CA. Billionaire’s Tax Proposal: FAQ

Jane G. Ditelberg, Director of Tax Planning

This November, California voters will go to the polls and vote on Proposition 40, colloquially known as the “California Billionaire’s Tax.” If approved by voters and upheld by the courts, the tax would be imposed one time on individuals and married couples with worldwide assets in excess of $1 billion as well as certain trusts. 

Below, we answer 7 of the most-asked questions on the proposed tax regarding who could be impacted, the valuation of non-marketable assets, timing and more.  

Who is subject to the tax?

As written, the tax would apply to individuals and married couples, treated as a single taxpayer, who were California residents on January 1, 2026 and whose worldwide net worth exceeds $1 billion.

The measure contains no exception for taxpayers who subsequently change their state of residence; i.e., relocating outside California after January 1, 2026, would not, under the statue’s current language, alter the tax’s applicability. This aspect of the measure is likely to be challenged in court, a possibility expressly contemplated by the statute.

In addition, certain non-grantor irrevocable trusts established by those taxpayers would be subject to the tax, regardless of the trust’s asset value.

When are assets valued?

Billionaire status is determined based on asset values as of December 31, 2026. Lifetime gifts made in 2025 or later, other than charitable gifts, are added back when calculating net worth for purposes of applying the tax. As a result, making non-charitable gifts before the valuation date generally would not, by itself, reduce exposure to the tax.

What assets are included in net worth?

The tax applies to a taxpayer’s entire net worth, not just the portion exceeding the $1 billion threshold. In determining net worth, assets held in grantor trusts and trusts includible in the grantor’s estate for federal estate tax purposes are attributed to the grantor. As noted above, certain gifts made after October 2025 are also added back to the tax base.

Certain assets are excluded from the calculation. Directly owned real estate is subtracted from net worth, although real estate held through an entity, such as an LLC, is reflected in the value of the entity itself. Tangible personal property located outside California is likewise excluded.

How is the tax calculated?

The tax is a flat 5% on assets over $1.1 billion. For assets between $1 billion and $1.1 billion, there is a sharp phase in from .1% to 5% in $2 million increments. Because the rate rises quickly within that narrow band, even modest valuation differences could materially affect the tax owed.

How are the values of non-marketable assets determined?

The proposal sets out specific rules for determining the value of private businesses, real estate, collectibles and other hard-to-value assets. It restricts some valuation discounts that taxpayers often use for estate and gift tax planning, such as discounts for partial ownership interests or lack of marketability, and recent sale prices or insurance values may establish a baseline for determining value. In some circumstances, however, taxpayers may be able to use an independent appraisal to support a different valuation.

What about taxpayers with illiquid assets and no cash to pay the tax?

For taxpayers with illiquid assets who are unable to pay the tax without selling assets, there are options to pay the tax over five years in installments and to defer the tax until an illiquid asset is sold.

How does the tax compare to an estate tax?

California does not have an estate tax. The proposed tax is somewhat akin to an acceleration of an estate tax to 2026 for all current California residents with more than $1 billion in assets. However, there is no accompanying step up in basis.

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Taxpayers who could potentially be affected should work with their advisors to determine whether they exceed the $1 billion threshold after applying the proposal's gift add-back and trust aggregation rules. Particular attention should be paid to the valuation of closely held businesses, real estate, collectibles and other illiquid assets, as well as potential liquidity needs if a tax liability arises. We will continue to monitor the election outcome and any subsequent legal or regulatory developments in the months to follow.

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