California proposing ‘exit tax’ – penalizing Californians for leaving the state

Assembly Bill 2088, introduced in August of 2020, is known as the California Wealth Tax. AB 2088 includes an ‘exit tax’ on residents leaving the state. Californians will not be taxed simply for relocating and are not prohibited from leaving until paying the tax. Rather, California will assess former residents’ taxes for up to ten years after they’ve left the state.

AB 2088 would establish a 0.40 percent annual tax on a taxpayer’s ‘worldwide wealth’ exceeding $30 million, not including real estate, and dependent on the current market value. Part-year residents would pay a pro-rated tax based on the number of days spent in California each year. New residents would have the wealth tax phased in for them over ten years.

The National Taxpayers Union Foundation writes, “A person subject to the tax who chooses to leave the state will still be subject to it for ten years, at a sliding scale, amounting to a 1.80 percent exit tax. Understatement of tax would carry a penalty of the greater of $1 million or 20 percent of the tax due, on top of existing tax penalties.”

The Institution of Taxation and Economic Policy (ITEP) rates the California tax system as the most progressive in the country. In the last year, California experienced an unprecedented exodus, with many citing the cost of living, housing, and jobs.


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