November ballot,...
- "The reason they did this is obvious," said Christopher Manes of Manes Law.
- Peter Thiel recently announced establishing a significant presence in Miami, and at least two other unnamed billionaires have moved or are planning to move, attorneys told CNBC.
California Billionaire Tax Designed to Prevent Escape
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A proposed California tax on the ultra-wealthy includes a provision that makes avoiding it extremely tough, according to tax attorneys.The Billionaire Tax Act, possibly on the November ballot, would impose a one-time 5% tax on the total wealth of California residents worth $1 billion or more, applying retroactively to those residing in the state as of January 1, 2026.
“The reason they did this is obvious,” said Christopher Manes of Manes Law. “If they had made the date in November,after passage,you’d have 200 people who coudl get out in time and save millions of dollars.”
Several billionaires have already begun relocating. Peter Thiel recently announced establishing a significant presence in Miami, and at least two other unnamed billionaires have moved or are planning to move, attorneys told CNBC. Though, Nvidia CEO Jensen Huang said he is “perfectly fine” with the proposed tax, telling Bloomberg, “I’ve got to tell you, I have not even thought about it once.”
A Tight Timeline and Legal Challenges
The Service Employees International Union-United Healthcare Workers West, backing the bill, stated the start date aims to prevent billionaires from avoiding the tax by moving assets or residency. They estimate the $100 billion in revenue would offset healthcare cuts and ensure the wealthy “pay their fair share.”
However, the aggressive timeline is expected to trigger legal challenges. The proposal raises questions for California tech founders and investors about quickly relocating to lower-tax states before a liquidity event or company sale. Tax advisors report a surge in business as AI drives wealth creation – adding an estimated 50 new billionaires last year.
Residency rules and Intent
California’s tax residency rules are complex. Unlike New York’s “domicile” and 183-day rule, California uses the “closest connection test,” weighing a taxpayer’s connections to California versus their new home state, including residency, social contacts, assets, and work.
“intent is critical,” Manes said. “You have to show you intended to leave California indefinitely, permanently.”
Attorneys say successfully escaping the tax would be nearly impossible due to the time required to establish a new residency - typically months. “On its face, the ship has sailed,” Manes said.
Potential Lawsuits and Future Outlook
The measure’s fate remains uncertain, with a mixed history of tax increases on California ballots and opposition from gov. Gavin Newsom. The retroactive provision is likely to face lawsuits,potentially claiming it violates due process. While the Supreme Court has allowed some retroactive taxes, it’s less likely to approve a “wholly new tax,” attorneys say.
Jon Feldhammer, a tax partner at Baker Botts, believes the strongest legal challenges will come from those who leave before the vote.Some wealthy Californians are already planning to leave this year, after the January 1 effective date but before the November election.
“You’re talking about the most portable class in America,” Feldhammer said. “They have the means and ability to move very quickly.”