California is preparing a new wealth‑tax proposal that would reach far beyond current residents. Assembly Bill 2088 (AB 2088) would impose an annual tax on the worldwide net worth of anyone who spends at least 60 days in the state in a given year, and it would apply retroactively to the previous ten years.
What AB 2088 proposes
- Tax base – The bill targets net worth, not just income. The original 2020 wealth‑tax plan called for a rate of roughly 0.4 % (about 40 basis points) of a person’s total assets each year.
- Who is covered –
- Full‑time California residents.
- Part‑time residents who spend ≥ 60 days in the state in any calendar year.
- Non‑residents who merely visit for 60 days or more (e.g., tourists, students, patients receiving medical care, or owners of California real‑estate).
- Retroactive look‑back – The tax would be assessed for each of the ten preceding years in which the 60‑day threshold was met.
- Pro‑rata calculation – If a person spends fewer than 365 days, the tax would be scaled proportionally. For example, 90 days of presence would result in roughly a quarter of the full rate (≈ 0.1 % of net worth).
- Annual valuation – On December 31 each year, California would determine the taxpayer’s worldwide net worth and apply the appropriate percentage.
Interaction with existing California taxes
AB 2088 would sit on top of the state’s “millionaires tax,” which already raises marginal income rates to about one‑sixth of each additional dollar earned after federal, Social Security, and Medicare taxes. The wealth tax would be an additional levy on assets, further reducing after‑tax returns for high‑net‑worth individuals.
Potential impact on non‑residents
The proposal could affect a wide range of people who have only brief ties to California:
| Situation | Potential tax exposure |
|---|---|
| Summer visitor staying 3 months at a grandparent’s home | Subject to a 10‑year look‑back if the 60‑day threshold is met |
| Patient receiving an extended medical procedure in a California hospital | May trigger the wealth tax for the year of treatment |
| International student attending a California university | Could be taxed on worldwide assets for the years of enrollment |
| Owner of California real‑estate who lives abroad | May face state estate tax on the property if the owner dies without proper planning |
Because the tax is based on worldwide net worth, non‑U.S. persons could also become liable for California estate tax on U.S. assets, which has a much lower exemption than the federal estate‑tax exemption.
Constitutional and legal concerns
- Retroactive taxation – Applying a tax to prior years raises questions about due‑process rights.
- Precedent – California previously imposed an $800 minimum franchise tax on out‑of‑state corporations; courts struck it down, yet the state proceeded with similar attempts.
- Potential for federal adoption – If the measure survives state challenges, it could serve as a model for other states or even federal legislation under a favorable administration.
Comparison with wealth taxes elsewhere
European countries that retain wealth taxes typically limit the tax to assets located within their borders. California’s proposal would be more expansive, taxing the entire net worth of anyone who meets the presence test, regardless of where the assets are held.
Practical considerations for high‑net‑worth individuals
- Track days spent in California – Maintain accurate records of travel dates to avoid unintentionally crossing the 60‑day threshold.
- Understand the “substantial presence test” – U.S. tax law already uses a formula to determine residency for income‑tax purposes; similar analysis may apply to the wealth‑tax rule.
- Estate planning – Non‑U.S. owners of California property should review estate‑tax exposure, as the state exemption is minimal.
- Alternative jurisdictions – Many high‑net‑worth individuals are relocating to lower‑tax jurisdictions (e.g., Puerto Rico, Panama, Costa Rica, Malaysia) to avoid both high income and potential wealth taxes.
Outlook
If enacted, AB 2088 would create a “snowball” effect: any individual who spends 60 days or more in California could be subject to a decade‑long series of wealth‑tax assessments. The proposal reflects California’s broader trend of aggressive tax policy, which has already prompted a notable “California exodus” of wealthy residents seeking more favorable tax environments.
Stakeholders should monitor the bill’s progress, assess exposure based on travel and asset patterns, and consider restructuring residency or asset holdings to mitigate potential liabilities.
