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While supporters of the 2026 Billionaire Tax Act (the “BTA”) project approximately $20 billion annually over five years, those projections depend on legal, valuation, and enforcement assumptions that may not hold in practice. The Legislative Analyst’s Office (“LAO”) has cautioned that actual revenues are difficult to predict and could be materially affected by taxpayer behavior and market volatility.
California May Lack Power to Tax or Collect From Covered Trusts
Although presented as a tax on “billionaires,” the BTA also applies to certain “applicable trusts,” including trusts with little or no connection (nexus) to California. A trust may be taxed if a California resident billionaire has ever transferred property to it—even if the trust is located and operates entirely outside the state. Because the rule reaches prior transfers, it can apply to long-established, non-California trusts. For example, a billionaire who funded an out-of-state trust decades ago and later moves to California could trigger tax on that trust.
Even if such a tax is imposed, collection presents a separate problem. Non-California trustees may not comply absent a court order, and enforcement would likely require litigation across multiple jurisdictions. Those proceedings would depend on courts and agencies in states that have no policy interest in facilitating California tax enforcement.
In short, the BTA attempts to tax a trust that is formed, administered, and holds assets outside California and then collect from it across state lines. This design creates serious constitutional and practical obstacles. Where a trust has minimal connection to California, courts may limit the state’s authority to tax or collect. At a minimum, those defects create delay, uncertainty, and potential revenue loss not reflected in headline projections.
The BTA Assumes California Can Reach Wealth Held by Nonresident Spouses
The BTA assumes California can effectively tax wealth held by nonresident spouses, even where that wealth is located abroad and beyond easy reach. In cross-border situations, this creates practical and legal collection challenges. For example, where a California resident has limited assets but is married to a nonresident spouse with wealth located abroad, California may face substantial legal and practical barriers to asserting jurisdiction and collecting the tax. These risks are consistent with the LAO’s observation that taxpayer responses—including relocation or restructuring—could reduce expected revenues.
Unclear Trust Rules Could Leave Significant Value Untaxed and Undermine Administration
The BTA treats beneficiaries as owning trust assets that are “distributable,” but it never defines what “distributable” means. That ambiguity matters, especially for discretionary trusts. In many common trust structures, distributions may never be required, which raises the possibility that significant value will fall outside the effective reach of the tax. This uncertainty complicates administration and may reduce the amount ultimately collected.
The BTA’s Valuation Rules Undercut the Revenue Projections Used to Support It
The BTA relies in part on formula-based valuation presumptions, using “book value” and “book profits” to value certain private business interests. Those measures can diverge significantly from real-world market value. At the same time, BTA revenue projections rely on market-based estimates of billionaire wealth. This disconnect matters. A tax projected on one valuation approach but administered under another may not produce the revenues supporters project.
Taxing Wealth with Too Little Connection to California Exceeds What the Constitution Permits
The BTA generally attributes 100% of a taxpayer’s net worth to California for purposes of the tax, including wealth accumulated outside the state. This approach reaches assets that may lack the connection to California the Constitution requires, creating a substantial risk that the tax is reduced or invalidated as applied. Although the statute provides an alternative apportionment framework, taxpayers face a high burden to obtain relief, and disputes are likely to be fact-intensive and contested. As a result, both the timing and amount of collections remain uncertain.
Conclusion
Even setting aside legal challenges, the BTA’s projected revenues depend on legal, valuation, and enforcement assumptions that may not hold in practice. Taken together, these features call into question whether the BTA can operate as the reliable revenue measure its supporters describe. As a result, the key question is not simply whether the tax can be imposed, but whether it can be administered and enforced in a way that reliably produces the level and certainty of funding being projected.
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