Robert W. Wood
Managing Partner
Wood LLP
333 Sacramento St
San Francisco , California 94111-3601
Phone: (415) 834-0113
Fax: (415) 789-4540
Email: wood@WoodLLP.com
Univ of Chicago Law School
Wood is a tax lawyer at Wood LLP, and often advises lawyers and litigants about tax issues.
For Californians considering a move out of state, the proposed billionaire tax on November's ballot is a reminder that where you live, when you leave and how well you document your change of domicile can have lasting tax consequences. California's Franchise Tax Board has long scrutinized moves to other states, particularly those occurring shortly before major income events. Proposition 40 could add another layer of controversy over residency, timing and the state's authority to collect taxes from people who have moved away.
The proposed one-time 5% tax would apply to billionaires who were California residents on Jan. 1, 2026. Yet the value of their assets would be assessed nearly a year later, on Dec. 31, 2026. This retroactive feature is among the measure's most controversial provisions. Some billionaires reportedly have already left California, including Mark Zuckerberg, Sergey Brin and others. But even if they left well before the tax is approved, it is not clear whether their departures during early 2026 would be enough to exempt them.
The initiative was filed with the state attorney general's office on Oct. 22, 2025, and received formal clearance to collect signatures on Dec. 26, 2025. It was not until June 2026 that sufficient signatures were collected to place it on the ballot. If a billionaire left California sometime during 2026, are they safe? There will almost certainly be litigation over the retroactivity of the tax, although California has successfully enacted and enforced retroactive tax legislation before. The precise timing of a taxpayer's departure could become particularly important.
When did you really leave California?
California's Franchise Tax Board has always scrutinized changes in residency to ensure that the state receives its share of tax revenue. Some of the most alluring destinations for departing Californians are states without individual income taxes: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas and Wyoming. But just about every state has lower taxes and a lower cost of living than California.
One of the FTB's biggest targets is people who move away shortly before a major income event. By the time an audit occurs, it may be clear that the taxpayer established residency elsewhere. But not every event associated with a move occurs on the same day. The exact timing of a change in domicile is therefore a frequent source of controversy. If the FTB can successfully argue that the effective date of a move was a few months, or even a few days, later than claimed, the tax impact may be severe.
Even individuals who relocate for lifestyle, retirement or family reasons rather than taxes may face increased scrutiny. The important question is not simply whether someone has moved, but whether that person can establish when California residency actually ended. The billionaire tax makes that question particularly consequential for taxpayers whose departure occurred around Jan. 1, 2026.
More than a billionaire's problem
Although the direct targets of Proposition 40 allegedly number only a couple of hundred people, other Californians could encounter new tax compliance issues. Under the proposal, California income tax returns would include a certification concerning whether taxpayers possess $1 billion or more in assets. For most Californians, answering that question would be easy, maybe even amusing. But someone approaching the billionaire threshold might need professional advice concerning asset valuations and how to answer accurately.
Tax returns are signed under penalty of perjury. In other contexts, incorrectly checking a simple yes-or-no box has been used by the government as evidence of fraud or tax evasion. Examples include questions concerning foreign bank accounts and digital asset transactions. A seemingly straightforward certification can therefore have significant consequences.
There will also be difficult questions about valuing assets and determining what is subject to the tax. Because real estate is generally excluded, billionaires may consider converting other investments into real estate or incurring debt to reduce taxable net worth. However, the measure includes an anti-abuse provision allowing the FTB to disregard transactions that lack economic substance or are undertaken to obtain a tax benefit.
The uncertainty doesn't end with Proposition 40
Other wealthy Californians may worry about what comes next. Although Proposition 40 is described as a one-time tax on billionaires, California has considered broader wealth taxes before. In 2022, legislation proposed taxing households worth more than $50 million, with a higher rate for billionaires. A 2020 proposal would have imposed a wealth tax beginning at $30 million in assets. Neither proposal passed, but their existence may cause some Californians who are still far from billionaire status to wonder whether future taxes could reach them.
If voters approve Proposition 40, litigation over its constitutionality, retroactive application and administration is likely. Tax advisers will also face questions about residency, asset valuations and strategies intended to minimize liability. The FTB, in turn, will have to determine how the new tax should be administered and enforced.
The larger lesson is that a tax ostensibly affecting only a few hundred people can raise questions of considerable importance for California taxpayers and their advisers. Whether Proposition 40 passes or fails, the debate underscores the importance of understanding California's residency rules, documenting a change of domicile and recognizing that even small disputes over timing can have enormous tax consequences.