California billionaire tax: the residency date is the risk

Proposition 40 fixes who it taxes ten months before California votes on it. Residency is tested on 1 January 2026; the vote is on 3 November 2026. The Attorney General issued the official title and summary on 26 December 2025, six days before that date. A residency date set before the campaign starts means that waiting for a measure to be announced is already too late. For anyone who left California in late 2025, the vote is not the main risk. The main risk is the residency audit that follows it, and an offshore trust gives no protection there.

What the measure actually taxes

The text, filed with the Attorney General as initiative 25-0024 (the version cleared for circulation is amendment 25-0024A1) and titled the 2026 Billionaire Tax Act, adds a new part to the Revenue and Taxation Code. It imposes a one-time excise tax for tax year 2026 on individuals with net worth of $1 billion or more, and on "applicable trusts". A taxpayer and spouse are treated as one individual. The rate is 5% of net worth, reduced for individuals whose net worth is below $1.1 billion.

Two dates do all the work, and they are deliberately different. Residency is determined as of 1 January 2026, and net worth is measured as of 31 December 2026. Someone resident on New Year's Day 2026 who moves to Texas in February is still liable on whatever they are worth at the end of the year. Holland & Knight reports a default of 100% apportionment to California, which alternative apportionment ordinarily cannot reduce below 25%. The usual part-year arithmetic of California income tax therefore gives little relief.

The tax base is worldwide and broad. Real property held in a revocable trust is excluded, as are qualified pensions and retirement accounts, with Roth accounts excluded only up to $10 million of present value. The first $5 million of all other assets is also excluded. Tangible property kept outside California for at least 270 days of 2026 is excluded. Private businesses are valued by formula rather than appraisal: book value plus 7.5 times average annual book profits, multiplied by the ownership share. Property transferred for less than fair market value after 15 October 2025 is added back if its value exceeds $1 million, and charitable pledges made after that date do not reduce net worth.

The tax is reported with the 2026 California income tax return, due 15 April 2027. Taxpayers can elect to pay in five equal annual instalments, with a nondeductible deferral charge of 7.5% a year on the unpaid balance. Baker Tilly reports a 20% penalty for a substantial understatement and 40% for a gross understatement. It also reports that section 50309(b)(3) gives the Franchise Tax Board ten years from filing to assess, against the usual four. Holland & Knight puts the 20% penalty at an understatement above $1 million.

CalMatters puts the number of Californians affected at about 200 and says most of the revenue goes to Medi-Cal. The sponsor, the healthcare workers' union SEIU-UHW, projects about $100 billion over five years.

The residency date is the whole design

Most commentary treats the 1 January 2026 date as a technicality. It is the main design choice in the measure, and it changes how wealth-tax risk should be modelled.

The usual assumption is that a wealth tax gives warning. A proposal is published, debated and amended, then voted on, and the taxable population can respond at any point before it takes effect. Exit taxes tie liability to the date of departure, so leaving in time is a choice the taxpayer controls. Proposition 40 reverses that. A resident who waited for the official title and summary had less than a week to change domicile. The Act also uses a second date, 15 October 2025, for its anti-avoidance rule on transfers, so gifts made while the measure was being drafted count too.

The measure was not secret. Advisers to the very wealthy saw it coming, and the departures show it. The Hoover Institution published a study on 5 March 2026 that counted six billionaires who left California publicly between the initiative's filing and the residency date. It calculated that they took $536 billion, nearly 30% of aggregate California billionaire wealth, out of the tax base. The San Francisco Standard's tracker, published on 15 January 2026, reported the following:

• Larry Page: more than 45 California LLCs linked to him were made inactive or moved out of state, and a trust with ties to him bought a $71.9 million house in Coconut Grove, Miami.
• Sergey Brin: an entity connected to him terminated or moved 15 California LLCs, and seven became Nevada entities.
• Peter Thiel: his firm Thiel Capital announced a Miami office, and a donation disclosure states he is based in Florida. He also keeps a home and business in Los Angeles.

The lesson for families below the billionaire threshold is not that this measure reaches them, because it does not. The lesson is that the drafting technique now exists and has qualified for a statewide ballot. A future measure with a lower threshold can use the same backdated date. Residency planning that waits for a bill to be announced is therefore working to the wrong timetable.

Where the real fight is: domicile on 1 January 2026

For anyone who left in late 2025, the vote matters less than the audit. Baker Tilly describes the test as residency on a single calendar day, 1 January 2026, and a taxpayer who moved in late 2025 will have to document the facts of that date. The Act's own residency provision is not reproduced in any summary we found. The best guide to how the Franchise Tax Board will apply the test is therefore its existing income tax residency rules, which favour the state.

Section 17014(a) treats as resident anyone in California "for other than a temporary or transitory purpose", and anyone domiciled in California who is outside it for a temporary or transitory purpose. Section 17014(c) adds that a resident "continues to be a resident even though temporarily absent from the state." The Franchise Tax Board's Publication 1031 sets out what changing domicile requires. You must abandon your prior domicile, physically move to and live in the new place, and intend to remain there "permanently or indefinitely as demonstrated by your actions." It also states the rule that decides close cases: "You can have only one domicile at a time. Once you acquire a domicile, you retain that domicile until you acquire another."

That last sentence is where weak exits fail. Buying a house in Miami in December does not change domicile. Neither does registering to vote in Nevada or moving an LLC to Reno. The test is whether the old domicile was given up by 31 December 2025. Publication 1031 lists the evidence the board weighs, including time spent in and out of California, where your spouse and children live, your principal residence and the state that issued your driver's licence. It also says that "it is the strength of your ties, not just the number of ties, that determines your residency." A family whose children finished the school year in Palo Alto, or a founder who flew back to the same Menlo Park office every week in January 2026, has a hard argument to make.

There is a timing trap that most departing families have already fallen into. A resident who left in 2025 filed a part-year return for that year, due 15 April 2026. On it they stated the date their California residency ended. That date was chosen for income tax purposes, before the measure had qualified. It now carries a different price. If the board can push the date of change past 1 January 2026, it does more than move some 2025 income onto the resident side of the return. It brings the whole 5% net worth tax into play, with a reported ten-year assessment window and penalties of up to 40%.

If the measure is enacted, we expect departures by people above the threshold to be examined. A disputed change of domicile also matters for 2025 income tax whatever happens on 3 November.

Why an offshore non-grantor trust does not help

The usual reflex, moving assets into a trust outside California, fails here in two separate ways.

First, the look-through. For the $1 billion threshold, the Act counts 100% of property transferred to a trust in 2026 and 75% of property transferred in 2025. A trust funded during the campaign therefore does not take assets out of the threshold test.

Second, and more importantly, the trust is taxed in its own right. EY describes an applicable trust as one into which a billionaire has transferred property. Arent Fox Schiff, writing for family offices, says it pays 5% of its entire net worth with no separate $1 billion threshold, and that the rules can reach transfers whenever they were made. None of the summaries we read makes the tax turn on where the trustee sits, and EY says beneficiaries are treated as owning distributable trust assets "regardless of where the trust is resident". On our reading, liability follows the settlor's California residency, not the trust's location.

Grantor trusts were never protection in the first place: EY notes that an individual's net worth includes the net worth of any grantor trust they own. On this reading, no trust structure, onshore or offshore, takes value out of a resident billionaire's tax base. The only variable that changes the result is residency on 1 January 2026.

A worked example

Take a founder with $2 billion of net worth on 31 December 2026, valued under the statutory formula. Of that, $1.6 billion is held personally and $400 million sits in a non-grantor trust in a Crown Dependency, settled in 2021 and run entirely outside the United States.

If the founder was resident in California on 1 January 2026:

• The founder owes 5% of $1.6 billion, which is $80 million.
• The trust is an applicable trust because the founder funded it. It owes 5% of $400 million, which is $20 million, wherever the trustee sits.
• The total is $100 million, exactly the 5% of $2 billion the founder would have owed with no trust at all. The structure saved nothing.

Paid in five equal instalments of $20 million, with a 7.5% annual charge on the unpaid balance, the later instalments would carry charges of $6 million, $4.5 million, $3 million and $1.5 million. That adds $15 million, for a total of about $115 million. This is our illustration. It assumes the charge runs on the balance outstanding before each instalment, and that assumption should be checked against Franchise Tax Board guidance.

If the founder was domiciled outside California on that date, we expect both lines to be zero, because the trust's settlor is not a California resident. The whole $100 million depends on one fact about one day, judged by a board that may have ten years to examine it and penalties of 20% or 40% to apply.

The ballot can still kill it, and that does not end the risk

The measure may never take effect. Two counter-measures share the ballot. Proposition 41 would subject the revenue to state spending limits and audits. Proposition 42 would prohibit retroactive taxes and ban new taxes on personal property, including pensions and 401(k)s. Both are backed by Sergey Brin, and Proposition 40 is nullified if either gets more votes than it does. Governor Newsom endorsed Proposition 42 in early October. CalMatters reports, citing the Public Policy Institute of California, a slim majority of likely voters in favour of Proposition 40.

None of that helps a late leaver. A residency position strong enough to survive a 2026 wealth-tax audit also has to hold up in the ordinary 2025 income tax audit, which goes ahead whatever the outcome on 3 November. For anyone still deciding, the more useful conclusion is the general one. Once a measure can fix its residency date before it is announced, a change of domicile only protects you if it was completed before the politics started.