Tax Insight

Proposition 40 California billionaire tax - why valuation matters now

Insight
5 minute read
September 14, 2026

What happened?

California voters will decide Proposition 40 on November 3. If approved, the state would impose a one-time tax of up to 5% on individuals who were California residents on January 1, 2026, and whose net worth reaches or exceeds $1 billion, as well as certain trusts. The tax generally would apply to most assets worldwide, although directly held real estate is excluded.

For individuals, two dates are critical: whether a taxpayer is subject to the measure depends on California residency on January 1, 2026, a date that has already passed, while the amount subject to tax generally would be determined based on net worth on December 31, 2026.

Why is it relevant?

Proposition 40 applies different valuation rules to different types of assets, and private companies, startup interests, art, and other assets may not have readily observable market values on December 31, 2026.

For private business interests, the measure prescribes valuation rules that could produce values significantly above fair market value. It also allows for certified appraisals, but the text appears to limit when an appraisal may replace those prescribed rules. The measure’s authors have described the appraisal alternative as more broadly available. That difference, combined with the complexity of the valuation rules themselves, creates uncertainty over how some private business interests ultimately would be valued if Proposition 40 passes.

Actions to consider

For taxpayers who may be in scope, a practical first step is a preliminary model using current ownership, book value, earnings, and other readily available information. The goal is not to value every asset today; instead, it is to identify where Proposition 40’s complex valuation rules could produce a material difference, and which holdings may require additional valuation or appraisal work if the measure passes.

Unfortunately, taxpayers are left with very little time. Final election results will be certified on December 11, and the first return and payment would be due on April 15, 2027. For taxpayers at the full 5% rate, valuation differences could translate quickly into millions of dollars of tax. Some taxpayers are therefore beginning the modeling now and, where the numbers warrant it, talking with appraisers so the relevant workstreams can be ready if Proposition 40 passes.