California Billionaire Tax: What Prop 40 Would Do

By Eric Ridley, attorney, Ridley Law. Updated October 2026.

Who this page is for: families worth $1 billion or more, and the advisors and families close enough to that line that Prop 40’s counting rules could carry them over it. For everyone else filing a 2026 California return as a resident, the measure asks for one thing: a declaration that your net assets were $1 billion or less.

Section numbers on this page are the ones Prop 40 would add to the Revenue and Taxation Code (new Part 27, §§ 50300 to 50314) and to the California Constitution (new art. XIII, § 37). They aren’t law unless Prop 40 passes and prevails over Props 41 and 42. Every quotation comes from the text of the measure in the Secretary of State’s Official Voter Information Guide. Where press reports disagree with the text, this page follows the text.

A hypothetical $1.5 billion couple would owe about $83.6 million

In this hypothetical, a married couple who were California residents on January 1, 2026 would owe about $68.6 million on their own net worth, plus $15 million on an older family trust, for about $83.6 million in total, on one reading of the trust election. The family and every figure are invented for illustration.

They hold $900 million of public stock and 15 percent of a private company with $1.2 billion of book value and average book profits of $100 million. Their home and ranch, worth $120 million, sit in their revocable trust. In March 2026 they put $150 million into a new non-grantor trust, which is worth $160 million at year end. In 2025 they gave $80 million to another non-grantor trust. A dynasty trust they funded in 2015 holds $300 million.

Prop 40 counts $1,371.5 million of net worth for the couple. The private company is valued by formula with no discount for a 15 percent stake. Both recent trusts come back into the base. And the 2015 trust, though outside the couple’s base, is an applicable trust that owes its own 5 percent, about $15 million, unless they elect to fold it into their net worth, which at their level costs the same.

Prop 40 would add a one-year tax on wealth, at up to 5 percent of net worth

Prop 40 is an initiative constitutional amendment and statute that would impose a one-time California wealth tax of 5 percent on the net worth of California billionaires, with 90 percent of the money set aside for health care, according to the Legislative Analyst’s 2026 ballot analysis. California doesn’t tax the ownership of financial assets like stock today, according to the Legislative Analyst’s Prop 42 analysis, so Prop 40 would add that tax for one year, and it borrows much of its machinery from existing California tax law.

The rate reaches the full 5 percent only at $1.1 billion. Going from $1.0 billion to $1.1 billion moves the tax from zero to $55 million, because each $20 million of net worth inside the band adds a full percentage point to a rate that applies to the whole base. For an individual between $1 billion and $1.1 billion, the rate drops by 0.1 percentage point for each $2 million of net worth below $1.1 billion, so it reaches zero at $1 billion (proposed § 50301, subd. (b)). Trusts don’t get the phase-in at all. The reduction applies only to “an individual, other than a trust.”

Above $1.1 billion nothing phases in. The rate is a flat 5 percent: $75 million on $1.5 billion, $250 million on $5 billion, $500 million on $10 billion. The chart uses exact $2 million multiples on purpose. The text reduces the rate “for each two million dollars” below $1.1 billion and doesn’t say whether a partial step counts, so a net worth between steps could be read either way. The difference is small, but the Franchise Tax Board will have to settle it.

The Legislative Analyst estimates that the state “probably would collect tens of billions of dollars from the wealth tax,” spread over several years, with a possible ongoing loss of less than $1 billion a year in income tax if some billionaires leave (Official Voter Information Guide, Prop 40 analysis). The statute calls it “an excise tax” on “the activity of sustaining excessive accumulations of wealth” for tax year 2026 (proposed § 50301, subd. (a)). The constitutional amendment authorizes taxing “all forms of personal property and wealth, whether tangible or intangible” for this one-time tax (proposed art. XIII, § 37, subd. (c)). Revenue goes to a new reserve fund, split 90 percent to a health account and 10 percent to an education and food assistance account (proposed art. XIII, § 37, subd. (d)), and the money is exempt from the state spending limit and the school funding guarantee (subds. (e), (f)).

Whether you owe turns on where you lived on January 1 and what you hold on December 31

An individual owes it if they were a California resident on January 1, 2026, under the income tax residency rules of Rev. & Tax. Code §§ 17014 and 17015.5, and their net worth on December 31, 2026 is $1 billion or more (proposed §§ 50301, subd. (a); 50308, subds. (a), (n), (o)). The first of those dates has passed. The second hasn’t arrived.

Residency. The measure doesn’t write a new test. It borrows California’s income tax definition. A resident includes “every individual who is in this state for other than a temporary or transitory purpose” and every California domiciliary who is away “for a temporary or transitory purpose” (Rev. & Tax. Code, § 17014, subd. (a)). Someone who spends more than nine months of a year in California is presumed a resident (§ 17016). Those long-standing rules decide the January 1, 2026 question, and the measure falls back on the full income tax residency rules if its own apportionment provision is struck (proposed § 50306, subd. (b)(8)).

The married couple rule. Net worth means the value of all assets “taken into account for the taxpayer and their spouse worldwide,” “wherever that spouse is resident,” less allowed debts (proposed § 50308, subd. (f)). For filing, “a married couple shall be considered as one individual” (proposed § 50301, subd. (a)). The $1 billion line applies to the couple together.

Worldwide assets, including ones bought later. Net worth is worldwide, and the one location-based exclusion is for tangible personal property kept outside California for at least 270 days in 2026 (proposed § 50303, subd. (c)(5)), covered with the other exclusions below. “Assets taken into account under Section 50303 as of the valuation date are included in net worth even if acquired after the tax obligation date” (proposed § 50308, subd. (f)), so assets bought after January 1 count even for someone who has left.

An “applicable trust” can owe the tax separately, and the trust rules below explain how.

Net worth follows the measure’s own rules, and several of them push values up

Almost everything a couple owns anywhere counts, at fair market value on December 31, 2026, minus genuine debts, with a short list of exclusions and several valuation rules that push values up (proposed §§ 50302, 50303).

• Real property “held directly by a taxpayer or held via a revocable trust” isn’t included (proposed § 50303, subd. (c)(4)).
• Qualified pensions and individual retirement arrangements are exempt, but Roth accounts count to the extent all Roth balances exceed $10 million (subd. (c)(7)(A), (B)).
• Up to $5 million of art, collectibles, vehicles, private financial instruments, intellectual property and similar “other assets” can be left out (subd. (c)(9)).
• Tangible personal property outside California for at least 270 days in 2026 is excluded, “except that an asset shall not be so excluded if relocated temporarily with a substantial purpose of avoiding tax” (subd. (c)(5)).
• Nonqualified deferred compensation, and other promises of future payment the board specifies, are exempt only until the taxpayer has a legally binding right to the payment. A deferred amount the taxpayer has a binding right to at year end and hasn’t received counts as a taxable asset, and contingent profits interests aren’t covered by the exemption at all (subd. (c)(7)(C)).

The real property exclusion covers land held directly or through a revocable trust, and directly held land stays under Prop 13: the tax is declared not to be an ad valorem tax on real property, and the credit for other jurisdictions’ net wealth taxes excludes taxes on directly held real property (proposed art. XIII, § 37, subd. (e); proposed §§ 50303, subd. (c)(4); 50307, subd. (a)). The text doesn’t extend the exclusion to real estate held in an LLC, partnership or irrevocable trust. An entity interest is valued under the business-entity rules instead, which start from the entity’s book value. The Legislative Analyst describes real estate as “generally” excluded, and that word matters. In the example, the $120 million home and ranch in a revocable trust drops out, the $8 million of qualified plans and IRAs is exempt, $4 million of the $14 million in Roth IRAs counts, and $35 million of the $40 million in art counts after the $5 million exclusion.

Debts. Recourse debt counts in full. Nonrecourse debt counts only up to the value of its collateral. Guarantees don’t reduce net worth, and no debt counts if it’s owed to a related person, isn’t at arm’s length, or doesn’t carry market interest (proposed § 50302, subds. (a), (b), (d), (e)). In the example, the $100 million recourse margin loan reduces net worth and the $30 million loan from the family LLC doesn’t. A charitable pledge reduces net worth only if the charity can enforce it, and “no pledge may reduce net worth if that pledge is entered into after October 15, 2025” (subd. (f)).

Valuation. For private holdings, the starting point is a formula built on book value and average profits. A private business interest is presumed worth the entity’s book value plus 7.5 times its average book profits over three years, times the taxpayer’s ownership share (subd. (c)(3)(E)). In the example, the 15 percent stake counts at $292.5 million, which is ($1,200 million + 7.5 x $100 million) x 15 percent. Publicly traded assets are valued at their market price on December 31, 2026 (proposed § 50303, subd. (c)(1)). Either side can override that presumption with a certified appraisal, but only on clear and convincing evidence that it substantially misstates value (subd. (c)(3)(F)). For a family holding a private company, the formula is the starting point, and whoever wants to depart from it has to meet that standard. Other rules set floors under value:

• “No valuation or other discount shall be taken into account if that discount would have the effect of reducing the value of a partial interest in an asset below the taxpayer’s pro rata portion of the value of the entire asset” (subd. (b)). Minority and lack-of-marketability discounts, which family limited partnerships are often set up to produce, don’t reduce value under this rule.
• A feature added to an asset with “a significant purpose and effect” of lowering its appraised value is ignored (subd. (b)).
• Nothing is worth less than what it’s insured for, and a business is worth no less than a funding round or equity sale within two years of the valuation date, absent clear and convincing proof (subd. (c)(10)).
• Each art, collectible or other non-public asset in the subdivision (c)(9) group worth more than $1 million needs a certified appraisal (subd. (c)(9)).

Dependents. A dependent’s assets above $50,000 are treated as the parent’s (subd. (c)(12)).

Trusts count in different ways, depending on their type and when they were funded

Grantor trusts are counted as the grantor’s. Non-grantor trusts count toward the grantor’s $1 billion test no matter when they were funded, are added to the grantor’s taxable base if funded in 2026 (or 75 percent if funded in 2025), and can owe their own flat 5 percent tax as “applicable trusts” (proposed §§ 50303, subd. (c)(6); 50308, subd. (b)).

The grantor trust definition is wider than the income tax one

Grantor trusts add straight to the grantor’s own net worth. An intentionally defective grantor trust, a spousal lifetime access trust that’s a grantor trust for income tax, a revocable trust, and any trust whose assets would be in the grantor’s federal taxable estate all land in the grantor’s column. “An individual’s net worth includes the net worth of any grantor trust of that individual” (proposed § 50303, subd. (c)(6)(A)). A grantor trust is any trust that is a grantor trust for income tax purposes “and also any trust the assets of which would be included in the estate of the grantor for purposes of federal transfer tax” (proposed § 50308, subd. (e)). Our grantor trust definition covers the income tax side.

Non-grantor trusts count toward the $1 billion test whenever they were funded

A trust the grantor gave away still counts toward whether they’re over the line, however long ago it was funded. There is no look-back limit in the text, so a dynasty trust funded in 2012 counts toward the line. In the example, the $300 million dynasty trust from 2015 counts toward the couple’s threshold and owes its own $15 million. To decide whether an individual is over $1 billion or $1.1 billion, “net worth shall include the value of property held by any trust, other than a grantor trust or tax-exempt trust, to which the individual transfers or has transferred property” (proposed § 50303, subd. (c)(6)(B)).

Non-grantor trusts funded in 2025 or 2026 also count in the tax base

Funding a non-grantor trust in 2025 or 2026 also puts it into the tax itself, not only the threshold test. A trust funded in 2026 counts in full, and one funded in 2025 counts at 75 percent. In the example, the $160 million trust funded in March 2026 counts in full, and the $80 million trust from 2025 counts at 75 percent, or in full under the election described below. If several people funded the same trust, each one’s share follows their share of the contributions. The operative sentence reads: “To the extent consistent with the United States and California Constitutions, net worth shall for all purposes include the value of property held by any trust, other than a grantor trust or tax-exempt trust, to which the individual transfers property in 2026, and 75 percent of the value of that property transferred in 2025” (same subdivision).

Applicable trusts can owe their own tax, wherever they are administered

A trust funded by a billionaire can owe 5 percent of its own net worth, with no phase-in (proposed § 50301, subd. (b)). The billionaire who funded it may elect to fold the trust into their own net worth, and then “the trust shall not be separately subject to tax.” Any trust may also elect to be an applicable trust (§ 50308, subd. (b)). An “applicable trust” is any non-grantor, non-exempt trust, “whether or not that trust is a California resident,” to which a living applicable individual with net worth of $1 billion or more, or a related person, “has transferred property” (proposed § 50308, subd. (b)).

Prop 40 taxes an applicable trust “whether or not that trust is a California resident” (proposed § 50308, subd. (b)), so moving a trust’s administration out of state doesn’t move it out of Prop 40. California’s income tax works differently: it taxes a trust’s entire income when a fiduciary or a non-contingent beneficiary is a California resident (Rev. & Tax. Code, § 17742, subd. (a)). The Nevada trust page explains how California taxes trusts and their trustees and beneficiaries for income tax, which is a separate question from Prop 40.

Beneficiaries can be treated as owners

A Californian who is a beneficiary of a large family trust funded by someone else needs to look at this rule. A beneficiary of any trust, resident or not, is “deemed the owner of the trust’s assets to the extent that the assets are distributable to the beneficiary, whether distributed or not,” unless the trust is an applicable trust (proposed § 50303, subd. (c)(6)(C)).

The text leaves several trust questions open

Several parts of the trust rules can be read more than one way, and the Franchise Tax Board or a court would have to answer them:

• The 2026 rule counts “the value of property held by any trust” to which the individual transfers property in 2026. On its plain words, a $1 million addition to a $300 million trust brings the whole trust into the base. The Tax Foundation reads it this way and calls it a likely drafting error.
• The text doesn’t say expressly whether a 2025 or 2026 trust that’s already in the individual’s base is also taxed again as an applicable trust when no election is made. The § 50308(b) election appears designed to prevent that, but the default isn’t spelled out.
• Whether a pre-2025 trust that counts only for the threshold test also drives the phase-in rate isn’t stated. The phase-in reduces the rate based on how far “that person’s net worth” falls below $1.1 billion, and the threshold-only rule is limited to deciding whether net worth is “in excess of” the two numbers.
• Whether the § 50308(b) election, which treats a trust “as part of the net worth” of the individual, overrides the 75 percent rule for a 2025 trust and brings in the whole trust isn’t stated.
• “Distributable” isn’t defined. A purely discretionary interest could be read in or out of the beneficiary rule.
• “75 percent of the value of that property transferred in 2025” doesn’t say whether value means the value at transfer or on December 31, 2026.

The example table assumes the couple make the § 50308(b) election for the 2025 and 2026 trusts and reads the election as bringing each whole trust into their net worth, so the 2025 trust counts at $80 million instead of 75 percent. Without the election, the text appears to put $60 million (75 percent) of the 2025 trust and all of the 2026 trust in their base and also tax each trust on its own, about $4 million and $8 million more. Both readings are open questions.

Most gifts and trust transfers made since October 15, 2025 stay in the giver’s net worth

Property transferred for less than fair market value after October 15, 2025 stays in the transferor’s net worth if it’s worth more than $1 million, and trust transfers in 2025 and 2026 are pulled back under the trust rules above (proposed § 50303, subds. (c)(6)(B), (c)(11)). For a family that has already made large gifts or funded trusts since then, those transfers count in the Prop 40 net worth under these rules. The example couple’s $80 million gift to a non-grantor trust in 2025 comes back that way.

Substantially interchangeable items are tested together against the $1 million line. The gift rule reads: “Net worth shall include the value of any property the individual transferred, other than property transferred to a trust described above, for less than fair market value after October 15, 2025, if that property either considered alone or together with other substantially interchangeable transferred items has a fair market value in excess of one million dollars.” The recipient doesn’t count it too (subd. (c)(11)). Gifts to a spouse don’t move anything, because the spouse’s assets are already in the couple’s net worth.

The text has no express carve-out for an outright gift to a charity after October 15, 2025. Gifts to a “tax-exempt trust” are outside the trust rules, and the pledge rule speaks to promises, but a completed gift to a charitable corporation reads as a transfer “for less than fair market value.” Whether the Franchise Tax Board would treat it that way is an open question.

The board may also disregard transactions that lack economic substance or have “a substantial purpose” of getting a Prop 40 benefit the voters didn’t intend (proposed § 50312, subd. (k)), may reallocate assets among commonly controlled entities, and may collapse a series of steps into one under the step transaction doctrine (subd. (l)). “There shall be no exemptions, exclusions, or deductions from the tax imposed by this part except those expressly authorized” (subd. (m)(2)). The measure also tells courts to construe it “liberally” (proposed § 50313).

Prop 40 is a state measure. It borrows the federal estate-inclusion test to define grantor trusts, but it doesn’t change how a gift or trust is treated for federal gift, estate or generation-skipping tax. For the federal side of 2025 and 2026 gifts, see our 2026 gift tax guide, California estate tax planning for 2026 and our estate tax guides.

Moving out of California after January 1 doesn’t change the answer

A later move doesn’t touch what the tax turns on. Liability turns on residency on January 1, 2026, net worth is measured on December 31, 2026, and 100 percent of the tax is apportioned to California “without reduction or multiplier based on residency history” (proposed §§ 50306, subd. (a); 50308, subds. (a), (n), (o)). A move in February 2026 doesn’t change the residency answer on January 1, and the base still includes whatever the person owns at year end, including assets acquired after leaving, which leaves a mover with two narrower routes:

• Alternative apportionment. A taxpayer may petition for a smaller share if they prove “by clear and convincing evidence” that their wealth “did not substantially accumulate in California” and “was not substantially sustained in California for at least 365 days in the aggregate during the 48 month period ending on the valuation date.” Relief can’t take the share below 25 percent unless the Office of Tax Appeals or a court finds a lower share is needed to avoid “grossly disproportionate taxation” (proposed § 50306, subd. (b)(3), (6)).
• A constitutional route. A taxpayer may also prevail by showing the U.S. or California Constitution or federal law bars the standard method for part or all of their wealth (subd. (b)(4)). There’s also a credit for another state’s net wealth tax, prorated by days of 2026 spent there (proposed § 50307).

The real fight for someone who left around the turn of the year will be the residency question itself. California’s residency test looks at where a person has their closest connections, and the Franchise Tax Board’s published factors include time spent in and out of California, where the spouse and children live, the principal residence, driver’s license, voter registration, banks, doctors, accountants, attorneys and social ties (FTB Publication 1031). A resident “continues to be a resident even though temporarily absent from the state” (Rev. & Tax. Code, § 17014, subd. (c)). For deficiency notices on the 2026 tax, the measure gives the board 10 years after the return is filed (proposed § 50309, subd. (b)(3)).

Payment would come with the 2026 income tax return, and the installment option carries a 7.5 percent charge

The bill would be settled with the 2026 income tax return, in one payment or five. Spreading it out costs extra: each later installment carries a nondeductible 7.5 percent charge on the unpaid balance. The tax is reported with, and due at the same time as, 2026 California income taxes, and a taxpayer may pay in full or in five equal annual installments (proposed § 50301, subd. (c)).

The payment date is less certain than the filing date. The starting point is April 15, 2027, because calendar-year income tax returns are due April 15 of the following year (Rev. & Tax. Code, § 18566). The measure then adds a twist for 2026 only: the board “shall grant extensions to file tax for six months,” the understatement penalties “shall not apply to estimated payments required to be made by April 2027,” and they “do apply to final payments for the 2026 tax year made in October 2027” (proposed § 50312, subd. (i)). Whether the six-month extension also moves the payment date isn’t stated. Under existing law, California income tax is paid at the time fixed for filing “determined without regard to any extension of time for filing the return” (Rev. & Tax. Code, § 19001), and the measure’s reference to final payments made in October 2027 sits uneasily with that rule.

The installment charge is an extra cost, and the tax itself isn’t deductible. The chart reads “remaining unpaid balance” as the balance before each later payment. If it means the balance after the payment, the charges are lower. Either way, the text gives no deduction for the tax itself: “No deduction shall be allowed for any tax imposed by the state on net worth, including the 2026 Billionaire Tax Act” (proposed amendment to Rev. & Tax. Code, § 17220, subd. (e)).

Optional deferral accounts. For a founder whose wealth sits in one private company, this is the provision to read first. A taxpayer whose Prop 40 tax would exceed the value of all their publicly traded assets can sign a contract with the state to defer tax on illiquid assets attached to an “optional deferral account” (proposed § 50304, subds. (a), (c)). Instead of paying now, they owe 5 percent of the fair market value of every withdrawal or other “material distribution transaction” from those assets, every year, until the account is closed, and the reporting obligation continues “even if and after the taxpayer is no longer a resident of California.” The contract binds the taxpayer’s estate and assigns (subds. (b), (d), (e), (i)).

Borrowing against assets to pay the tax uses the same methods described in buy, borrow, die, and the debt rules above decide how much of that borrowing reduces the base.

Every resident filing a 2026 return would face the declaration, with appraisals and penalties behind it

Every California resident filing a 2026 return must either declare that their net assets were $1 billion or less on December 31, 2026, or file a declaration of the Prop 40 tax owed with the board’s forms and any required appraisals (proposed § 50301, subd. (d)).

That declaration requirement isn’t limited to billionaires. It reaches “every California resident individual required to file.” In practice that probably means a new line on the 2026 return, and the board must issue the forms “within six months after passage” (proposed § 50309, subd. (c)). For families in the hundreds of millions, the right answer on that line now depends on Prop 40’s counting rules, which add trust assets, a spouse’s worldwide assets and recent gifts, and value private companies by formula without discounts.

• Appraisals. Appraisers must send a copy of each certified appraisal to the board, and the board’s rules are to follow the federal qualified appraisal rules of Treas. Reg. § 1.170A-17 (proposed § 50305, subds. (a), (b)). An appraiser behind a substantial or gross valuation misstatement can be penalized up to 2 or 4 percent of the resulting tax understatement (subd. (c)).
• Understatement penalties. 20 percent of the understatement if it exceeds the greater of $1 million or 20 percent of the tax shown, and 40 percent if it exceeds the greater of $10 million or 40 percent (proposed § 50312, subds. (a) to (c)). Substantial authority, or a reasonable basis plus adequate disclosure on the return, reduces the understatement (subd. (h)).
• Administration. The Franchise Tax Board administers the tax through the income tax machinery (proposed § 50309, subds. (a), (d)), may write regulations, including ones aimed at “abusive transactions,” and is exempt from the Administrative Procedure Act’s rulemaking procedures for those rules until January 1, 2028 (subd. (b)). It may hire outside experts and counsel (proposed § 50312, subd. (j)).
• Amendments. The Legislature may amend the act by a two-thirds vote of each house if the change “is consistent with and furthers the purposes” of the act (proposed § 50310).

Props 41 and 42 could stop Prop 40 even if it wins a majority

Everything above applies only if Prop 40 takes effect. Props 41 and 42 are separate constitutional amendments on the same ballot. Each declares itself in conflict with a measure like Prop 40, and the Legislative Analyst says that if either gets more yes votes than Prop 40, Prop 40 “could be stopped from becoming law even if it gets yes votes from a majority of voters” because “the courts could find” a conflict (2026 ballot analyses for Props 40, 41 and 42).

Which measure wins comes down to votes, and what happens to the loser differs by measure. The rule comes from the California Constitution: when two measures approved at the same election conflict, “the provisions of the measure receiving the highest number of affirmative votes shall prevail” (Cal. Const., art. II, § 10, subd. (b); see art. XVIII, § 4). Each measure’s own conflict clause then says what happens to the loser, and they aren’t symmetrical. If Prop 40 gets more votes, only the “conflicting provisions” of the other measure fall (Prop. 40, § 8). If Prop 41 or 42 gets more votes, “all the provisions of the other measure shall be null and void” (Prop. 41, § 5; Prop. 42, § 5). Props 41 and 42 also each come back to life if they’re superseded at this election and the measure that beat them is later held invalid (Prop. 41, § 5, subd. (b); Prop. 42, § 5, subd. (b)).

One trap for readers of poll numbers: Prop 41 or 42 can only knock out Prop 40 if it passes. A rival that outpolls Prop 40 but still falls short of a majority doesn’t take effect, so it can’t override anything.

No court has decided any challenge to Prop 40

No court has ruled on Prop 40, and the arguments below are claims by the people named, described here without endorsing either side. The measure itself channels facial challenges into a fast-track validation action in Sacramento County Superior Court, filed within 60 days after voter approval (the text doesn’t say whether that runs from election day or from certification), with any appeal going straight to the California Supreme Court (proposed § 50314; proposed art. XIII, § 37, subd. (h)).

What critics have raised. The Tax Foundation (Jared Walczak, August 2026) argues that the January 1, 2026 residency date is an unconstitutional retroactive “wholly new tax,” that 100 percent apportionment violates the Commerce Clause’s nexus and fair apportionment rules, that the trust rules reach assets the taxpayer doesn’t own and trusts with no California connection, that the base improperly includes U.S. Treasury obligations, that uncapped appraiser penalties raise Excessive Fines Clause concerns, and notes that the constitutional amendment could be attacked as an impermissible revision or under the single-subject rule. Baker Botts (June 2026) raises the retroactivity and Commerce Clause points, a due process objection to taxing out-of-state trusts based only on a Californian’s contribution, a right-to-travel claim and a vagueness claim aimed at words like “substantially.”

What supporters’ lawyers say. Professors David Gamage and Darien Shanske, whom the article identifies as among Prop 40’s drafters and as coordinating with the campaign, argue in the Daily Journal (September 2026) that the due process test for a retroactive tax is rational basis, that the residency rule rests on long-standing California law, and that the legislative amendment power is ordinary and limited.

What the text does to prepare for a challenge. If a court holds the January 1 or December 31 date unconstitutional, the measure tells it to substitute “the earliest date or dates subsequent” that would be valid and to preserve the tax for 2026, or else for 2027 or the earliest permissible year (proposed § 50311, subd. (b)). It allows apportionment below 25 percent where the Constitution requires it (proposed § 50306, subd. (b)(4), (6)), a credit where the Constitution requires one (proposed § 50307, subd. (b)), and a fallback residency rule if the residency-based apportionment is struck (proposed § 50306, subd. (b)(8)). The validation section asks the trial court to try to rule by April 1, 2027 and the Supreme Court by November 1, 2027 (proposed § 50314, subd. (d)(4)).

Whether any of these arguments wins is unresolved. The validation procedure doesn’t limit a taxpayer’s right to pay and sue for a refund or bring another authorized action (proposed art. XIII, § 37, subd. (h)), so as-applied cases could follow a facial ruling.

What happens after November 3?

As of this update, the vote hasn’t happened. There are three broad outcomes, and this section will be rewritten with the result.

1. Prop 40 passes and prevails

   An approved measure takes effect after the Secretary of State files the statement of the vote (Cal. Const., art. II, § 10, subd. (a); art. XVIII, § 4), for an initiative statute on the fifth day after filing. The filing must happen no later than the 38th day after the election, December 11, 2026 (Elec. Code, § 15501, subd. (b)). The 60-day window for a facial challenge opens, the Franchise Tax Board has six months to issue forms, and the December 31, 2026 valuation date follows within weeks.

2. Prop 40 passes, but Prop 41 or 42 passes with more yes votes

   A court would decide whether the measures conflict. If it finds they do, Prop 40’s provisions are void under the winning measure’s conflict clause, and Prop 40 has no revival clause of its own.

3. Prop 40 fails

   No tax. Props 41 and 42 would then stand or fall on their own votes, and if they pass they would limit future state tax measures.

Whatever the outcome, the declarations, appraisals and payment choices described above stay hypothetical until the vote is certified and, likely, until the validation case is decided.

What’s left to do before December 31 is mostly records, appraisals and cash

Residency is fixed in the past and recent gifts and trusts come back in, so the text closes most of the transfer routes that ordinary estate planning would use. For families at or near $1 billion, the questions now are about records, liquidity and residency facts. The December 31, 2026 valuation date follows the vote by only weeks.

• A Prop 40 balance sheet for both spouses, built on the measure’s rules: trust add-backs, the private-company formula, no discounts, insured values, recent funding rounds.
• An inventory of every trust either spouse has ever funded, sorted into grantor, non-grantor and tax-exempt, with funding dates in 2025 and 2026 flagged.
• A list of every transfer over $1 million made for less than full value since October 15, 2025, including charitable gifts and pledges.
• Appraisal lead time for private holdings, art and other assets over $1 million, and a decision on whether the formula value or an appraisal is the better fight.
• A cash plan for April 2027: pay in full, use the installment option and its 7.5 percent charge, or qualify for an optional deferral account and accept its reporting obligations.
• For anyone whose residency on January 1, 2026 is in question, the documents that show where they lived, gathered now rather than in an audit.
• For families below the line, a defensible basis for the “$1 billion or less” declaration on the 2026 return.

What the ballot arguments, campaign filings and polls report

The official ballot arguments were written by the campaigns and, as the voter guide notes, “have not been checked for accuracy by any official agency.”

Supporters say the tax would replace federal health care funding cuts, that billionaires pay lower effective tax rates than working families, and that the tax applies only to billionaires. The argument in favor is signed by representatives of SEIU-United Healthcare Workers West, Planned Parenthood of Pacific Southwest and an American Federation of Teachers local, and the rebuttal lists the California Nurses Association, Rep. Ro Khanna and SEIU among supporters.

Opponents say the tax would drive wealthy residents and companies out of state and cost the state revenue over time, that the Legislature’s amendment power could widen it, and that its revenue is exempt from the school funding guarantee and the spending limit. The argument against is signed by the presidents of the California Medical Association and the California School Boards Association and the CEO of the California Primary Care Association, and lists Governor Gavin Newsom among opponents.

Money. Campaign totals change daily. As of October 9, 2026, the Fair Political Practices Commission’s top-contributor list showed $32.3 million from the top ten donors to the main committee supporting Prop 40, almost all from SEIU-United Healthcare Workers West and its committees. On the other side, Building a Better California, whose listed top donors are Sergey Brin and L. John Doerr III, had given $88.5 million to the main committee opposing Prop 40, $58.35 million to the committee supporting Prop 41 and $97.8 million to the committee supporting Prop 42. The SEIU-United Healthcare Workers West committee also opposes Props 41 and 42, and the FPPC notes that money given to a committee working on several measures can’t be split among them.

Polls. A Public Policy Institute of California survey of 1,103 likely voters taken September 4 to 10, 2026 found 52 percent support for Prop 40, as reported by the Mercury News. A UC Berkeley Citrin Center and Politico poll released in late September found 45 percent in favor and 43 percent opposed, as reported by UC Berkeley.

Working with Ridley Law

If your family is near $1 billion, or your advisors aren’t sure which side of the line the measure’s rules put you on, the first step is a Prop 40 balance sheet and a trust and transfer inventory, built before December 31, 2026. I work alongside your CPA and, where the matter calls for it, co-counsel. Work at this level is built for each family and quoted in writing before any drafting starts. The first call is free, runs 30 minutes, and can be by phone or Zoom.

Book my 30-minute call or call 805-244-5291. For the wider planning picture, see high-net-worth estate planning in California.

Frequently asked questions

What is the California billionaire tax?

It’s Proposition 40 on the November 3, 2026 ballot, a one-time tax of up to 5 percent of net worth on people who were California residents on January 1, 2026 and whose net worth on December 31, 2026 is $1 billion or more, plus certain trusts they funded.

Is the threshold $1 billion or $1.1 billion?

Both appear in the text. The tax starts at $1 billion and phases in to the full 5 percent at $1.1 billion, dropping 0.1 percentage point for each $2 million below $1.1 billion. Reports that say “over $1.1 billion” describe only the full rate.

Is a married couple taxed as one?

Yes. Net worth includes both spouses’ worldwide assets, wherever the spouse lives, and the couple is treated as one individual for filing (proposed §§ 50301, subd. (a); 50308, subd. (f)).

Does moving out of California now avoid the tax?

Not under the text. Residency is fixed on January 1, 2026, and 100 percent of the tax is apportioned to California regardless of a later move, subject to a narrow alternative apportionment petition and constitutional challenges that haven’t been decided.

Are trusts subject to Prop 40?

Yes. Grantor trusts count as the grantor’s assets, non-grantor trusts count toward the $1 billion test whenever funded and toward the base if funded in 2025 or 2026, and a non-grantor trust funded by a billionaire can owe its own 5 percent tax.

Is my house or my IRA taxed?

Real property held directly or in a revocable trust is excluded, and so are qualified pensions and most IRAs. Roth accounts count above $10 million combined.

When would the tax be due?

With 2026 California income taxes, which are normally due April 15, 2027, with a mandatory six-month extension for 2026 and an option to pay over five years with a 7.5 percent annual charge on the unpaid balance.