California Exit Tax
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Table of Contents
What should you expect from California taxes when relocating with significant wealth?
Leaving California doesn’t always mean you’ve left behind all of its tax implications. While there isn’t a formal exit tax in place as of March 2025, proposals are on the table that could still impact you—especially if your assets are well into the multi-million-dollar range.
Is California actually enforcing an exit tax right now?
At the moment, no. There is no official California exit tax. However, some lawmakers have pushed for one. The idea is to impose a yearly tax of 0.4% on anyone whose total assets exceed US$30 million—regardless of where they live later.
The proposed rule would affect individuals with considerable wealth who leave California but still benefit from the business or economic environment the state helped provide. Even though it hasn’t become law yet, it’s a recurring topic in state tax discussions, and future versions could gain traction.
If a tax like this passes, how would it work?
If implemented, the proposed tax would be based on your total net worth. This means calculating the value of your global assets, then subtracting any debts. If that number is above the US$30 million threshold (or US$15 million if married filing separately), the amount over the limit would be taxed annually at 0.4%.
Assets considered in this calculation could include:
- Stock portfolios and brokerage accounts
- Business ownership or equity
- Investment properties
- Bonds and high-value alternative investments
So, if someone holds US$45 million in net assets, the first US$30 million would be excluded, and the remaining US$15 million could be taxed—resulting in an annual charge of US$60,000.
Who would end up paying if these proposals become law?
While nothing is final, these proposals are clearly designed to target a narrow group: individuals and families with very large portfolios or ownership interests.
That includes:
- High-net-worth individuals with more than US$30 million globally
- Business owners with significant equity tied to California entities
- Nonresidents who still earn income from California, such as through rental properties, investments, or remote consulting work tied to the state
The broader concern is that leaving California may not automatically end your tax obligations if you continue earning money connected to the state.
Could you still be audited after you leave California?
Yes, it’s entirely possible—especially if you’re a high-income individual or have ongoing financial ties to the state. The California Franchise Tax Board (FTB) often reviews residency status when someone moves, particularly if they continue earning income with a California source.
Common red flags that might trigger a residency audit include:
- Keeping a California driver’s license or voting registration
- Holding onto a property in California without renting it out
- Earning business or investment income tied to California after you move
- Selling major assets shortly before or after your relocation
- Failing to file a “final” tax return for the year you left
One of the more common audit letters is FTB Notice 4600, which is tied to questions about residency and where your income should be taxed.
What’s the difference between California’s wealth tax proposal and an exit tax?
While similar in outcome, the two are conceptually different. An exit tax would apply when someone leaves the state. In contrast, a wealth tax—like the one in Assembly Bill 2088—would apply annually to people who are simply wealthy, regardless of whether they leave.
AB 2088 proposed:
- A 0.4% tax each year for those with more than US$30 million in worldwide assets
- Exemptions for certain real estate like your primary residence
- Inclusion of assets like stocks, businesses, and investment income
- A provision to apply this tax to former residents for up to 10 years after they move
We’re here to help you understand anything you need to know about US taxes.
Could Californians really be taxed after leaving the state?
If AB 2088—or similar legislation—is ever approved, yes.
The bill includes language that would allow California to tax former residents for a decade after their move, if their wealth exceeds the US$30 million threshold.
This idea has drawn strong reactions, but for now, it’s just a proposal. Still, the intent is clear: California wants to maintain a claim on long-time residents with substantial financial resources.
What kind of individuals could be affected by this kind of tax policy?
These proposals are clearly aimed at individuals and households who have:
- Built large businesses
- Significant stock or equity holdings
- Large-scale investment portfolios
- Ties to ongoing California-sourced income streams
For US expats, these policies add a layer of complexity—particularly if they’ve recently left the state or plan to return. Even foreign-based income or assets might be relevant if they’re part of your global net worth.
What should you do if you’re considering leaving California with high-value assets?
If you’re a high-net-worth individual planning to move—especially internationally—it’s important to:
- Get professional guidance from a tax advisor who understands California residency rules
- Document your departure clearly, including cutting state ties like property ownership, voter status, and licenses
- Review your income sources to see what’s still connected to California
- Stay updated on proposed laws that could impact your post-move obligations
How does California figure out if you’re still on the hook for state taxes?
Even after you move out of California, the state may still consider you a resident for tax purposes—depending on how connected you remain. California doesn’t base residency solely on where you say you live. Instead, it looks at your lifestyle, where you spend your time, and how integrated you still are in the state.
Here are examples of things that might suggest you’re still a California resident:
- Keeping your California driver’s license
- Using a California mailing address for your taxes or bills
- Owning a home in the state and claiming the property tax exemption
- Staying in California for more than nine months during the year
- Voting in California elections or registering vehicles in the state
You don’t need to check every box on this list to be considered a resident. The Franchise Tax Board (FTB) looks at the full picture of your situation to determine if you’ve actually left or if you’ve just relocated “on paper.”
What can you do to avoid being taxed after leaving the state?
If you want to minimize your chances of owing California taxes after you move, you’ll need more than just a change of address. Clear separation is key.
Here’s what can help:
- Make your exit official – Cancel or change your California voter registration, driver’s license, vehicle registration, and insurance.
- Move before big transactions – If you’re planning to sell a house, stocks, or other assets, doing so before you leave may change how and where the income is taxed.
- Reduce ties to the state – If you still own a home or business in California, keep detailed records showing how those assets are managed—especially if you’re no longer personally involved.
- Document your timeline – Track when you moved, where you live now, and any key events like buying a new home, enrolling kids in school, or starting work in your new location.
A clear, consistent record will be helpful if the FTB reviews your case later.
If you’re working remotely, are you still considered a California taxpayer?
It depends on a few things: where you physically work, what type of work you’re doing, and who’s paying you.
Let’s break it down:
- If you work remotely but live outside California: Your wages likely aren’t California-source income, as long as all work is performed out of state.
- If you still have a California-based employer or clients: That alone doesn’t make your income taxable, but the situation becomes more complex if part of your work is tied to in-state operations.
- If you’re self-employed and serve California customers: You may be seen as having a California business presence, which could result in tax filings—even if you’re no longer a resident.
This is especially relevant for expats who continue consulting or freelancing for California companies. Just because you moved abroad doesn’t mean the FTB stops tracking how your income flows back to California.
What types of income might still be taxed even after you leave?
Even if you’re no longer a resident, California can tax certain types of income that are tied to the state:
- Wages earned while physically working in California
- Rental income from California properties
- Capital gains from selling California real estate or stock tied to in-state business
- Deferred compensation linked to California-based work
- Disability insurance or paid family leave that relates to your past California job
In these cases, you may be required to file a nonresident tax return, even if your main home is now outside the US.
Is there a clean break strategy for remote workers and business owners?
Yes, but it takes planning. If you’re leaving California and want to avoid ongoing state tax obligations:
- Make sure your work is physically done outside California
- Update contracts, payroll records, and your business address to reflect your new location
- Close or transfer any California business registrations if you no longer operate there
- For expats, clarify employment terms with your overseas employer to show that work is being done entirely outside US borders
In short, if your earnings have nothing to do with California, it’s best if you can prove it.
