Leaving California: Is There an Exit Tax, and What Follows You

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

Who this page is for: Californians thinking about leaving, at any estate size. The residency rules are the same for everyone, and the dollars at stake rise with income. A founder with a pending stock sale, an executive with unexercised options and a family with a large trust have the most to lose. For families worth $1 billion or more, the January 1, 2026 residency date in Prop 40 adds a separate question, covered below.

Is there a California exit tax?

No. As of October 2026, California has no tax on leaving the state, and no enacted law taxes a former resident’s wealth after a move.

The idea has been proposed. AB 2088, introduced in the 2019 to 2020 session, would have imposed “an annual tax at a rate of 0.4% of a resident of this state’s worldwide net worth in excess of $30,000,000,” and its apportionment rule would have kept taxing a former resident for years after a move. The taxable share was years of California residence over the last 10, and for a former resident it dropped by one-tenth a year until it reached zero. The bill died in the Assembly Rules Committee on November 30, 2020 (bill status). AB 2088’s 0.4 percent rate never became law.

Prop 40 on the November 3, 2026 ballot is a one-time tax on billionaires, not an exit tax, though it does fix residency on a past date, as explained below.

Who is a California resident for income tax?

A resident is anyone in California for other than a temporary or transitory purpose, plus anyone domiciled in California who is away only for a temporary or transitory purpose (Rev. & Tax. Code, § 17014, subd. (a)).

The statute adds that a resident “continues to be a resident even though temporarily absent from the state” (§ 17014, subd. (c)), and anyone who spends more than nine months of a tax year in California is presumed a resident (§ 17016). Everyone else is a nonresident (§ 17015), and someone who is each for part of the year is a part-year resident (§ 17015.5).

Domicile and residency are different tests

The Franchise Tax Board treats domicile and residence as “two separate concepts.” Your domicile is the place where you’ve voluntarily set up yourself and your family “with a present intention of making it your true, fixed, permanent home and principal establishment.” You have only one domicile at a time, and you keep it until you acquire a new one. A change of domicile requires abandoning the old one, physically moving to and living in the new place, and intending to stay there permanently or indefinitely as shown by your actions (FTB Publication 1031, section L).

That gives a California domiciliary two ways to stay a resident after “moving.” If the domicile hasn’t changed, the person remains a resident while away for a temporary purpose. And even someone domiciled elsewhere is a resident while in California for other than a temporary purpose.

The closest-connections test and the factors the FTB weighs

“The underlying theory of residency is that you are a resident of the place where you have the closest connections,” and “it is the strength of your ties, not just the number of ties,” that decides it (FTB Pub. 1031, section G). The publication lists factors including:

• Time spent in California compared with time spent elsewhere
• Where your spouse or registered domestic partner and children live
• Where your principal residence is
• The state that issued your driver’s license and registers your vehicles
• Where you hold professional licenses and are registered to vote
• Where your bank accounts are and where your financial transactions originate
• Where your doctors, dentists, accountants and attorneys are
• Where your place of worship, professional associations and social or country clubs are
• Where your real property and investments are, and how permanent any California work assignment is

The State Board of Equalization published a longer list in Appeal of Bragg (2003-SBE-002), adding items such as the sizes and values of your residences, where your children attend school, which state you claim the homeowners’ property tax exemption in, your telephone records, and affidavits from people who know you. The Board said the factors “serve merely as a guide,” and the weight of each “depends upon the totality of the circumstances” (Appeal of Bragg, p. 6).

Publication 1031 gives the paper-move example directly. A Californian declares Nevada residency, moves bank accounts to Nevada, keeps the California home, spends six or seven months a year there, and keeps a social club and business connections in California. The FTB’s answer is that “your declaration of residency in Nevada does not establish residency in that state,” and the person is taxed on all income as a California resident (FTB Pub. 1031, section H, Example 3).

Who has the burden of proof in a California residency audit?

The taxpayer does. The Franchise Tax Board’s residency determinations are presumed correct, and the taxpayer has to show they’re wrong (Appeal of Bragg, 2003-SBE-002, p. 6; Appeal of Bracamonte, 2021-OTA-156P, p. 4).

The person claiming a change of domicile also carries the burden of proving it, and “if there is doubt on the question of domicile after presentation of the facts and circumstances, the domicile must be found to have not changed” (Appeal of Bragg, p. 6). The Office of Tax Appeals, which now hears these appeals, applies the same rules and adds that “unsupported assertions are insufficient to satisfy a taxpayer’s burden of proof” (Appeal of Bracamonte, pp. 4 to 5). Physical presence counts for more than declared intent. It’s “a factor of greater significance than mental intent and the formalities that tie one to a particular state” (Bracamonte, p. 9, citing Noble v. Franchise Tax Bd. (2004) 118 Cal.App.4th 560).

The FTB generally has four years after a return is filed to mail a notice of proposed deficiency (Rev. & Tax. Code, § 19057, subd. (a)). Keep the evidence of a move at least that long.

What income does California still tax after you move?

California taxes a part-year resident on all income received while a resident and only on California-source income while a nonresident (Rev. & Tax. Code, § 17041, subds. (b), (i)(1); § 17951).

The tax on the nonresident portion uses a rate figured as if all of the year’s income were California income, so a large out-of-state gain can raise the rate on the California-source slice (§ 17041, subd. (b)(2)). Deferred income and carryovers come along only to the extent they were derived from California sources, computed as if the person had been a nonresident for all prior years (§ 17041, subd. (i)(3)). The FTB’s examples in Publication 1100 show how this works for the items that usually matter to a mover:

• Stock and other intangibles. Income from stocks, bonds and other intangible property isn’t California-source for a nonresident unless the property has a business situs in California or the nonresident trades in California regularly enough to be doing business there (§ 17952). Sell after the move is complete and the gain generally isn’t California’s. Sell before, and it is.
• Installment sales. The source of gain on intangible property is fixed when it’s sold, so gain on stock sold on the installment method while you were a California resident stays California-source when the payments arrive after you’ve moved (Cal. Code Regs., tit. 18, § 17952, subd. (d)). Interest on the note received as a nonresident isn’t (Pub. 1100, Example 8). The Office of Tax Appeals applied the regulation to the 2009 installment payment in Bracamonte (p. 10, fn. 11). Gain on California real property sold on installments stays California-source whenever it’s paid (Example 7).
• Stock options. The spread on nonstatutory options exercised after a move is California-source compensation to the extent the work was done in California (Pub. 1100, Example 13).
• Final pay. A last paycheck for California work, received after a move, is California-source (Example 10).
• Retirement income and deferred compensation. Federal law bars a state from taxing a nonresident’s “retirement income,” defined to include qualified plans, IRAs, and nonqualified deferred compensation paid in substantially equal periodic payments over the recipient’s life or a period of at least 10 years, or paid from an excess-benefit plan after employment ends (4 U.S.C. § 114). Deferred compensation paid in a lump sum or over a shorter period isn’t covered by that protection.
• Like-kind exchanges. Gain deferred by exchanging California property for out-of-state property stays California-source and is taxed when the replacement property is sold (Pub. 1100, Example 16).

Sale proceeds can follow a mover for years. In Bragg, a 1988 sale of a business interest carried a 10-year covenant not to compete. After Bragg moved to Arizona, the Board held the covenant payments were still California-source and upheld the FTB’s apportionment of 84.05 percent of them to California (Appeal of Bragg, pp. 9 to 11).

For the federal side of a deferred sale, see our page on installment sales of a California business.

How does California tax trusts when the family moves?

California taxes a trust’s income when a trustee, or a beneficiary whose interest isn’t contingent, is a California resident, regardless of where the settlor lives, with the income apportioned when only some trustees or beneficiaries live here. California-source trust income is taxed no matter where anyone lives (Rev. & Tax. Code, §§ 17742 to 17744; Steuer v. Franchise Tax Bd. (2020) 51 Cal.App.5th 417).

• Several trustees. Where taxability turns on fiduciary residence and there are two or more fiduciaries, taxable income is apportioned by the number of fiduciaries resident in California (§ 17743). A corporate trustee’s residence is where it does most of its administration of the trust (§ 17742, subd. (b)).
• Several beneficiaries. Where taxability turns on beneficiary residence, income is apportioned by the number and interests of the California beneficiaries (§ 17744).
• Accumulated income. If no tax was paid on accumulated income because a California beneficiary’s interest was contingent, the income is taxed to that beneficiary when it’s distributed, with the tax figured as if the income had been received ratably over the distribution year and up to five preceding years (§ 17745, subds. (b), (d)). A beneficiary who leaves California within 12 months before a distribution and returns within 12 months after it is presumed to have stayed a resident the whole time (§ 17745, subd. (e)).
• Incomplete-gift nongrantor (ING) trusts. For tax years beginning on or after January 1, 2023, California taxes an ING trust’s income to its grantor as if it were a grantor trust (§ 17082, subd. (a)).

In Steuer, a trust for a California beneficiary had one California trustee and one Maryland trustee. The Court of Appeal held that the trust owed California tax on all of its California-source income, rejecting the argument that § 17743 cut the taxable gain in half because only one trustee lived in California. The court also affirmed that the beneficiary, whose distributions were in the trustees’ “sole absolute discretion,” held only a contingent interest, so her California residence didn’t by itself make the trust’s other income taxable (Steuer). A family that moves while a trust keeps a California trustee hasn’t moved the trust. Our Nevada trust page covers out-of-state trusts in more detail, and the grantor trust definition explains why a revocable trust’s income stays on your own return.

Cases won and lost

Most published residency cases turn on facts, and most of them go the FTB’s way when the taxpayer sold something valuable before the move was finished.

What did Franchise Tax Board v. Hyatt decide?

Franchise Tax Board v. Hyatt (2019) 587 U.S. 230 held that states keep their sovereign immunity from private lawsuits filed in the courts of other states, and it overruled Nevada v. Hall (1979) 440 U.S. 410. It didn’t decide anyone’s residency.

The case grew out of a residency audit. Gilbert Hyatt, a long-time Californian with large patent royalties, sold his California house in 1991 and rented an apartment, registered to vote, opened a bank account and got a driver’s license in Nevada. The FTB suspected the move was a sham and audited his 1991 and 1992 returns, sending “more than 100 letters and demands for information to third parties.” Hyatt sued the FTB in Nevada state court for torts committed during the audit and won a jury verdict that, with interest and costs, exceeded $490 million before the Nevada Supreme Court cut it down. In the third trip to the U.S. Supreme Court, a 5 to 4 majority held the FTB was immune from his suit in Nevada’s courts and reversed (opinion).

A Californian who leaves can’t sue the FTB in the new state’s courts over how a residency audit is run. The fight over residency happens in California’s own system, through a protest, an appeal to the Office of Tax Appeals, and a refund suit in California court.

What would Prop 40 change for people who left in 2026?

If Prop 40 passes and takes effect, it would tax individuals who were California residents on January 1, 2026, using the same income tax definitions in §§ 17014 and 17015.5, so a move after that date wouldn’t change who owes it (proposed Rev. & Tax. Code, §§ 50306, subd. (a); 50308, subds. (a), (n)).

The measure says 100 percent of the tax “is apportioned to California for all applicable individuals and applicable trusts, without reduction or multiplier based on residency history,” with residency “determined under Sections 17014 and 17015.5 as of the tax obligation date” (proposed § 50306, subd. (a)). A taxpayer can get a smaller share only by proving with clear and convincing evidence that the wealth didn’t substantially accumulate in, or stay in, California, or by showing that the U.S. or California Constitution or federal law bars the standard method (proposed § 50306, subd. (b)(3), (4)). That’s the opposite of an exit tax. It looks back to a date that has already passed rather than charging people as they leave. For anyone near the $1 billion line who moved around the turn of the year, the January 1, 2026 residency question would be decided under the same closest-connections rules described above, with the same burden of proof.

Two other measures on the same ballot speak to this. Prop 42 would bar new state taxes that operate retroactively and says that bar “also applies to a tax that is imposed on a taxpayer based upon their residency status on a date prior to the effective date of the tax” (Prop. 42, text of proposed law). How a conflict among Props 40, 41 and 42 would be resolved depends on which measures pass and by how much. The Prop 40 page walks through the text, the trust rules and the conflict clauses. This page takes no position on any of the three measures and will be updated after the November 3, 2026 election.

What changes in California

A move out of California touches more than the income tax return. These California-specific rules come up most often:

• Keeping the California house doesn’t reassess it. A change in ownership is a transfer of a present interest in real property (Rev. & Tax. Code, § 60). Moving out isn’t a transfer, so the Prop 13 base year value stays.
• The homeowners’ exemption has to go. The $7,000 exemption doesn’t extend to a vacation or secondary home (§ 218, subds. (a), (b)(1)). Keeping it on a California house after a move is also one of the Bragg residency factors working against you.
• Prop 19 and the children. The parent-child exclusion applies only to a transferor’s principal residence, meaning a home eligible for the homeowners’ exemption because of the transferor’s ownership and occupation, and it reassesses value above the factored base value plus $1 million (§ 63.2, subds. (a)(1)(A), (d)(2), (e)(5)). A parent who leaves and keeps the old house as a second home generally gives up that exclusion for it. See the Prop 19 parent-child exclusion.
• Real property left behind still needs a plan. California real estate owned at death outside a trust can require a probate case here even if you died a resident of another state. See ancillary probate in California.
• Trust residency travels with trustees and beneficiaries. Under §§ 17742 to 17745 and Steuer, a California trustee or non-contingent beneficiary keeps a trust taxable here after the settlor leaves.
• ING trusts rarely work for Californians. R&TC § 17082 taxes their income to the grantor for tax years beginning on or after January 1, 2023, with a narrow exception for trusts that elect resident status and distribute at least 90 percent of their income to charity (§ 17082, subd. (c)).
• Top rate and no capital gains break. The top 2025 bracket is 12.3 percent (FTB 2025 tax rate schedules), plus 1 percent on taxable income over $1 million (§ 17043), and “California does not have a lower rate for capital gains” (FTB, Capital gains and losses). That’s why the date of a large sale matters so much.

A timeline for a move out of California

The order of events matters more than any single step. The move has to be complete, and visible in the records, before the income you’re worried about is earned or the sale is signed.

What does a sale before and after a move cost? (hypothetical)

Dana is single, a California resident, and owns founder stock with a $40 million built-in gain. The stock has no California business situs. Dana is moving to Nevada. All figures are invented, use the 2025 California single-filer rate schedule plus the 1 percent tax over $1 million, and assume no other income, deductions or credits.

The gap between the first two rows is the whole reason residency audits exist. In the third row, signing the deal while still a resident locks the gain to California even though the money arrives later. In the fourth row, the move works for the stock, but the option spread earned for California work stays California’s, taxed at a rate driven by the whole year’s income.

What works and what fails

Working with Ridley Law

A move done for tax reasons has to be planned around the transactions it’s meant to protect, and the estate plan, the trusts and the California real estate need to move with it. 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

Does California have an exit tax?

No. Current California law has no tax on leaving the state. AB 2088, a 2020 bill for a 0.4 percent annual wealth tax that would have reached former residents for years, died in committee on November 30, 2020.

How long do I have to be gone to stop being a California resident?

There’s no fixed number of days. Residency turns on whether you’re in or out of California for a temporary purpose and where your closest connections are. More than nine months in California in a year creates a presumption of residency, and a 546-day safe harbor applies only to some people working abroad under a contract.

If I move, will California tax my stock sale?

Not if the move is complete before the sale and the stock has no California business situs, because a nonresident’s gain on intangibles isn’t California-source. If you sell while still a resident, including on an installment note, California taxes the gain even when payments arrive after you leave.

Will California tax my pension or deferred compensation after I move?

Federal law bars California from taxing a nonresident on qualified plan and IRA income, and on nonqualified deferred compensation paid over life or at least 10 years in substantially equal payments. Other deferred pay for California work can still be California-source.

Can I keep my California house?

Yes, and keeping it doesn’t trigger a Prop 13 reassessment. It does count as a California tie in a residency audit, it loses the homeowners’ exemption, and it generally won’t qualify for the Prop 19 parent-child exclusion once it’s no longer your principal residence.

Does my trust have to move too?

Often, yes. California taxes a trust’s income when a trustee, or a beneficiary whose interest isn’t contingent, lives in California, apportioned when only some of them do, and it taxes California-source trust income regardless of residence.

Was FTB v. Hyatt a residency decision?

No. The Supreme Court held that a state can’t be sued by a private party in another state’s courts without its consent. It arose from a residency audit, but it didn’t rule on whether Hyatt was a California resident.