Is There a California Exit Tax? (Proposed vs. Enacted)

No California exit tax is currently in effect. As of June 2026, no exit tax or mark-to-market departure tax has been enacted by the California Legislature and signed into law.

Several bills have been introduced over the past several legislative sessions. The most prominent were AB 259 (introduced January 2023) and SB 310 (companion legislation), which would have imposed a tax on the unrealized appreciation of assets above $50 million at the time a California resident changes domicile. A subsequent proposal would have imposed a “wealth tax” on Californians with net worth over $50 million — assessed annually, not just at departure.

None of these bills became law. The 2023 proposals were held in committee and did not advance. Similar proposals in subsequent sessions have faced the same fate. The constitutional and practical challenges are significant: a departure tax on unrealized gains raises Due Process and Commerce Clause questions that have not been litigated, and the administrative mechanics of assessing tax on assets that have not been sold present obvious enforcement difficulties.

The media coverage of these proposals has been extensive and has outpaced the legislative reality. “California exit tax” is now a commonly used search term even though no such tax exists. People who moved out of California in 2023, 2024, or 2025 did not pay an exit tax — because there is none. What they may have encountered is the FTB’s aggressive audit of whether they genuinely established non-California domicile — which is a different thing entirely.

We will update this page if and when California enacts actual exit tax or wealth tax legislation. As of this writing, there is nothing to report.

What the California Wealth Tax Proposals Would Actually Do

The California wealth tax proposals introduced since 2020 would impose an annual tax of 1% on California residents with net worth above $50 million and 1.5% on net worth above $1 billion — applied to worldwide assets, including unrealized appreciation in real estate, securities, and closely held businesses.

The departure tax component of AB 259 was specifically designed to prevent high-net-worth Californians from leaving the state before the wealth tax took effect. The proposal would have imposed a one-time tax on unrealized appreciation of assets exceeding the $50 million threshold at the time the resident changed domicile — essentially a deemed sale at departure. The rate structure tracked the wealth tax rates: 1%–1.5% of total unrealized appreciation above threshold, not just the gain that had accrued while the person lived in California.

The enforcement mechanism was sweeping: the bill included provisions for reporting and tracking assets held in trusts, LLCs, and other pass-through structures. The proposal also had a ten-year tail provision — assets sold within ten years of departure would have been subject to California tax on the California-source appreciation, regardless of the taxpayer’s state of residence at the time of sale.

These proposals did not become law, and the constitutional questions surrounding them are genuine. The Due Process Clause generally requires a sufficient connection between the state, the taxpayer, and the taxable event. Taxing unrealized appreciation at departure — and maintaining a tax claim on assets for ten years after a taxpayer leaves the state — tests the limits of what California can constitutionally do. Several constitutional law scholars filed comments against the bill on these grounds during the legislative process.

The underlying political pressure that generated these proposals has not gone away. California has a persistent budget challenge and a high-earner base that is mobile. It would be imprudent to assume that no wealth tax or departure tax will ever be enacted. But as of June 2026, none is law.

What California DOES Do: The FTB’s Residency Audit Playbook

The FTB has a dedicated unit that audits high-income part-year and non-resident returns — with particular focus on taxpayers who left California within one to two years of a major liquidity event: business sale, IPO, large stock sale, or significant capital gain transaction.

This is not the proposed exit tax. This is current, active enforcement. The FTB’s Legal Ruling 2009-01 and its Residency Audit Guidelines describe the framework. The FTB’s position is simple: California taxes California residents. If you claim you left California before a gain was recognized, the FTB will examine whether your claimed departure date was real — and whether you genuinely established domicile elsewhere before the triggering event.

The FTB has extensive tools to investigate. It can subpoena financial records, phone location data (obtained from mobile carriers), credit card transaction records, and social media. It can interview neighbors, doctors, club membership staff, and anyone else with knowledge of the taxpayer’s whereabouts and activities. It can examine email metadata and calendar records. For high-dollar departures, the FTB’s investigative resources are substantial relative to the amount at stake.

The FTB’s targeting criteria are not published in full, but the pattern is consistent: a high-income taxpayer who files as a California resident for multiple years, then files a part-year return for the year of a large transaction showing departure before the transaction closing, will receive heightened scrutiny. The earlier in the calendar year the departure is claimed, and the closer the claimed departure date is to the transaction date, the more scrutiny the return attracts.

The stakes are significant. If the FTB successfully establishes that the taxpayer was a California resident on the date of a $10 million transaction, the California tax due is approximately $1.33 million, plus interest at the applicable underpayment rate (currently compounded daily), plus a 25% fraud penalty in egregious cases. Interest on a multi-year assessment can itself be substantial — several hundred thousand dollars on a $1.33 million underlying tax liability assessed three or four years after the transaction.

How California Determines Domicile — The 9 Factors

California uses a nine-factor domicile analysis. Domicile is where you intend to maintain your permanent home — the place you intend to return to when you are away. The FTB weighs these nine factors holistically; no single factor is determinative, and the factor with the most significant contacts usually controls.

The FTB’s nine factors are:

1. Amount of time spent in California vs. the new state. Where you sleep most nights matters. But time alone does not establish or defeat domicile — a person can spend 200 nights in Nevada and still be domiciled in California if all their significant connections are there.
2. Location of your principal residence. Where is your primary home? Have you sold the California home, or do you still own it? Have you established a new primary residence in the new state? Maintaining a California home while claiming Nevada domicile is a significant negative factor.
3. Location of your spouse and children. Where does your family live? Where do your children attend school? A taxpayer who claims Nevada domicile while the family remains in California will not succeed on the domicile argument.
4. Location of your business interests. Where is your business incorporated? Where do your business activities occur? Where are your business meetings? California is skeptical of domicile changes that coincide precisely with a liquidity event that was already in motion while the taxpayer was a California resident.
5. Location of your social connections. Where do your friends live? Where do you attend social events? Where are your religious connections? Where is your place of worship? Social connections are harder to relocate than mailing addresses, and the FTB knows it.
6. Location of your professional relationships. Where are your doctors, dentists, attorneys, and accountants? If you are six months into a claimed Nevada domicile and your primary care physician is still in La Jolla, the FTB will note that.
7. Location of your financial accounts. Where are your bank accounts? Where are your brokerage accounts? Have you opened accounts in the new state? Maintaining all financial accounts in California while claiming another domicile is a negative factor.
8. Location of your driver’s license and voter registration. These are the clearest state contacts. A Nevada domiciliary should have a Nevada driver’s license and Nevada voter registration. Having a California driver’s license after claiming Nevada domicile is almost never explained away successfully.
9. Location of your club memberships and recreational activities. Country clubs, gym memberships, sports teams, and similar affiliations. The FTB pays attention to where you actually spend leisure time.

The FTB weighs these factors qualitatively, not quantitatively. Having seven of nine factors pointing to Nevada does not mean you win if the California home and the California family are still there. The two factors that tend to carry the most weight are where your primary home is and where your immediate family lives. Most FTB residency audit wins for taxpayers involve all nine factors pointing convincingly in the same direction — not a split of six to three.

The FTB’s approach is codified in its Residency Audit Guidelines and discussed in R&TC § 17014 (resident defined) and § 17016 (domicile presumption). A person domiciled in California is presumed to be a resident unless they rebut that presumption with clear, contemporaneous evidence.

California-Source Income That Follows You After You Leave

Even after a genuine, successful departure from California, certain categories of income remain California-source and are taxable by California regardless of where you live when the income is received.

This is the part of California residency planning that most people miss. Leaving California changes your status from resident to non-resident. But non-residents still owe California tax on California-source income under R&TC § 17951. The following are the most common sources of California-source income for former residents:

Stock Options Earned While a California Resident

Stock options granted while you were a California resident are partially California-source income when exercised — even years after you leave the state.

California apportions option income based on the ratio of the days you worked in California during the option vesting period to the total vesting period days. If you were granted an option while living in California and it vested over four years, the California portion is calculated as a time-based proration of your California work days during the vesting period. If you leave California two years into the vesting period, two years of vesting is California-source; two years is not. The FTB’s position on this apportionment is set out in FTB Publication 1005 and consistent with the regulatory framework under R&TC § 17951-4.

This means that a tech employee who moves from California to Texas before a company IPO may still owe California tax on a portion of the option income at exercise, based on how much of the vesting period occurred while they were a California resident. The departure does not eliminate the California-source character of income that accrued while they lived here.

Deferred Compensation Earned in California

Deferred compensation that was earned while you were a California resident — salary deferrals, nonqualified deferred compensation under IRC § 409A, and similar arrangements — retains its California-source character when distributed, regardless of where you live at the time of distribution. The FTB’s allocation follows the same general principle: income is California-source to the extent it was earned in California.

K-1 Income from California Businesses and Partnerships

If you are a partner, LLC member, or S corporation shareholder in a California business, your distributive share of California-source income remains taxable in California even after you leave the state. A California LLC conducting business in California generates California-source income for all its members, resident or not. This applies to real estate partnerships holding California property, operating businesses with California nexus, and any pass-through entity doing business in California.

Gains on California Real Property

A gain on the sale of California real property is California-source income regardless of where the seller lives at the time of sale. A former California resident who owns a California rental property and sells it five years after relocating still owes California tax on the gain. The property’s location controls, not the seller’s residency. This is straightforward and is not a residency-audit issue — it is simply the correct tax treatment for a non-resident with California real property income.

How to Actually Leave California Without Getting Audited

A genuine, defensible departure from California requires establishing domicile in the new state — not counting days, not renting a mailbox, not keeping the California home for “visits.” The FTB knows what a real domicile change looks like and what a tax-motivated shell departure looks like.

The following is a practical checklist for establishing defensible non-California domicile. These are not optional nice-to-haves. They are the contemporaneous acts that a court or the FTB would look for to confirm that the departure was genuine.

Establishing the New Domicile

• Obtain a driver’s license in the new state immediately upon arrival. This is one of the clearest signals of domicile intent. California driver’s licenses should be surrendered.
• Register to vote in the new state. Voter registration goes to the state you consider your permanent home. Remaining a California voter while claiming Nevada domicile is an obvious contradiction.
• Open a primary bank account in the new state. Where you bank is a documented statement of where you live.
• Establish a primary residence. Purchase or lease a permanent home in the new state. The home should be your actual primary residence, not a pied-à-terre for tax purposes while you live somewhere else.
• Change your professional relationships. Find a doctor, dentist, and other healthcare providers in the new state. Have your medical records transferred. If you are still seeing your California dentist for routine care two years into a claimed Nevada domicile, the FTB will notice.
• Transfer or establish club memberships and social affiliations in the new state. Golf clubs, social clubs, religious organizations. These are the things that signal where you actually live versus where you sleep for tax purposes.

What to Do with the California Home

The California home is often the central issue in a residency audit. The options:

• Sell it. This is the cleanest approach. If you no longer own a California home, the FTB cannot argue it is your primary residence.
• Rent it to an unrelated third party at fair market value. A genuine rental converts the California home from a residence to an investment property. You should not continue to use it for personal stays of any significant duration.
• Keep it as a secondary/vacation home with clearly documented limited use. This is the riskiest option. The FTB will scrutinize the frequency and nature of your California visits. Staying in your California home for extended periods undermines the domicile claim. If you keep the home, document every California visit and keep personal use minimal and sporadic.

Documenting the Departure

Contemporaneous documentation of your departure is not optional — it is the evidence you will need if audited. Keep a daily log of where you slept for the year of departure and the first two years in the new state. Credit card records, phone location history, and travel receipts corroborate this log. Don’t rely on your memory two years later when the FTB issues an audit notice.

File a California part-year resident return for the year of departure, reporting California income through the departure date and non-California income for the remainder of the year. The quality of this return — how well it explains the transition and how it handles the income allocation — affects the probability and outcome of an audit.

Timing Relative to the Transaction

The departure needs to be genuine and completed before the triggering event. A “departure” that happens one week before a business sale closing, with no driver’s license change, no home sold, and the family still in California, will not withstand scrutiny. The FTB specifically looks at the timing of departures relative to major transactions. A departure that occurred months or years before a transaction, with all the domicile indicators pointing to the new state, is defensible. A departure that was operationally completed in 48 hours before a closing date is not.

The 183-Day Rule — What It Does and Does Not Do

Spending fewer than 183 days in California does not make you a non-resident if you are domiciled in California. Day counting is a secondary factor, not the controlling one.

This misunderstanding causes expensive mistakes. California’s “safe harbor” for non-residents is often described as the “183-day rule” — the idea that if you spend fewer than 183 days in California, you are not a California resident. That description is incomplete to the point of being misleading.

R&TC § 17016 creates a rebuttable presumption that a person who is domiciled in California and spends more than nine months per year in California is a California resident. The inverse — that spending fewer than 183 days in California establishes non-residency — is not in the statute. What the statute actually says is that the domicile determination controls residency, and that physical presence is evidence of domicile, not a substitute for it.

The practical implication: if you are domiciled in California — your home is here, your family is here, your significant ties are here — spending 182 days in Nevada does not make you a Nevada domiciliary. You are a California resident who traveled a lot. The FTB will count the days, note that you are below 183, and then examine all the other domicile factors. If those factors point to California, you are a California resident regardless of the day count.

Taxpayers who count to 182 California days and consider themselves safe have often not changed their driver’s license, kept the California home as their primary residence, and maintained all their social and professional connections in California. They are not safe. They are California residents who spent less than half the year here.

The day count matters as one factor among many. A person who is below 183 California days, has established domicile in a new state with all the indicators described above, and has a clean contemporaneous record is in a defensible position. A person who is below 183 California days and has done nothing else to establish non-California domicile is still a California resident.

How Brotman Law Helps

Residency planning for California high-earners is one of the more nuanced areas we work in. The stakes are real: the California tax on a large transaction is typically more than $1 million, and an FTB residency audit that goes badly can produce an assessment that includes the underlying tax, several years of interest, and potential penalties.

We help in two situations. First: clients who are planning a genuine relocation and want to make sure it is done right. The departure checklist above is a starting point. We help clients identify their specific vulnerability factors — which of the nine domicile factors are problematic, what needs to change before the departure can be defended, and how to build a contemporaneous record. We also analyze the California-source income that will follow them, so there are no surprises on the non-resident return after they leave.

Second: clients who have already moved and received an FTB audit notice or residency questionnaire. The FTB’s initial correspondence in a residency audit typically asks for information about where you lived, where you worked, where your family lives, and the nature of your connections to California. The response to that questionnaire — what is included, what is not, how it is framed — shapes the rest of the audit. We handle residency audits and FTB disputes regularly. The FTB audit defense page has more on how those engagements work.

If you have a transaction on the horizon and are considering a residency change, or if you have already moved and are worried about how California will treat your departure, book a free 15-minute call. We can usually tell you in that conversation whether the concern is real and, if so, what the options are. For formal transaction advisory, see our tax advisory and opinion letter page.