As the vote on California’s proposed wealth tax draws closer, two California tax attorneys shared what they’re seeing — and what the state’s Franchise Tax Board would need to do to successfully implement the law.
Billionaire tax proposed
On November 3, Californians will vote on Proposition 40. The proposal, dubbed the 2026 Billionaire Tax Act, would put in place a one-time tax on high-wealth state residents as well as certain trusts.
Individuals and certain trusts worth $1 billion or more would be subject to an excise tax of up to 5%. Importantly, the tax would apply to those who were California residents as of January 1, 2026. Meanwhile, net worth would be determined as of a set asset “valuation date” — December 31, 2026.
The ballot initiative would require California resident individuals to, when filing their 2026 tax return, declare that their net assets were worth “less than or equal to” $1 billion as of the valuation date. California residents subject to the tax also would need to submit a declaration of the amount of tax owed, along with supporting appraisals or evidence of fair market value used in their calculations.
The proposal would treat married couples as a single individual.
Broad impacts
EY’s Michael Feispor described the proposed statutory language as “extremely broad.” The tax would retroactively apply to residents as of January 1, but bring in all net worth transfers made during 2026.
“Nonetheless, people are still thinking about planning ideas,” he said. Among the considerations are potential penalties. Taxpayers have “got to consider the anti-avoidance rules,” Feispor stressed, “because you can’t just be moving things around to avoid this tax.”
While conversations around the proposal have largely centered on whether high-net-worth Californians will relocate, Feispor said he’s also seeing changes in trust and business structuring.
“I’ve seen far fewer California trusts in the last six to eight months than I used to see in the past,” Feispor told Checkpoint. And existing California trusts are being migrated out of state, he added.
The prospect of a billionaire tax is affecting “how new businesses are structured and how new real estate acquisitions are made,” according to Feispor. But he cautioned that “there needs to be a legitimate reason for new structures, and for transfers between trusts and entities.”
Administrability concerns
Beyond the actual tax liability impacts, Feispor and EY’s Jenica Wilkins shared concerns about getting the necessary guidance from California’s Franchise Tax Board (FTB) should the ballot initiative pass.
Importantly, the FTB would be given up to $50 million for “actual and necessary costs” in administering the new tax law. That would take the form of a loan, to be repaid with billionaire excise taxes collected.
And the initiative exempts guidance from the state’s Administrative Procedure Act through 2027. Wilkins explained that this means that, for a period of time, the FTB does not have to follow the “more typical path to rulemaking that usually involves input from interested parties.”
Even so, the tight timeframe is concerning. Wilkins noted that the ballot initiative vote takes place just six or so months before the tax payment date. That short lead time is “quite a demand on a state tax agency,” she said.
“We’re going to need some guidance within the first couple of months on how to calculate net worth,” said Feispor. The tax would be due in April, even if the tax return is not filed until the extended October filing deadline, he added. “There needs to be a procedure whereby taxpayers provide information and asset values to the FTB prior to April 15,” Feispor stressed.
Looking to the initiative’s language, Wilkins noted that the FTB is required to provide guidance in some areas, while guidance is merely permitted in other areas. “I think where we’ll see a lot of movement or potential for feedback is the areas where the FTB is able to provide guidance but not required to do so,” she said.
Another area to watch, should the initiative pass, is how the FTB will implement the audit provisions. The initiative calls for the FTB to examine returns submitted and determine the correct amount of tax. And it also requires the FTB to “examine all certifications or returns of taxpayers when the board reasonably believes the taxpayers should have paid the tax.”
“That’s a pretty big responsibility put on the FTB,” Wilkins stressed.
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