A version of this article first appeared in CNBC’s Inside Wealth newsletter by Robert Frank, a weekly guide for high-net-worth investors and consumers. Sign up to receive future editions directly to your inbox.
California’s proposed millionaire tax includes special provisions that would make it highly unlikely that someone who wants to leave the state would be able to avoid paying, tax attorneys say.
The Billionaire Tax Act, which could be added to the state’s general election ballot in November, would impose a one-time 5% tax on the total assets of California taxpayers with a net worth of $1 billion or more. New taxes typically take effect after approval, but the proposed millionaire tax would apply to California residents as of January 1, 2026. The retroactive date left California’s estimated 200 to 250 millionaires with little time to change their tax residence after first learning of their potential taxes in December.
“It’s obvious why they did this,” said Christopher Manes of Manes Law. “If we had set the date in November, we would have been able to get 200 people out in time after it passed, and we would have saved millions of dollars.”
California tech billionaire Peter Thiel announced last week that he has “established a significant presence in Miami in recent years, maintaining a private residence in the city since 2020” and maintaining an office for his venture capital firm Founders Fund since 2021. Lawyers told CNBC that at least other unnamed California billionaires have moved or are planning to move since late last year.
But NVIDIA CEO Jensen Huang, a California billionaire, told Bloomberg he was “absolutely fine” with the proposed tax.
“I have to say, I’ve never thought about it,” Huang told Bloomberg. “We chose to live in Silicon Valley, and whatever taxes they impose, so be it. I’m totally fine with that.”
The United Health Care Workers West, an international union that supports the bill, said the proposed start date is to ensure billionaires “cannot avoid liability by transferring their assets or claiming residency elsewhere.” They say the estimated $100 billion in revenue that would be raised is intended to offset health care cuts made by the Washington government and “ensure the wealthy pay their fair share.”
But lawyers say the aggressive schedule is likely to invite legal challenges. And it underscores a growing question for California tech founders and investors: how to plan a quick move to a lower-tax state before a major liquidity event or company sale. With artificial intelligence driving a new wave of wealth creation in California, which added an estimated 50 new billionaires last year, California tax advisers said they were seeing an influx of new business even before the wealth tax was proposed.
California’s rules regarding tax residency are complex. New York’s residency rules are based on “place of residence” and whether a person stays in the state for more than 183 days, while California uses a criterion called the “nearest connection test.” Manes said the test uses a wide range of rules and metrics to weigh a taxpayer’s ties to California and their new home. These measures typically include residence, social and family contacts, assets, and employment.
The second rule may apply if you change your residence for tax purposes or claim to be non-resident. For example, in addition to purchasing or renting a home in another state, California taxpayers must prove that they live there through family photos, heirlooms, and other signs of a true primary residence. A change of residence must be made before any taxable event, such as a wealth tax or liquidity event.
“Intention is key,” Manes says. “You must indicate that you intend to leave California indefinitely and permanently.”
Lawyers say it is nearly impossible to successfully evade California’s wealth tax proposal because a change of residence takes time to establish (usually several months).
“The ship has ostensibly sailed,” Maness said.
Of course, it’s unclear whether California voters will approve the measure. California’s tax increases on ballots have a checkered history, and Gov. Gavin Newsom is coordinating efforts to defeat the bill.
Lawyers also say the retroactivity provision provides certain targets for litigation. In addition to a broader lawsuit alleging the tax is unconstitutional, taxpayers who opted out before November could argue that the retroactive date violates due process, lawyers said. While the Supreme Court has allowed some retroactive taxes when there is a “reasonable legislative purpose,” it is unlikely to approve “the creation of an entirely new tax,” lawyers said.
“The strongest legal challenge will likely come from people who left their jobs before it passed,” said John Feldhammer, a tax partner at Baker Botts.
Feldhammer said that on strong legal grounds, some wealthy Californians are planning to leave the state this year after the Jan. 1 effective date and before taxes go to voters in November.
The billionaire has a large team of lawyers, accountants and logistics planners, so he can mobilize quickly and ensure that all requirements for a change of residence are met. They also typically already have homes in multiple locations and can more easily switch residences, he said.
“You’re talking about the most portable class in America,” Feldhammer said. “They have the means and ability to move very quickly.”
