Wealth taxes popping up at the state level are causing some high-net-worth taxpayers to question their future tax planning strategies — while others are simply relocating. Tax experts delved into these new tax approaches and what’s driving them.
Anthony Sciarra, partner-in-charge of tax at Armanino, highlighted the difference between wealth taxes and current income- and transaction-based taxes. And a recent Deloitte panel provided updates on efforts in California, New York City, and Washington state to impose new taxes on high-net-worth individuals.
Wealth taxes generally
Sciarra told Checkpoint that taxpayers have long planned around income and transaction taxes, not asset-based taxes like a wealth tax. The exception, he said, is in real estate, “where you’re basically being taxed on something, the value of which is determined by someone else” and not by the “actual marketplace.”
With current taxes largely limited to income and transactions, typical practice for high-net-worth taxpayers is to “leverage their balance sheet in a way that was tax efficient,” said Sciarra. Under that practice, these taxpayers take the position: “I’m not going to monetize all of my assets today because I can leverage those assets.”
“The whole motivation for a wealth-based tax is to get at those assets before the transaction occurs,” said Sciarra.
California’s proposed billionaire tax
California Proposition 40, the 2026 Billionaire Tax Act, would impose a one-time 5% excise tax on California residents with $1 billion or more as of December 31, 2025. Deloitte’s Chris Campbell described the intricacies of the proposition during the firm’s July 23 webinar.
The California initiative applies to anyone who was a California resident as of January 1, 2026, he said. It applies to individuals, but an individual and their spouse are treated as a single taxpayer, Campbell added. That element could pose issues where property is separately held or where one spouse is a nonresident.
In terms of paying the tax under Proposition 40, if enacted, Campbell said generally payments would be due April 15, 2027. There’s an option to pay in full or in five equal installments with 7.5% interest.
Campbell said current conversations with clients often involve questions about how to permissibly reduce net worth. Charitable gifts, he explained, will still be counted as part of the individual’s wealth under the act. And shifting assets into real estate or treasuries could be looked at as a tax avoidance strategy, he added.
The “first line of defense” is to not be a resident on January 1, 2026, said Campbell. Some taxpayers have already moved out of California, he said, adding that he knows of about 40 people who’ve moved or plan to do so soon.
Meanwhile, taxpayers who stay may have challenges paying due to the illiquidity of their assets, Campbell noted. These taxpayers may use an “optional deferral account” to allow them to pay over time as liquidity events occur.
Administrative concerns with wealth taxes
If the California proposal goes into effect, experts expect administrative challenges. And many of those challenges aren’t specific to California’s proposal — they exist for wealth taxes more broadly.
Sciarra said a big concern with wealth taxes generally is valuation — both the uncertainty of how an individual’s assets will be valued and the risk of litigation with a tax authority over the proper valuation of assets.
Sciarra noted that under the California proposal, “the taxpayer is incumbent to put a valuation on their assets.” Proposition 40 requires California residents to declare that their net assets are worth $1 billion or less, or declare the amount of tax owed under the wealth tax, along with supporting appraisals or evidence of fair market value.
Campbell highlighted the valuation formula under Proposition 40, including provisions for determining a taxpayer’s ownership interest in an entity. He explained that individuals will need an appraiser “to come up with a really solid valuation” and to explain “why that’s right.”
Deloitte’s Mike Schlect stressed that there are “appraisers in the market that are indicating to clients that they will not be doing these valuations.” The reason, Schlect said, is the steep penalties for under- or overstating value.
Under Proposition 40, taxpayers are subject to a penalty equal to 20% of any understatement of tax. For gross understatements, the penalty is 40% of the understatement of tax. The proposal also allows the California Franchise Tax Board to impose a penalty on an appraiser — penalties are capped at 2% of the understatement, or 4% for a gross understatement.
Those penalties, said Schlect, are leading to “friction around the service providers to be able to help this taxpayer base comply with the tax.”
Other approaches to taxing high-net-worth individuals
Wealth tax proposals, such as California’s, are not the only paths states and localities are taking to boost the tax liability of high-net-worth taxpayers.
New York City recently enacted a pied-à-terre tax, which allows the city to impose a surcharge on residential property that does not serve as a primary residence.
For the initial phase, the surcharge applies to “class 1” property valued at $5 million or more and condominiums and cooperative units valued at $1 million or more, Hodgson Russ attorneys explained in a recent article. The surcharge does not apply to standard rental apartments, hotels, or commercial properties.
While class 1 home and condominium valuation is tied to the assessed market value, valuation of cooperatives is based on an imputed share of the total building value, said the Hodgson Russ attorneys.
Schlect explained that the NYC Department of Finance will annually determine if a property is not a primary residence and notify owners. Notification will be by August 30, 2026, and then by January 30 for subsequent years.
“If it is a primary residence, you should be fine,” Schlect stressed. He explained that owners can appeal determinations of whether a property is a primary residence, but have only a 30-day window to do so.
Another wrinkle is when real estate is held by a trust, single-member LLC, or a partnership. That’s “something to be thought through,” said Schlect.
Also this year, Washington state adopted a new 9.9% tax on certain high-wealth individuals. The tax applies to Washington taxable income exceeding $1 million per household.
“The way the tax mechanically works is you put your income down, you get a million-dollar deduction whether you’re married or single,” Schlect explained, noting that policy-wise, the tax includes a “marriage penalty.”
S 6346 was signed into law this March, but Schlect noted the effective date is not until 2028. And recently, a ballot initiative was certified that would overturn the tax, he added.
The broader context
Campbell said even though the California proposal is a one-time tax, “it sets a precedent.” There could be future one-time proposals, and proposals that apply to more individuals, such as those with over $10 million in assets.
And Schlect explained that these measures to tax high-net-worth individuals come in the context of a broader debate over what drives wealth. He cited economics professor Thomas Piketty’s 2013 book, Capital in the 21st Century. Schlect summed up Piketty’s argument — “historically owning things tends to pay off faster than working does.”
Though the gap narrowed between 1930 and 1980, Piketty argues that can be attributed to a disruption in the normal pattern, amid the Great Depression, two world wars, and generally higher taxes.
“The book put forth a very strong argument, or a purposeful argument, about a global progressive wealth tax — not an income tax, but a tax on what you own,” said Schlect.
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