Blog · 15 October 2026

California Prop 40 Billionaire Tax and Domicile vs Residency: What US CPA Firms Should Tell Clients Who Moved or Plan to Move

By Keshav Bansal, CA

California’s Proposition 40—on the November 3, 2026 ballot—would impose a one-time 5% tax on the net worth of billionaires who were California residents on January 1, 2026. For US CPA firms, the practice problem is domicile versus residency, “closest connections,” and whether a new driver’s license is enough when a client says they already left.

What Proposition 40 would do

The California Legislative Analyst’s Office (LAO) Proposition 40 analysis—and the matching analysis in the Secretary of State’s Official Voter Information Guide—describes a one-time state tax equal to 5 percent of net worth on billionaires who were residents of California on January 1, 2026. The tax would be due in 2027. Taxpayers could spread payments over five years but would have to pay more to do so. Real estate, pensions, and retirement accounts generally would be excluded.

Ninety percent of the money would have to be spent on health care services for the public; the rest on education, food assistance, and administration of the wealth tax. LAO estimates the state probably would collect tens of billions of dollars in temporary revenue spread over several years, with a possible ongoing decrease of less than $1 billion per year in income-tax revenue if billionaires leave or otherwise reduce California income-tax payments.

LAO’s ballot page also warns that if Proposition 41 or 42 receives more “yes” votes than Proposition 40, courts could find a conflict and Proposition 40 could be stopped even with a majority of yes votes—an interaction warning, not a prediction.

Wealth tax vs income tax—and the fixed Jan. 1, 2026 date

LAO distinguishes wealth (net worth) from income (earnings over a period). Proposition 40 would be a one-time wealth tax keyed to residency on a date that has already passed. A move after January 1, 2026 does not rewrite who that snapshot covers if the measure passes. Leaving may still matter for future California income tax and for Franchise Tax Board (FTB) residency audits—but firms should not tell clients a mid-2026 move erases Prop 40 exposure under the LAO description.

POLITICO (Will McCarthy and Jeremy B. White, Oct. 7, 2026)—also flagged in Eide Bailly’s Oct. 9 roundup—reported that FTB would face large-scale residency determinations, worldwide asset valuation, and collection if Prop 40 passes. It names Sergey Brin, Larry Page, Peter Thiel, and Don Hankey as among those reportedly cutting ties or moving—not as adjudicated findings. New licenses, banks, and voter cards alone are not enough.

California residency and the nine-month presumption

Under Revenue and Taxation Code §17014, a “resident” includes every individual in California for other than a temporary or transitory purpose, and every individual domiciled in California who is outside for a temporary or transitory purpose. A California resident continues to be a resident even though temporarily absent. Section 17016 adds the presumption: every individual who spends in the aggregate more than nine months of the taxable year in California is presumed to be a resident. The presumption may be overcome with satisfactory evidence of a temporary or transitory purpose. FTB Publication 1031 (2025) restates that rule and warns the converse: fewer than nine months does not automatically make someone a nonresident.

Domicile is not residency

Publication 1031 treats domicile and residence as separate concepts. Domicile is the place where you voluntarily establish yourself and family as your true, fixed, permanent home and principal establishment—the place you intend to return to when absent. You can have only one domicile at a time; it continues until you acquire another. A change of domicile requires all of: abandonment of the prior domicile; physically moving to and residing in the new locality; and intent to remain permanently or indefinitely, demonstrated by actions. Declaring a new home state on a form is not the test.

Closest connections, Bragg, and Hyatt

Pub. 1031’s theory is that you are a resident where you have the closest connections. Strength of ties matters more than a raw count; no single factor is determinative. Sample factors include time in versus out of California; where a spouse or RDP and children live; principal residence; driver’s license and vehicle registration; professional licenses; voter registration; banks; financial-transaction origination; and medical and other professionals. FTB’s Residency and Sourcing Technical Manual (Rev. 01/2026) cites Appeal of Stephen Bragg, 2003-SBE-002 (May 28, 2003), as a guide—not a mechanical scorecard.

Long-running Gilbert P. Hyatt litigation shows the cost. CalTax reported in 2022 that Hyatt sought a refund of about $11.37 million paid for 1991 after the Board of Equalization held he became a Nevada resident on October 20, 1991 but still had California-source licensing income that year. A 2026 Office of Tax Appeals opinion on that $11,372,224 claim largely sustained FTB’s denial. That is not a neat settlement ending the fight—it shows residency disputes can span decades.

New York contrast and related reading

Movers often confuse California’s framework with New York’s statutory resident rule: maintain a permanent place of abode in New York and spend more than 183 days there while domiciled elsewhere (N.Y. Tax Law §605; 20 NYCRR §105.20). Keep a days log that works for each state’s test. Related reading: federal tax residency vs immigration, Section 751 / OTA Burch California sourcing, and our state millionaire tax 2027 roundup.

CPA checklist

1. Separate Prop 40 from ongoing income tax. If Prop 40 passes, LAO keys the wealth tax to California residency on January 1, 2026—already fixed.
2. Prove domicile change with all three Pub. 1031 elements. Abandonment, physical move, and indefinite intent shown by actions.
3. Build a closest-connections file. Homes, family, schools, days with purpose, banks, professionals, claimed filings—strength of ties, not a checklist majority.
4. Keep a contemporaneous days log. California’s nine-month presumption and New York’s 183-day test both punish fuzzy calendars.
5. Do not treat “reportedly left” headlines as audit defenses. Attribute press carefully; FTB will look at objective ties.
6. Expect valuation fights if Prop 40 passes. POLITICO’s Oct. 7 reporting frames residency plus worldwide asset valuation and collection—not residency alone.

Where Tax Brew fits

High-net-worth residency files are document-heavy: days logs, home sales, entity charts, and multi-state return support. Tax Brew supports US CPA firms with tax prep support, bookkeeping and cleanup so reviewers can spend more time on domicile and closest-connections judgment calls. See our services, or email info@taxbrewglobal.com.

Sources: LAO Proposition 40 analysis (Nov. 3, 2026 ballot PDF/HTML); California SOS Official Voter Information Guide, Proposition 40 Analysis; Cal. R&TC §§17014, 17016; FTB Pub. 1031 (2025); FTB Residency and Sourcing Technical Manual (Rev. 01/2026) citing Appeal of Stephen Bragg, 2003-SBE-002; N.Y. Tax Law §605 / 20 NYCRR §105.20; POLITICO (McCarthy & White, Oct. 7, 2026); Eide Bailly roundup (Parker, Oct. 9, 2026); CalTax (May 20, 2022) on Hyatt; OTA G. Hyatt materials (2026) on $11,372,224 refund claim. General information, not tax advice. Proposition 40 is a ballot measure as of publication—not enacted law.