California’s Billionaire Tax Proposal Would Allow Sweeping , One-Time Taxation Based on Net Worth

California’s 2026 Billionaire Tax Act is a ballot initiative that will appear on the November 3 ballot if proponents collect 875,000 certified signatures by June 24. Because the measure is a citizen-initiated ballot proposition, a simple majority vote would make it law, with the tax calculated as of December 31, 2026, and due alongside 2026 California income tax returns.

The act is designed to raise funds to offset cuts to Medi-Cal and other federal programs. Because it is structured as a one-time wealth tax — not an income tax — it raises novel constitutional and valuation questions. 

The Tax in General

Covered Taxpayers

The tax would be imposed on two categories of taxpayers: applicable individuals and applicable trusts.

Any individual who was a California resident on January 1, 2026, and has a net worth of at least $1 billion (as calculated under the act) is an applicable individual. Residency is an all-or-nothing test; there is no proration if the taxpayer leaves California in 2026.

The act treats married couples as single individuals. That means a couple whose combined wealth exceeds $1 billion would be subject to the tax even if neither spouse would be independently.

Any non-grantor, non-tax-exempt trust to which an applicable individual has transferred property is an applicable trust regardless of the size of the trust or where it is administered.

Rate and Base

The act would impose a flat 5% tax on an applicable individual’s entire net worth — not just the amount above $1 billion. There is a limited phase-in: For individuals with net worth above $1.1 billion, the full 5% rate applies. For net worth between $1 billion and $1.1 billion, the rate is reduced by 0.1% for each $2 million increment, effectively creating a narrow phase-in band.

A flat 5% tax applies to an applicable trust’s entire net worth with no threshold. The grantor can elect to pay the tax on the trust’s behalf; otherwise, the trustee is responsible for payment.

Payment and Filing

Taxpayers must report any tax liabilities with their 2026 California income tax returns. They can pay in full or elect five equal annual installments, which carry a 7.5% deferral charge. If liquid assets are insufficient to cover the tax, an optional deferral account mechanism allows the taxpayer to secure the shortfall with collateral.

Every California resident must file a declaration with their 2026 return either confirming that their net worth does not exceed $1 billion or disclosing the amount of tax owed with supporting appraisals. Non-filers and taxpayers who substantially understate the tax could face penalties of 20% to 40% of the understatement.

Net Worth Determination

The act uses highly specific valuation rules that differ significantly from familiar income or estate tax concepts. It outlines which assets will be included and excluded as part of the valuation.

Assets Included

• Publicly traded securities will be valued at market price as of December 31, 2026.
• Private business entities generally will be valued at book value plus a 7.5x multiplier applied to a three-year average of annual book profits. Taxpayers can rebut that presumptive value with a certified appraisal. 
  • A recent financing round creates a valuation floor: The entity cannot be valued below a round price from the prior two years unless overstatement can be shown by clear and convincing evidence.
• Art, collectibles, intellectual property, non-publicly-traded financial instruments, vehicles, and other personal property will be reported at fair market value as of December 31, 2026. A certified appraisal is required for any such asset or group of interchangeable assets exceeding $1 million.
• Dependents’ assets — that is, the assets of anyone who can be claimed as the taxpayer’s dependent — that exceed $50,000 in the aggregate are attributed to the taxpayer.
• All grantor trust assets are included in determining the grantor’s net worth.

Assets Excluded

• Real property held directly by a taxpayer or their revocable trust (however, real estate held through a limited liability corporation or other entity is not excluded);
• Tangible personal property physically located outside California for at least 270 days during 2026 (meaning property must be out of the state before April 3);
• Roth IRAs up to $10 million, as well as qualified pensions, IRAs, and similar retirement accounts; and
• Up to $5 million of art, collectibles, intellectual property rights, vehicles, and similar personal property and debts.

Debt Limitations

Under the act, not all liabilities will reduce net worth. Debts owed to related parties, loans not negotiated at arm’s length, and loans bearing below-market interest rates cannot be used to reduce net worth. Nonrecourse debt can offset only assets that are included in the net worth calculation.

Special Trust Rules

The treatment of trusts is among the act’s most complex — and uncertain — provisions. Several important points stand out.

First, as noted, an applicable trust is identified as of January 1, 2026, and is any non-grantor, non-tax-exempt trust to which an applicable individual has transferred property. The trust’s residency is irrelevant.

Second, there is a potential risk of double taxation. The act includes a grantor trust’s assets in that grantor’s net worth. Also, to the extent trust assets are distributable to a beneficiary, those assets might be counted in the beneficiary’s net worth. Both scenarios could lead to the same dollars being taxed twice. As written, the act contains no clear resolution to the double taxation concern.

Next, non-grantor sprinkle trusts with multiple beneficiaries present ambiguity because it is unclear whether each beneficiary must include the full trust value or only a pro-rata share when calculating their net worth.

Finally, trustees of non-grantor trusts should be aware that tax could be owed at the trust level, even if they did not know the original grantor was an applicable individual as of January 1, 2026.

Preliminary Planning Considerations

Even if mitigating initiatives are passed alongside it, the 2026 Billionaire Tax Act would represent one of the most significant one-time wealth tax events in California history. The proposal is complex, contains numerous ambiguities, and involves valuation methodologies that could produce unexpected results. Given those significant uncertainties and the ongoing signature-gathering campaign, taxpayers who were or are California residents on or after January 1, 2026, and are near or above the $1 billion threshold should begin planning now. Early preparation with the assistance of your California BDO state and local tax professionals is critical.