California is preparing to impose a one-time 5% wealth tax on billionaires starting January 1, 2026—but the law won't appear on the ballot until November 2026. To enforce it retroactively, the California Franchise Tax Board plans aggressive residency audits examining bank statements, travel records, GPS data, and payment locations to determine who was actually living in California when the tax's effective date arrives.
At least six high-profile tech billionaires have already relocated to other states in apparent preparation for this enforcement wave. The audits target a narrow group: approximately 200 individuals with net worth exceeding $1 billion. But the tax's retroactive application and the methods used to verify residency have created legal vulnerabilities that could unravel the entire scheme in court.
Table of Contents
- How Proposition 40 Works
- What the Residency Audits Entail
- The Billionaire Exodus and Residency Games
- Why Courts May Block the Tax
- One Billionaire Says He'll Pay
- Frequently Asked Questions
How Proposition 40 Works
California voters will decide Proposition 40 on November 3, 2026, which imposes a one-time 5% tax on global wealth over $1 billion for anyone deemed a California resident on January 1, 2026. The measure excludes direct real estate holdings but captures everything else—investments, bank accounts, intellectual property, business interests. Proponents estimate $100 billion in revenue over five years.
The critical problem: the state is already determining who qualifies as a "resident" on January 1, 2026, before voters have approved the tax. This creates a retroactive application where people face tax liability based on a status determination made under a law that did not exist. Taxpayers cannot have knowingly violated a rule that hadn't been enacted yet.
What the Residency Audits Entail
The California Franchise Tax Board will examine extraordinarily detailed records to verify whether billionaires claiming to have moved were truthful. The audit methods include bank statements, travel records, cell phone GPS data, Apple Pay transaction locations, ATM receipts, and veterinary records—essentially reconstructing where a person actually spent time on January 1, 2026. California's residency standard makes this audit asymmetrical: the law presumes individuals remain residents until they affirmatively prove their absence was not temporary, applying a decades-old test of whether departing billionaires "substantially severed California connections or maintained them in readiness for return." The burden shifts to the taxpayer to prove non-residency rather than the state proving residency—a significant legal advantage for tax collectors.
The Billionaire Exodus and Residency Games
Before January 1, 2026, at least six high-profile tech billionaires and investors relocated from California, including Google co-founders Larry Page and Sergey Brin, Oracle founder Larry Ellison, venture capitalist Peter Thiel, and Craft Ventures co-founder David Sacks. Most moved to Miami, Austin, or other states with no wealth tax.
Larry Page moved several business entities—his family office Koop, flu research company Flu Lab, aviation company Dynatomics, and flying car startup One Aero—to Delaware. These relocations are designed to weaken California's legal argument that he maintained substantial ties to the state. However, the state's presumption-of-residency standard means Page will need to prove he actually left, not merely that his businesses did.
Why Courts May Block the Tax
The wealth tax faces multiple constitutional vulnerabilities. The retroactive application—taxing based on a residency determination made before the law existed—raises Due Process violations. A person cannot be held liable for violating a rule that wasn't in effect at the time of the alleged violation.
The tax regime may also violate the U.S. Constitution's dormant commerce clause and right-to-travel protections by taxing individuals based on residency status determined before the law existed. A bill-of-attainder challenge is possible too, since the measure effectively targets an identifiable group of approximately 200 people rather than applying a general rule. Legal experts say these challenges will likely succeed, making the tax vulnerable to years of litigation.
One Billionaire Says He'll Pay
Not every billionaire is running. NVIDIA CEO Jensen Huang stated he is "perfectly fine" paying the wealth tax—estimated at approximately $8 billion for him personally—citing Silicon Valley's talent and innovation as worth the cost. Huang's willingness to pay stands out sharply against the exodus of others and suggests some wealthy Californians view the tax as a cost of staying near the innovation ecosystem.
Frequently Asked Questions
Does Proposition 40 pass automatically if voters approve it in November?
No. If approved, the tax still faces constitutional challenges in court before implementation. Multiple legal scholars expect bill-of-attainder, commerce clause, and due process claims to survive summary dismissal.
Can I claim non-residency if I moved out of California before January 1, 2026?
California presumes you remain a resident unless you prove otherwise. The state will examine your physical presence, business ties, family location, and intent—simply moving a business entity to another state is not sufficient proof.
How much would billionaires actually owe under this tax?
A one-time 5% tax on $1 billion in net worth equals $50 million. For a $100 billion net worth, the tax is $5 billion. The tax applies only once and only to those determined to be California residents on the measurement date.