The Proposition 40 Wealth Tax

On the November 3 ballot: a one-time tax of five percent of net worth, reaching individuals and trusts at one billion dollars or more who were California residents on January 1, 2026. The rate applies to the whole of net worth rather than to the amount above the threshold. It is the full five percent at one billion one hundred million dollars or more, and below that it steps down by one tenth of a percentage point for every two million dollars of shortfall (proposed section 50301(b)). Payment is due with the 2026 return or in five equal yearly installments carrying a nondeductible deferral charge of seven and a half percent on the unpaid balance (section 50301(c)). Real property held directly or through a revocable trust is excluded, as are pensions and retirement accounts generally (sections 50303(c)(4) and 50303(c)(7)). The Legislative Analyst estimates revenue in the tens of billions across several years; the $100 billion estimate is the proponents' own. Constitutional questions about the measure remain open, and no court has ruled on any of them.

The measure runs on two dates, and only one of them has passed. The tax obligation date is January 1, 2026, and it fixes residency (section 50308(n)). The valuation date is December 31, 2026, and it fixes the number (section 50308(o)). Who is subject to the tax was therefore settled at the start of this year and is now beyond reach, while how much is measured at the end of this year and is not settled at all. That split is the whole of the planning question: the composition of a balance sheet on December 31 still moves the liability, and the record of residency on January 1 can only be proved or disproved, never changed.

Proposition 40 turns on a single day, and California is a presumptive residency state: no statute decides the question at a fixed day count the way the statutory residency states do; presence raises presumptions, and the record decides. The measure writes no residency test of its own, counting as an applicable individual anyone who is a resident within the meaning of Revenue and Taxation Code sections 17014 and 17015.5 as of the tax obligation date (section 50308(a)). Section 17014 counts as a resident everyone domiciled in the state unless outside it for a temporary or transitory purpose, and everyone present in it for more than a temporary or transitory purpose, while section 17016 presumes residency after nine months of presence in a year. Residency on a single date is never proved by that date alone. It is proved by the surrounding record of a life: where the home, the family, the physicians, the licenses, and the days actually were, before January 1, 2026 and after it. A departure claimed ahead of the snapshot would be examined the way the Franchise Tax Board already examines every claimed change of residency, with the burden resting on the person who claims the change. The mechanics are set out in the library: how the Franchise Tax Board evaluates a claimed departure, what actually happens in a residency audit, first letter to protest, and how days are counted and what evidence wins.

Two other measures on the same ballot could stop Proposition 40, and reading either as an automatic defeat goes further than the sources do. Proposition 41, "Prohibits New State Taxes That Exclude Revenues From State Spending Limit. Requires Audits for New State Special Taxes," bars new state taxes whose revenues sit outside the state appropriations limit, and the Legislative Analyst notes that under it the state "might not be able to exclude new special tax spending from the limit." Proposition 42, "Prohibits New State Personal Property Taxes and Certain Retroactive State Taxes," carries two limbs: one barring new state taxes on the ownership of personal property, and a second limiting retroactive taxation, which is the limb that fits a measure fixing residency on a date already past. On each, the Analyst says the same thing and says it conditionally, that Proposition 40 "could be stopped from becoming law even if it gets yes votes from a majority of voters."

Article II, section 10(b) of the California Constitution provides that where the provisions of two or more measures approved at the same election conflict, the provisions of the measure receiving the highest number of affirmative votes prevail. The rule runs on provisions rather than on whole measures, so partial survival is possible and a higher vote for a competitor is not the same as repeal. One drafting choice bears directly on this: Proposition 40 imposes an excise tax on an activity rather than a tax on the ownership of property, which leaves a genuine question whether Proposition 42's personal property limb reaches it at all. That contingency remains the largest single variable in whether the measure ever takes effect, and it begins to resolve on election night, November 3.

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