California Wealth Tax: Billionaire Act, Revenue, and Legal Hurdles

The California wealth tax is a proposed one-time 5 percent levy on the net worth of state residents worth more than $1 billion, currently moving as a November 2026 ballot initiative called the Billionaire Tax Act. It is not law. It has not qualified for the ballot. And even if voters approve it, it faces serious challenges under both the California and U.S. Constitutions before a dollar could be collected.

Earlier legislative versions would have hit a much broader group of wealthy Californians starting at $50 million in net worth, but none of those bills passed. The current proposal is narrower, steeper, and structured differently. Here’s what it would actually do.

What the 2026 Billionaire Tax Act Would Do

The initiative is a combined constitutional amendment and statute sponsored primarily by the healthcare workers’ union SEIU-UHW. It would impose a one-time 5 percent tax on net worth above $1 billion for any individual who was a California resident on January 1, 2026. Married couples would be treated as a single taxpayer.¹

Roughly 200 California residents currently sit above that threshold, with a combined net worth estimated at about $2 trillion. The initiative’s authors project it would raise approximately $100 billion, collected over a five-year payment window at about $20 billion per year.¹

The date matters. Because liability attaches based on residency on January 1, 2026, a billionaire who moved out of California later that year would still owe the full amount. The tax follows the person from that snapshot forward, not the calendar.

The initiative describes the levy not as a property tax but as an excise tax on “the activity of sustaining excessive accumulations of wealth.” That label is doing heavy legal work, because California already caps taxes on personal property at four-tenths of one percent of value. Structuring the measure as a constitutional amendment lets it override that cap directly.²

Will It Actually Reach the Ballot

To appear on the November 2026 ballot, the campaign must collect 874,641 valid signatures by June 25, 2026. As of early March 2026, organizers reported roughly 25 percent of that total. Qualification is not guaranteed.

If it does qualify, it would then need majority approval from California voters. And if it passes, litigation would almost certainly begin the next day.

How Net Worth Would Be Calculated

The tax targets worldwide net worth: every asset a covered taxpayer owns anywhere in the world, minus debts and other liabilities. Directly held real estate and retirement accounts such as pensions and 401(k)s are excluded.³ Everything else counts: stocks, bonds, business interests, art, jewelry, and other intangible assets. Valuation is fixed as of December 31, 2026.

Publicly traded holdings are easy because they have a market price. The harder problem is private businesses, which hold a large share of billionaire wealth and don’t have a stock ticker.

The Private Business Formula

For companies that aren’t publicly traded, fair market value is presumed to equal the company’s book value under standard accounting rules, plus 7.5 times its average annual profits, multiplied by the taxpayer’s ownership percentage. If the business loses money, profits are treated as zero rather than as a negative number.

The initiative explicitly denies two discounts that business owners routinely use in estate and gift tax planning: minority-interest discounts and lack-of-marketability discounts. It also creates a floor. If the business raised money or sold equity within the past two years, that transaction price sets a minimum valuation. A taxpayer can argue the transaction overstated value, but must prove it by clear and convincing evidence.¹

Penalties for Undervaluation

Taxpayers calculate their own net worth and remit the tax. If the Franchise Tax Board later finds an underpayment, penalties scale up quickly. Understatements exceeding the greater of $1 million or 20 percent of the correct tax draw a 20 percent penalty. Understatements exceeding $10 million or 40 percent of the correct tax draw a 40 percent penalty. Appraisers who certify a valuation that leads to a substantial underpayment face separate penalties of 2 to 4 percent of the resulting shortfall.

The Anti-Avoidance Rules

The initiative anticipates that wealthy residents will try to move assets out before the January 1, 2026 snapshot or the December 31, 2026 valuation date. Several provisions try to close that door.

Property transferred to a trust (other than a grantor trust or tax-exempt trust) during 2026 counts as part of the taxpayer’s net worth at full value. Property moved to such trusts in 2025 counts at 75 percent of value. And if a taxpayer transferred any property worth more than $1 million for less than fair market value after October 15, 2025, the entire value of the transfer gets added back to net worth, not just the discount.¹

Beyond these specific rules, the Franchise Tax Board would have general authority to disregard any transaction that lacks economic substance or whose primary purpose was avoiding the tax. It could collapse related transactions into a single step, look through entities created to hold assets, and recharacterize arrangements based on substance rather than form.

Can a billionaire just move to Texas? Not if they were a California resident on January 1, 2026. The tax attaches to residency on that single date. Leaving afterward doesn’t erase the liability. This is a sharper approach than the earlier legislative bills, which used sliding-scale exit provisions taxing former residents for up to 10 years after departure.

Where the Revenue Would Go

After administrative costs, 90 percent of the money flows into a Billionaire Tax Health Account, primarily for Medi-Cal, safety-net hospitals, and preventing facility closures. The remaining 10 percent goes into a Billionaire Tax Education and Food Assistance Account, covering public schools through community college along with food programs like CalFresh and the Universal Meals Program.¹

Annual spending is capped at $22.5 billion from the health account and $2.5 billion from the education and food assistance account. Backers have framed the measure as a response to federal funding cuts, arguing that state revenue from the wealthiest residents can offset reductions to programs serving low- and moderate-income Californians.

Legal Obstacles That Could Kill It

Voter approval would be the beginning of the fight, not the end. Challenges would land at both the state and federal level.

The State Property Tax Cap

California’s constitution caps taxes on personal property, meaning stocks, bonds, and similar financial assets, at four-tenths of one percent of value.² A 5 percent tax obviously blows past that cap. The initiative addresses the problem by amending the constitution itself, which a voter initiative can do. Opponents will argue that calling the levy an excise tax on the activity of accumulating wealth is a legal fiction and that it’s really a property tax by another name.

Federal Due Process and Commerce Clause

The Due Process Clause of the Fourteenth Amendment limits a state’s power to reach assets and activities outside its borders. Opponents will argue that California cannot constitutionally tax assets located entirely in other states or countries just because the owner lives in California, and that residency alone may not supply the required link between the state and the property being taxed.

The Commerce Clause raises a separate concern about anything that looks like an exit tax or a residency-based penalty on cross-border movement. The current initiative’s fixed-date approach is less exposed here than the earlier legislative proposals were, but the assets-anywhere-in-the-world reach still invites Commerce Clause scrutiny.

The Realization Question and Moore v. United States

Most billionaire wealth is unrealized. Stock that has tripled in value generates no taxable income until it’s sold. Whether governments can tax that unrealized gain has been unsettled for a long time, and the Supreme Court’s 2024 decision in Moore v. United States didn’t settle it.

The Court ruled narrowly that Congress can attribute a company’s realized but undistributed income to its shareholders. The majority explicitly said the decision “does not attempt to resolve the parties’ disagreement over whether realization is a constitutional requirement for an income tax.” The majority also acknowledged that a tax on an individual’s wealth or net worth “might be considered a tax on property, not income,” which matters at the federal level because property taxes must be apportioned by state population.⁴

Justice Barrett wrote separately that the answer to whether unrealized gains can be taxed without apportionment is “straightforward: No.” Justice Thomas’s dissent argued the same point at greater length. The California initiative tries to sidestep the entire realization debate by labeling itself an excise tax rather than an income tax or property tax. Whether that label holds up in court is a genuinely open question.

How This Differs From Earlier Wealth Tax Bills

If you’ve read about a California wealth tax before, you may be thinking of a different proposal. Several earlier bills would have applied to a much broader group of wealthy residents but never became law:

AB 2088 (2019–2020) proposed a 0.4 percent annual tax on worldwide net worth above $30 million, with a 10-year exit provision.
AB 2289 (2021–2022) would have established a similar annual wealth tax in the Revenue and Taxation Code.⁵
AB 259 (2023–2024) proposed a 1 percent annual tax on net worth above $50 million ($25 million for married couples filing separately).⁵
ACA 3 (2023–2024), the constitutional amendment needed to authorize AB 259’s rate, died in the Assembly Revenue and Taxation Committee.⁶

The collapse of ACA 3 effectively closed the legislative path, because a 1 percent annual wealth tax couldn’t survive the 0.4 percent personal property cap without a constitutional amendment. That’s a major reason proponents shifted to a voter initiative that amends the constitution directly and targets a far smaller group at a much higher one-time rate.

If you have a net worth under $1 billion, none of the currently active proposals would apply to you. If you have a net worth above $1 billion and were a California resident on January 1, 2026, the outcome depends on whether the initiative qualifies for the ballot, whether voters approve it, and whether it survives the constitutional challenges that would follow.

1
California Attorney General. 2026 Billionaire Tax Act Initiative
2
California Legislative Information. California Constitution Article XIII
3
Legislative Analyst’s Office. A.G. File No. 2025-024
4
Supreme Court of the United States. Moore v. United States (2024)
5
Franchise Tax Board. Bill Analysis, AB 259 – Wealth Tax Act
6
Digital Democracy. ACA 3 – Wealth Tax: Appropriation Limits