One of the gimmicks that the authors of the California Wealth Tax came up with was having it apply retroactively to anyone who was still a resident of the state as of January 1, 2026. As I've described before, a number of billionaires still managed to get out prior to this date.
Sergey Brin, the centibillionaire co-founder of Google, began cutting ties with the state late last year, as did his old business partner Larry Page. Peter Thiel, the PayPal and Palantir founder, said he was moving to Miami and pointed to California’s hostile tax environment as the prime reason. Car loan magnate Don Hankey picked up and headed to friendlier tax climes in Nevada, telling news outlets on his way out that he felt like he “wasn’t wanted” anymore.
Some of the state’s leading tax lawyers claim to have helped at least a half dozen other unpublicized billionaire clients leave the state.
Even Steven Spielberg got out before Jan. 1, though his people claim that wasn't motivated by the tax.
More billionaires have been making plans to move since the tax got on the ballot. In theory, they can't escape it at this late date. However, there is still a possibility that the Supreme Court could wind up deciding a retroactive tax is unconstitutional. I think that's fairly likely but we won't know for a while. The tax hasn't even passed yet.
In the meantime, Politico has a story about California's Franchise Tax Board and how they intend to pursue billionaires who claim to have left the state and tax them anyway. It turns out there's no simple definition of who is a resident which means it's open to a lot of interpretation.
In 1991, a California inventor named Gilbert P. Hyatt — set to make $150 million dollars from a microprocessing patent — sold his house, rented an apartment in Nevada, opened a bank account in his new state, and re-registered his vehicles. After all was said and done, he declared that he was no longer a resident of the state, and made his motive plain: He was about to receive an enormous windfall, and he didn’t think California was entitled to it.
The state disagreed. After initiating an audit, FTB inspectors deployed aggressive investigation tactics in their efforts to prove that Hyatt’s move was a fraud, rooting around in his trash for evidence, “rifling through his private mail” and sending letters to his rabbi. The investigation ultimately turned into an epic, quarter-century long tax battle, as Hyatt alleged that auditors had made antisemitic comments about him and challenged the case in court. A lawsuit surrounding the case came before the Supreme Court three separate times. But after countless appeals and court hearings, Hyatt still ended up paying $11 million in taxes and penalties (although he continued to fight that assessment).
This is what the state plans to do to every billionaire who is even arguably a state resident this year. Their methods of making a determination that you owe them money are pretty intrusive.
Over the years, the rules surrounding residency in California have been distilled by a handful of significant cases. In a 1975 case, Klemp v. Franchise Tax Board, a couple from Illinois avoided becoming California residents even though they spent more time in their vacation home in Palm Springs than their home in Chicago, because their primary business connections and life remained in the Midwest. In a separate 1992 case, courts ruled that people who were in the state for a “temporary or transitory” purpose would not be considered residents. In the 2003 case of a rancher named Stephen Bragg who claimed to have moved to Arizona, the courts established a series of residency determinations that tax lawyers now refer to as “the Bragg factors.”
The goal of the Bragg factors is to establish someone’s “center of life,” an informal concept that, in California, is far more significant than a driver’s license or voter registration or home address. And meeting those factors (including where your credit card transactions originated from and where your gym or church or doctor are located, among many other measurements) is only “necessary, but not sufficient,” as Manes put it. FTB investigators, he pointed out, will also look at where your business interests are located, where your spouse and children live, where you keep your collectible objects or items of value, or even where you have most clothes.
So the Franchise Tax Board will not only be demanding a list of everything you own worldwide. It will also be demanding to see your closets and what you keep in your curio cabinet. This kind of thing would be considered outrageous if the IRS did it to any normal citizen. But progressives have spent years making billionaires into the enemy of the people so no one on the Left will care.
Even the people who support this tax know it's going to be a nightmare in practice.
the FTB, for all its reputation as a tax hound, has only ever had to collect personal income and corporate tax. Prop 40 is not, in fact, a tax on personal income, but rather a levy on all personal property and accumulated assets. A billionaire’s art collection would qualify, which means that the FTB would suddenly find itself as an asset evaluator as well as a tax agency.
It doesn't help the FTB that the people they are trying to milk have plenty of money for high-end lawyers who can fight this every step of the way. As I said, I think this will turn out to be unconstitutional, at least for anyone who left before this thing passes. Hopefully the voters are smarter than the socialist union members who pushed this mess onto the ballot. But in California you really can't count on common sense.
Editor's Note: The Democrat Party has been infected by socialism, and it's spreading FAST. Democrats are claiming there's nothing to worry about, but we know the truth.
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