If you haven't left California yet, it's probably too late (for tax purposes).

If you haven't left California yet, it's probably too late (for tax purposes).

At least if you're a billionaire trying to avoid the wealth tax on California's November 3 ballot.

Proposition 40 would impose a one-time tax of up to 5% on covered net worth. It looks at whether you were a California resident on January 1, 2026, but values your wealth on December 31, 2026. Moving before the election would not necessarily get you out of it.

The New Yorker recently covered the fight over the proposal (link in the comments).

A tax on the value of a business can require cash the owner has never received.

Say an individual has $1.2 billion of taxable net worth after applying the proposal’s exclusions and debt rules. The tax would be $60 million. At that level, the 5% applies to the full $1.2 billion.

Now find the $60 million.

The money may be tied up in the business. You might have to sell an interest, borrow, or take a distribution. A sale or taxable distribution can create an income-tax bill, so you may need to raise more than $60 million to have $60 million left to pay California.

And we have to figure out what counts. Directly held real estate, including through a revocable trust, would be excluded. An interest in an entity owning real estate would not automatically be excluded. Trusts, debt and private-business valuations have their own rules. For individuals, the rate phases in between $1 billion and $1.1 billion.

Payment would generally be due with the 2026 income taxes, in 2027. The proposal allows five annual installments, but subsequent installments carry a 7.5% annual nondeductible charge on the remaining unpaid balance. There is also a separate deferral-account option with additional conditions.

We can do the planning before we know the vote. What would be taxed? What is it worth? Where would the cash come from? What would it cost to sell, borrow or pay over time?

Then run it both ways: the tax takes effect, and it doesn't.

If a family spends money moving or restructuring its holdings, it has spent that money whether the tax takes effect or not. Families are incurring these planning costs now, no matter what happens - and they have with the retroactive start date written into the law. Should you be planning now too?