On November 3, California votes on Proposition 40, the 2026 Billionaire Tax Act. The Legislative Analyst's Office summarizes it as a one-time tax "equal to 5 percent of their net worth" on billionaires "who were residents of California on January 1, 2026."
Read that date again. It's October. If you're thinking about leaving California because of Prop 40, the measure's own text says the clock already stopped. Prop 40 hasn't passed, but here's what it would do, line by line.
Takeaway #1: Residency was decided on New Year's Day
FROM THE MEASURE
"“Tax obligation date” means January 1, 2026."
"One hundred percent of any tax imposed under Sections 50301 and 50304 is apportioned to California for all applicable individuals and applicable trusts, without reduction or multiplier based on residency history..."
What it means for you. Prop 40 asks whether you were a California resident on January 1, 2026. It uses the existing income-tax residency rules: Sections 17014 and 17015.5. How much you'd owe is then measured on the "valuation date," which "means December 31, 2026."
There's no discount for moving out mid-year, and no discount for having arrived recently. The only relief is a petition. You'd have to prove "by clear and convincing evidence" that your wealth wasn't built or sustained here. Even then, relief "shall not reduce the apportionment percentage below 25 percent," with a narrow constitutional exception.
Your move. If you left California in late 2025, build your residency file now. California treats you as a resident if you're here for "other than a temporary or transitory purpose," or domiciled here while away temporarily. The Franchise Tax Board points to its Publication 1031 for the factors. Your lease, your kids' school and your days on the calendar will matter more than your intentions.
Takeaway #2: Your last funding round sets the floor
FROM THE MEASURE
"In the case of a business entity, in no case shall the value of that entity be less than the valuation reflected in any funding round or other sale of equity occurring within two years of the valuation date, unless the taxpayer can show by clear and convincing evidence that that valuation would significantly overstate the value of the entity."
What it means for you. This one is for founders and media investors. For a private company, the default value is a formula: book value plus "a present-value multiplier of 7.5 times the annual book profits," multiplied by your ownership percentage. But the floor is your priced round. A headline valuation from a 2025 or 2026 raise can set the minimum, even if that number reflected investor-friendly terms that common shareholders don't get.
Arguing the round "would significantly overstate the value" takes clear and convincing evidence. That's a high bar to clear in 2027 with documents you didn't keep in 2026.
Your move. Founders: keep the paper that explains the gap between the headline price and what your shares are worth, like your cap table, liquidation preferences and any independent common-stock valuations. Investors: expect founders to ask for financial information, and decide now what you'll share.
Sample wording: "On a Holder's reasonable written request, the Company will provide, within 30 days, the financial information reasonably needed for the Holder to value its interest for any net-worth or wealth tax, subject to the confidentiality terms of this Agreement."
Can it still be stopped?
Yes. Two rival measures, Props 41 and 42, are on the same ballot. The LAO puts it plainly: "If Proposition 41 or 42 on this same ballot receive more “yes” votes than Proposition 40, then Proposition 40 could be stopped from becoming law even if it gets yes votes from a majority of voters." CalMatters reports September polling from the Public Policy Institute of California showing narrow support for all three.
And always remember, don't sign it till you read it, my friends.
General information, not legal or tax advice. Reading this doesn't create an attorney-client relationship. Prop 40 is a pending ballot measure, so talk to a qualified tax adviser about your situation.
Sources
- California Secretary of State, Official Voter Information Guide, Prop 40 Text of Proposed Laws
- Legislative Analyst's Office, Proposition 40 analysis (Nov 3, 2026 ballot)
- California Franchise Tax Board, Residents
- Prop 40 drafters, The 2026 Billionaire Tax Act: Section-by-Section Summary (Sept 2026; proponent material)
- CalMatters, Poll: Prop. 40 CA billionaire tax faces tough election fight (Sept 2026)
