California 2026 Billionaire Tax Act

On October 22, 2025, a ballot initiative titled the "2026 Billionaire Tax Act" was filed with the California Attorney General. An amendment to the initiative was filed on November 26, 2025. The initiative must now gather enough signatures to be placed on the November 2026 ballot. If the initiative is approved by a majority of California voters, it would amend the California constitution and generally impose a one-time 5% tax on the "net worth" of individuals with a net worth of $1 billion or more who are California residents or part-year residents as of January 1, 2026 (the "tax obligation date") as well as "applicable trusts." The amount of the tax would generally be equal to 5% of the net worth of an individual or trust as defined under the initiative as of December 31, 2026 (the "valuation date").

"Net worth" is generally defined as the total value of all assets and property interests of a "taxpayer and their spouse worldwide," subject to certain exclusions and exemptions. The computation of net worth would generally exclude or exempt interests in real property, tangible personal property located outside California for at least 270 days during 2026, certain pensions and retirement accounts, and up to $5 million of certain assets. Certain debts and liabilities would reduce net worth. The initiative would provide that appraisals may be required in valuing assets and property interests.

The initiative would provide two methods for apportioning the tax between multiple jurisdictions. The "standard method" would require taxpayers to pay 100% of the tax regardless of residency history. However, the initiative provides for an "alternative" apportionment method if the standard method "does not fairly represent the extent to which the taxpayer's excessive wealth was accumulated in, or substantially sustained by, California." Except when required by the United States or California Constitutions or by federal law, the alternative method may not reduce the apportionment percentage below 25%.

The initiative provides that revenue from the tax would be used 90% for health care and 10% for education and food assistance. The initiative is being promoted by the Service Employees International Union-United Healthcare Workers West (SEIU-UHW) labor union.

If the 2026 Billionaire Tax Act is enacted, it will likely face numerous legal challenges. The following is a list of federal and state constitutional challenges the 2026 Billionaire Tax Act may face if the initiative is enacted. However, the state may argue that the state constitutional amendment included in the initiative would preempt the state constitutional arguments.

Dormant Commerce Clause. The 2026 Billionaire Tax Act may be challenged on the ground that it violates the Dormant Commerce Clause of the United States Constitution. To comply with the Dormant Commerce Clause, the initiative must pass the Complete Auto test, which requires that a new tax (1) apply to an activity with a substantial nexus with the taxing state; (2) be fairly apportioned; (3) be nondiscriminatory against interstate commerce; and (4) be fairly related to the services the state provides. Taxpayers could argue that the new tax would fail the Complete Auto test because worldwide assets would be subject to the tax. Additionally, taxpayers could argue that this tax is not fairly apportioned, as the tax could reach wealth generated outside California.

Retroactivity. The 2026 Billionaire Tax Act may be challenged on the ground that it is retroactive in violation of the Due Process Clause of the United States and California Constitutions. The tax would be retroactive because the date for determining California residency (the "tax obligation date" of January 1, 2026) precedes when the initiative can be enacted (after the November 2026 election). Whether retroactive tax legislation violates due process depends on whether the legislation (1) is justified by a rational legislative purpose and (2) is enacted promptly with only a modest period of retroactivity. Although courts have applied this rational basis test to some retroactive tax legislation, the U.S. Supreme Court has indicated that it may not apply when considering "the creation of a wholly new tax." For such retroactive taxes, taxpayers' due process rights are implicated. Taxpayers could argue that the retroactive aspect of the proposed "Billionaire Tax" would be violative of due process given that California does not have and has never had a wealth tax.

Bill of Attainder. The 2026 Billionaire Tax Act could be challenged on the ground that the initiative represents an unconstitutional bill of attainder. Article I, Section 10 of the United States Constitution forbids states from enacting bills of attainder. Unconstitutional bills of attainder are laws that (1) single out specific individuals or groups, (2) impose punishment on those individuals or groups, and (3) impose the punishment without trial. Here, the initiative singles out a specific group of individuals. It targets a group of "around 200 billionaires" who would be subject to the wealth tax. The initiative also does not provide a trial to adjudicate the tax. Therefore, whether the new tax would be an unconstitutional bill of attainder depends on whether it imposes punishment. Taxpayers could argue that the tax would constitute a bill of attainder because the initiative evidences an intent to punish the wealthy. Taxpayers could also argue that the one-time 5% tax is similar to historical bills of attainder that involved the punitive taking of property.

Equal Protection Clause. The 2026 Billionaire Tax Act could be challenged on the ground that it violates the Equal Protection Clauses found in both the United States and California Constitutions. The argument would be that the wealth tax discriminates between those who have a net worth exceeding $1 billion and those who do not. While wealth is not a suspect classification under the United States Constitution, there are arguments that wealth is a suspect classification under the California Constitution.

0.04% Tax Cap. Those who oppose the 2026 Billionaire Tax Act could argue that the wealth tax violates the 0.04% tax cap under the California Constitution. Article XIII, Section 2 of the California Constitution prohibits a property tax that exceeds 0.04% of the property's value on "any interest in notes, debentures, shares of capital stock, bonds, solvent credits, deeds of trust, or mortgages." Although the 2026 Billionaire Tax Act is labeled as an "excise tax," a court could classify it as a property tax based on the reasoning that labels are not conclusive for this determination. On the one hand, property taxes are taxes which are imposed based on ownership of property, are annual taxes incurred on a fixed date, and do not create personal liability for nonpayment. On the other hand, excise taxes are levied on the exercise of rights incidental to property ownership. Here, although the tax would be a one-time tax, and would potentially create personal liability for the billionaires, it would be based on the ownership of property. The initiative describes the tax as a tax on the "activity of sustaining excessive accumulations of wealth by applicable individuals." Taxpayers could argue that these words simply encompass the ownership of wealth and not the exercise of a property right incidental to ownership. Therefore, the taxpayers could argue that the wealth tax is a property tax and subject to state constitutional limitations on property taxation.

Uniformity. Taxpayers could argue that the 2026 Billionaire Tax Act violates the California Constitution's Uniformity Clause. Under Article XIII, Section 1 of the California Constitution, all property taxes must "be assessed at the same percentage of fair market value," or, if another value standard is used, "the same percentage shall be applied to determine the assessed value." The initiative provides that certain liabilities may be taken into account in computing net worth. The argument would be that taking these liabilities into account would result in different tax rates in violation of the California Constitution's Uniformity Clause.

Right to Travel. Taxpayers could argue that the 2026 Billionaire Tax Act violates the right to interstate travel. The right to interstate travel is a fundamental right under the United States Constitution and levying a California tax on a taxpayer after they've left the state interferes with that right. A person could be subjected to the new wealth tax simply by reason of residing for any period of time in California, even if the person leaves California before the tax is enacted, making it punitive to move to California. Under the U.S. Supreme Court's decision in Shapiro v. Thompson, "any classification which serves to penalize the exercise of [the right to interstate travel], unless shown to be necessary to promote a compelling governmental interest, is unconstitutional."

Takings Clause. Taxpayers could argue that the 2026 Billionaire Tax Act violates the Takings Clause of both the United States and the California Constitutions. The Takings Clause in the United States and California Constitutions prohibits federal and state governments from taking private property without providing just compensation. The California Constitution's Takings Clause is interpreted consistently with the United States Constitution. While courts have concluded that taxes are generally not considered takings, there is an argument under the U.S. Supreme Court's decision in Armstrong v. United States that if a tax requires "some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole," then the tax may qualify as an unconstitutional taking.

We would be pleased to assist you with your questions about the 2026 Billionaire Tax Act. We will continue to monitor the progress of the 2026 Billionaire Tax Act toward potential enactment.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.