California to cash in 5% of billionaires in one go? Some are moving overnight.

Author: Janet Novack , Forbes

Translation: Lemin , Forbes

Original title: California's "Billionaire Tax" Sparks Controversy; the Wealthy Intend to Vote with Their Feet

This innovative move aims to collect more taxes from the state's super-rich – who, according to some, are not being taxed in proportion to their wealth. The proposal is expected to be put to a vote by California voters in November.

Critics argue that the proposed one-time 5% tax on the assets of California billionaires could jeopardize the San Francisco Bay Area's economic recovery fueled by the artificial intelligence industry. Image credit: STEVE PROEHL/GETTYIMAGES

California's proposed wealth tax has enraged a host of California billionaires, some of whom have even threatened to relocate (and some have already begun taking action). However, despite its novelty and careful planning, the proposal still has a long way to go before becoming law and being implemented. The proposal is being pushed forward through a referendum; if it collects enough signatures, it will be put to a vote in November by California voters, whose political stances are notoriously volatile. California voters have historically been willing to vote in favor of measures to increase taxes on the wealthy; however, in 1978, they also voted to pass Proposition 13, which imposed strict limitations on California's property taxes.

Currently, the proposal has not only faced unanimous opposition from the business community, but California Governor Gavin Newsom has also expressed his dissent. Critics argue that this move could trigger a large-scale exodus of tech entrepreneurs (and their businesses and jobs) from California, leading to a long-term decline in the state's income tax revenue. However, the proposal's drafters have refuted this view.

The 2026 Billionaire Tax Act proposes a one-time 5% sales tax on the assets of California's billionaires. Four academics involved in drafting the bill estimate that it would collect approximately $100 billion in taxes from over 200 California billionaires (they stated this estimate is based on Forbes' valuation of billionaires' net worth).

This funding will be rolled over to California's coffers between 2027 and 2031, forming a dedicated fund primarily to fill funding gaps in the federal Medicaid program. The tax has a broad scope, covering equity in unlisted companies, publicly traded stocks, personal assets exceeding $5 million, and retirement accounts exceeding $10 million. The only significant exemption is for real estate held directly through a revocable trust—a provision partly designed to avoid conflict with Proposition 13. Under Proposition 13, the property tax rate is capped at 1% of the property's assessed value, with an annual increase in assessed value not exceeding 2% unless the property changes hands. However, real estate held through partnerships or included in the assets of a business is still subject to this tax.

In late November of last year, the proposal was submitted to the California Attorney General's office in a 32-page document. The document stated that wealthy individuals could choose to pay this one-time tax in installments over five years, but would be required to pay interest. For wealthy individuals who primarily hold privately held, less liquid assets (such as equity in unlisted startups), they could enter into a "selective tax deferral account" agreement with the state government, delaying tax payments until the sale of the equity or the withdrawal of cash from the assets.

This proposal, initiated by the Service Employees International Union – United Healthcare Workers Western Division (SEIU-UHW), was first announced last October. Its provisions are designed to explicitly prevent billionaires from evading taxes through relocation or manipulating asset valuations. While the tax base is the billionaire's net worth as of December 31, 2026, tax residency is determined on January 1, 2026.

It appears that some billionaires are attempting to relocate to California by the end of 2025, with the most notable being Google co-founder and Alphabet's largest individual shareholder, Larry Page. Last December, Page purchased two properties in Miami for $173.5 million, and his affiliated companies also relocated out of California around the same time, just before the crucial deadline. However, completely severing California tax residency is a lengthy process, and the California tax authorities have historically taken a firm stance on such matters, sometimes successfully rejecting wealthy individuals' hasty relocations or claims of non-resident status for tax avoidance.

Last September, the California Office of Tax Appeals ruled that Canadian comedian Russell Peters must pay back taxes for the years 2012 to 2014 and recognized him as a California tax resident during that period. Although Peters owns a home, apartment, and driver's license in Nevada, a state exempt from state income tax, has three companies registered in Nevada, and declared himself a non-resident in California with a Canadian address, the court found that Peters also owns property in California, his daughter with his ex-wife resides in California, and his credit card statements showed that he spent more days in California than in any other state.

The court cited the 2021 case of Bracamonte, in which a couple who attempted to relocate to Nevada to avoid taxes arising from the sale of a business valued at over $17 million lost their case. That precedent established a broad standard requiring courts to comprehensively consider all evidence, including taxpayer registration information within the state, personal and professional affiliations, actual residence time, and property ownership, to determine their tax residency.

“The determination of California tax residency is entirely subjective,” says San Francisco tax attorney Shail P. Shah. One of Shah’s areas of expertise is handling tax residency disputes, and he wrote an article after the Bracamont case with a cleverly titled “Social Distancing From California.”

Shah points out that these rules essentially require judges to determine whether a California taxpayer truly intends to permanently leave California and sever all ties with the state. For tech billionaires who have spent decades in Silicon Valley and amassed enormous wealth there, proving this is no easy feat. “If you’re a billionaire, have a huge social network in California, play at Pebble Beach Golf Links regularly, and grew up in Palo Alto, it’s hard to argue that you don’t intend to return to California.”

However, Jon D. Feldhammer, a tax lawyer and head of the San Francisco office of Baker Botts LLP, said that several billionaires have consulted him about the bill, and they are all seriously considering moving out of California, completely severing ties with the "Golden State," and even planning to move their businesses along with it.

But isn't it too late to act now? Shouldn't they have taken action last year?

Feldhammer responded that this might not be the case. Last December, Feldhammer and his team published an analysis outlining eight possible paths to challenge the bill—either from the perspective of the federal constitution, the state constitution, or both. One of these involves the bill's retroactivity: if voters pass the tax in November, its application will be retroactive to tax residents residing in California as of January 1st of this year. While the U.S. Supreme Court has previously allowed amendments to federal income tax and estate tax rules to be retroactive to the beginning of the year (for example, the Trump Big and Beautiful Act passed in July 2025 includes several retroactive provisions), Feldhammer points out that the current Supreme Court's stance is nuanced and may not recognize the retroactive effect of the new tax. His advice to billionaires is: "To maintain your defense against the bill's retroactivity, it's best to relocate before the vote, and the earlier the better."

Besides the constitutional controversies, the implementation of this bill may also face numerous obstacles.

To this end, the proposal includes numerous preventative clauses aimed at preventing wealthy individuals from undervaluing or concealing assets. For assets of unlisted companies, the default valuation method is "book value + annual book profit × 7.5 times," and the valuation result cannot be lower than the company's valuation in its previous round of financing. If taxpayers believe the valuation is too high, they can submit an asset appraisal report and other evidence to request a review. For personal assets such as artwork and jewelry, the valuation cannot be lower than their insured amount. Donations to charities are deductible from taxable assets, but taxpayers must sign a legally binding donation agreement before October 15, 2025. Furthermore, directly held real estate purchased in 2026 will not be exempt from exemption if it is deemed to be for tax avoidance purposes.

Of course, the bill still has a long way to go before it becomes law.

A PwC analysis report points out that before being submitted to a vote, the proposal must first be certified by the state government and collect 875,000 valid voter signatures by the end of June this year. Even if the proposal passes, it will inevitably face fierce litigation from those subject to the tax, and the drafters have attempted to mitigate this through clause design or by directly dismissing potential lawsuits. In the proposal's "expert report" released last December, four scholars (three law professors and Emmanuel Seth, an economist at UC Berkeley and director of the Stone Center for Wealth and Income Inequality) emphasized that the general injunction against wealth taxes in the U.S. Constitution only applies to the federal level, while states "have long been recognized as having the power to levy wealth and property taxes on residents, provided that due process and other constitutional protections are followed." The proposal also explicitly proposes amending the California State Constitution to circumvent state constitutional litigation challenges.

The four scholars dismissed the claim that a wealth tax would cause billionaires to leave the country, leading to a long-term decrease in state income tax revenue. David Gamage, a tax law professor at the University of Missouri and one of the proposal's authors, stated, "This is simply alarmist. It's all talk and no action, with no real basis in reality."

But the Office of Legislative Analysts (LAO), a nonpartisan organization in California, holds a different view. In a brief assessment released last December, the office noted that the bill could cost California hundreds of millions of dollars, or even more, in personal income tax revenue annually. Feldhammer stated that this estimate might still be too conservative. If the billionaires he is consulting with do indeed relocate their businesses out of California, the state will not only lose income tax revenue from these billionaires but also from personal income tax paid by their employees and corporate income tax revenue.

California already boasts one of the highest individual income tax rates in the nation, at 13.3%, including a surtax passed by voters in 2004—an additional 1% tax on income exceeding $1 million. In 2012, California voters further approved three new, higher tax brackets for individuals with taxable income exceeding $250,000 or married couples with joint taxable income exceeding $500,000. This policy, initially temporary, has been extended to 2030. The California Legislative Analyst Office, analyzing another referendum proposal to make the high tax rate permanent, points out that currently, half of California's individual income tax revenue comes from the wealthiest 2% of the population.

However, scholars involved in drafting the proposal cited a recent paper by Seth and other economists—which examined the tax situation of those listed on the Forbes rich list—pointing out that billionaires pay only about 2.5% of California's total personal income tax revenue. The scholars explained that unlike ordinary members of the top 2% (such as high-income corporate executives, doctors, lawyers, and small business owners), the super-rich have more ways to avoid their wealth being considered taxable income. For example, they can maintain a luxurious lifestyle by pledging stocks to obtain loans, rather than selling stocks and triggering capital gains tax obligations. The four scholars wrote in the proposal's explanatory notes: "A billionaire tax would directly correct this injustice by taxing all wealth, regardless of whether it has been converted into taxable income."

San Francisco tax lawyer Shah said the real concern is that the controversy surrounding the proposed billionaire tax—though he believes it will ultimately be difficult for the proposal to pass—could send the wrong signal and hinder the San Francisco Bay Area's recovery from the pandemic recession. "Currently, the booming artificial intelligence industry is providing strong momentum for the Bay Area's recovery, but everyone is worried that such tax increases will drag down that momentum. Everything in excess has its limits."

“The negative impact has already occurred and continues to escalate,” Feldhammer warned. He gave the example of a hot startup whose founder becomes a paper billionaire by the end of 2026. However, if the company's valuation subsequently plummets before the founder has a chance to cash out, he will still have to pay taxes on this non-existent wealth. Furthermore, even if the company's valuation remains stable, the founder will eventually have to sell shares to pay wealth taxes. The proceeds from the share sale are also subject to a combined federal and California capital gains tax of 37.1%, meaning they must sell even more shares to pay income tax, resulting in a continuous dilution of their equity stake.

Objectively speaking, California is not alone in the race to "tax the rich"; it also has allies in provoking the anger of billionaires. New York City boasts the highest combined state and city income tax rate in the nation, with a 3.9% city-level top tax rate on top of the state's 10.9% cap. Newly elected Mayor Zohran Mamdani campaigned on a promise to raise the city-level tax rate on incomes exceeding $1 million to 5.9%, bringing the combined tax rate to 16.8%. Despite numerous billionaires spending heavily to obstruct his campaign, Mamdani was elected last November. This outcome undoubtedly worries the California camp, which is vehemently opposing the billionaire tax proposal.