A New California Wealth Tax Proposal Is Drawing Attention
California continues to explore new revenue measures aimed at high-net-worth individuals in response to ongoing budget pressures and shifting tax policy priorities. One of the most closely watched proposals is the "2026 California Billionaire Tax Act" (the "Billionaire Tax"), a ballot initiative that would impose a one-time tax on net worth, rather than on annual income.
Although the measure has not been enacted and remains subject to significant procedural, legal, and electoral hurdles, its potential scope has prompted questions from individuals and families who may be affected by its application. As with many novel tax proposals, the Billionaire Tax raises a number of legal, constitutional, and practical considerations that merit careful review as the initiative process unfolds.
Where the Proposal Currently Stands
As a procedural matter, the Billionaire Tax is advancing through California's citizen-initiative process, not through the ordinary legislative cycle. The measure is identified as Initiative No. 25-0024 (A.G. File No. 2025-024) and, as of December 26, 2025, was cleared for signature gathering for potential placement on the November 3, 2026, general election ballot.
To qualify as an initiated state statute, proponents must submit 874,641 valid signatures by the June 25, 2026, verification deadline, although the California secretary of state recommends April 17, 2026 for random sample verification. If the measure qualifies, it would pass with a simple majority vote.
The proposal is therefore not law, and its future depends on both the signature drive and the outcome of the 2026 election.
How the Proposed Billionaire Tax Would Operate
If enacted, the initiative would impose a one-time 5% excise tax on the net worth of individuals
- who have a net worth of $1 billion or more and who are California residents, determined as of the tax obligation date of January 1, 2026 and
- whose net worth subject to the tax is measured as of the valuation date of December 31, 2026
A reduced, "phase-down" rate would apply to individuals with wealth between $1 billion and $1.1 billion.
The tax is also imposed on certain trusts, according to technical rules beyond the scope of this article.
What counts as net worth?
The measure looks to worldwide assets of the California resident taxpayer and spouse, including certain trust assets, minus certain liabilities. It covers a wide array of property interests, such as:
- publicly traded and privately held securities
- business interests
- contractual rights
- trust interests and transferred assets (subject to anti-avoidance rules)
Certain assets, such as interests in real property not held in an entity or tangible personal property located outside California for at least 270 days in 2026 (unless temporarily relocated with a substantial purpose of tax avoidance) and certain retirement accounts, are excluded.
How values would be determined
The initiative contains detailed valuation rules:
- market prices for publicly traded assets
- prescribed formulas or certified appraisals for private businesses and other illiquid holdings, without discounts for fractional interests
- no less than insured value for an asset, and no less than any funding round or sale within the prior two years for a business entity, absent clear and convincing evidence otherwise
- all values determined as of December 31, 2026, subject to a $5 million exclusion for certain non-publicly traded assets
When and how tax is paid
The tax would be reported on a separate excise-tax filing submitted during the 2027 filing season. Taxpayers could elect to pay in five annual installments, subject to a nondeductible deferral charge.
The measure would function in addition to, not as a replacement for, existing income tax rules.
Legal and Structural Considerations
If approved, the proposal would likely face significant legal and administrative scrutiny. Key areas include:
- Residency: Applying the tax based on residency on a single date invites disputes about domicile and timing
- Valuation: Determining fair value for large, illiquid assets will be complex and burdensome
- Administrative authority: The Act anticipates court challenges and authorizes regulations and guidance, signaling that important issues may be resolved over time
- Constitutional considerations: The measure may be subject to constitutional challenges, including whether the use of a past status constitutes impermissible retroactivity and whether the magnitude of the one-time wealth-based charge could be characterized as a confiscatory tax under state or federal constitutional standards
As with any complex tax measure, initial ambiguity and interpretive questions should be expected.
How to Prepare in Case the Billionaire Tax Becomes Reality
The exact operation of the Billionaire Tax is impossible to predict at this point. It will depend on subsequent regulations, guidance, and possibly litigation. Such measures typically undergo a period of refinement before their real-world impact becomes clear.
However, it is clear at this point that the tax liability will turn on California residency and net-worth thresholds. Affected individuals should therefore consider taking immediate steps to evaluate and strategize their circumstances:
- reviewing trust and entity ownership structures and values
- reducing the insured value on fine jewelry, artwork, and other collectibles, if appropriate, and/or relocating them permanently (following more than 270 days out of state this year)
- acquiring real estate in a revocable trust or individually, if appropriate
- preparing for constitutional defenses
- domicile and relocation planning, in case the tax may be postponed or amended or may recur
For individuals and families who may be within the scope of such proposals, monitoring developments and periodically revisiting existing estate and wealth planning strategies can be a constructive way to remain prepared for potential changes. Clients who would like to discuss how evolving California tax proposals may intersect with their planning objectives are encouraged to contact their private client counsel for further guidance.