Our US correspondent takes a look at a proposed wealth tax in California, the likely impact it will have if it becomes law, and what the likelihood is of such a tax taking effect.

To stay or not to stay; that is the question confronting California’s wealthiest residents as a result of a proposed “Billionaire Tax Act,” which would impose a one-time 5 per cent tax on the total wealth of those whose net worth is $1 billion or more. The tax can be paid over a period of five years starting in 2027.

If supporters of the proposal collect 875,000 signatures by June 25, the initiative will go on the ballot for the November 3 election. If passed, an estimated 250 billionaires who have resided in California since January 1, 2026, will be impacted.

“We have a significant number of clients that are affected by this,” said Steve Lockshin, CEO of Los Angeles-based RIA AdvicePeriod. “While nobody has left California, many have discussed it.”

Many of Aspiriant’s UHNW clients in its multi-family office practice “already have moved to a lower tax state, or are interested in moving,” said Chris Murray, a partner at the Los Angeles and San Francisco-based RIA.

A number of high-profile California billionaires are indeed distancing themselves from the Golden State: Venture capitalist Peter Thiel opened an office for his investment firm in Miami, Google founders Larry Page and Sergey Brin are moving offices and residences out of state and tech investor David Sacks opened a new office for his venture capital firm in Austin, Texas.

Residency requirements scrutinized
However, many, if not most, Californians are loathe to completely cut ties and maintain a residence in the state or spend a lot of time there. Moving their tax domicile to another state means “they’ve got to actually deprive themselves of what living in California offers,” noted veteran wealth manager and former Aspiriant CEO Tim Kochis, who is now a consultant based in San Francisco and Santa Barbara.

Consequently, state tax law and residency rules have become hot topics for California wealth managers.

Even if a California taxpayer buys a home in another state, they must prove it is their true primary residence. The state’s strict tax residency rules include a “closest connection test” that measures how someone’s residency, social and family contacts, assets and work compare between California and their new home state.

“California will look under every rock and leaf for something that ties you to the state,” said Chris Galeski, partner at Calabasas-based Morton Wealth. “We tell clients that if you keep a vacation home in California you should make sure your dentist is in Montana.”

The proposed ‘wealth tax’ residency requirement backdated to January 1 has “created real anxiety about documentation, what constitutes domicile and how aggressively California will pursue former residents,” said Charlie Garicia, manager partner of R360, a peer group organization for ultra-high net worth founders and investors.

What’s more, a change of residency must occur before a taxable event. California wealth managers would be well advised to “work hard on domicile issues and hire good quality tax experts,” said UHNW consultant Jamie McLaughlin.

Liquidity concerns
The proposed billionaires tax is also raising valuation and liquidity issues for UHNW clients in California. As Galeski, who is also director of growth and advice at Morton, put it: “If you’re taxing the value of a private company, the founder doesn’t have the liquidity to pay the tax.”

Silicon Valley tech founders of pre-IPO companies feel they’ve been put in a “horrible position,” by the proposed tax, according to a Palo Alto fund manager who asked not to be identified. “They may be wealthy on paper, but do not have access to liquidity. They can either go into the secondary market and sell shares, borrow against the shares or look for a hybrid solution.”

“Billionaire wealth isn't sitting in a vault like Scrooge McDuck,” said R360’s Garcia. “It's equity in companies. You tell a founder they owe 5 per cent of their company's value in cash and they have to sell shares, give up voting control, liquidate pieces of the thing they built. That's not taxation. That's forced divestiture.”

For publicly traded companies, tax liability under the proposal would be based on the market value of its widely traded stock, even if the founder’s holdings have special voting rights, The Tax Foundation noted in an analysis of the Billionaires Tax initiative. That discrepancy, according to the analysis, “could force founders to convert their shares, unwind dual-class structures or sell down positions to cover the tax bill.”

Strong opposition
For all the apprehension about the wealth tax proposal, it appears highly unlikely that it would take effect anytime soon. Thiel has donated $3 million to a California Business Roundtable committee opposing the initiative. Some observers estimate that around $75 million will be spent altogether lobbying against putting the proposed tax on the ballot in November.

California governor Gavin Newsom, a high-profile Democrat who may be running for president, strongly opposes the proposal and said “there’s no question in my mind it will be defeated.” And even if the wealth tax does get on the November ballot and passes, it will inevitably face well-funded and lengthy legal challenges.

What’s more, not every billionaire or wealthy Californian is losing sleep over the proposal. Nvidia CEO Jensen Huang (worth an estimated $163 billion) has said he’s “perfectly fine” with the tax and that “it never crossed my mind once.” Kochis, a former chair of the Financial Planning Standards Board, is skeptical the proposal will become law “and even if it does, I don’t think it’s a big deal.” 

Proponents, including the Service Employees International Union (SEIU), a union of about two million members in healthcare, are behind the bill. They are counting on swaying public opinion by stressing that the point of the tax is to make up for deep cuts to California healthcare spending that have been imposed by the Trump administration. They also push back against the “capital flight” narrative by pointing out that wealth continued to grow in Massachusetts and Washington State after those states raised taxes on high earners. 

Precedent setting?
Although only a few hundred people would be impacted by the tax, opponents say it is more far reaching because it makes potential billionaires skittish about staying in California and also represents just the beginning of a continued effort to either extend or revive a wealth tax.

“It’s younger founders, not billionaires, who are the most worried,” said the Palo Alto-based fund manager referenced above. “They’re nervous because they could be next. Even if this proposal doesn’t pass, there could be others later and it makes them think about moving.”

“Once you build the infrastructure to value and tax wealth, once you establish the precedent, once you prove the political appetite exists, ‘one-time’ becomes first-time,” Garcia asserted. 

Whatever the outcome, the wealth tax proposal is keeping California wealth managers busy.  AdvicePeriod has spent “a significant amount of time on this topic, looking into the pros and cons of leaving California and the legality of fighting the proposal,” Lockshin said.

According to the Tax Foundation, the California proposal underscores how changes in state-level tax law can reshape planning around exits, control and domicile. Wealth managers with clients in tech, venture capital, private equity or closely held enterprises may need to run scenarios involving changes to ownership structures, trust strategies and residency, the foundation’s analysis stated.

To meet the moment, wealth management firms need to integrate “a broad range of disciplines including planning, investment, tax and estate,” said Aspiriant’s Murray. “Firms who offer those services within a comprehensive service package, specifically tax planning in this instance, will be better positioned to serve ultra-high net worth families.”

(Editor's note: This news service is also examining the whole theme of "family offices in motion," looking at examples inside North America, and beyond, given the impact of recent tax policies and jurisdictional changes around the world. Stay tuned.)