People planning to leave California often ask whether the state imposes an “exit tax.” Under current law, California does not tax a person simply for moving away. Leaving does not end every California tax obligation, however, and a proposed one-time wealth tax on the November 3, 2026 ballot would look back to residency on January 1, 2026. This article separates the myths from the rules.
Myth: California Charges a Tax for Moving Out
California law does not currently impose a tax or fee on the act of leaving the state. What changes is how a person is taxed. According to the Franchise Tax Board (FTB), California residents are taxed on all income regardless of source, nonresidents are taxed on income from California sources, and part-year residents are taxed on all income received while a resident plus California-source income received while a nonresident.
The November 2026 Ballot Measure
Proposition 40 on the November 3, 2026 statewide ballot is titled “Imposes One-Time Tax on Certain Taxpayers.” According to the Legislative Analyst’s analysis in the official voter guide, billionaires who were California residents on January 1, 2026, would pay a one-time state tax equal to 5 percent of their net worth, due in 2027, with an option to spread payments over five years at additional cost. Real estate, pensions, and retirement accounts generally would be excluded. The measure would take effect only if approved by voters, and anyone affected should review its final text and status.
What the FTB Can Still Do After a Move
Tax California-source income. Nonresidents remain taxable on income such as wages for work performed in California, rent from California real property, gain on the sale of California real estate, income from a business carried on in California, and their share of California-source income from partnerships and S corporations.
Examine prior returns. The FTB generally has four years from the date a return was filed (or from the original due date, if the return was filed early) to issue an assessment. If no return was filed for a year, it can assess at any time. Taxpayers must report federal adjustments to the FTB within six months, and failing to do so extends the time the FTB has to assess.
Question the move itself. Residency audits often focus on whether and when a taxpayer actually stopped being a resident. Under FTB Publication 1031, a resident includes anyone in California for other than a temporary or transitory purpose and anyone domiciled in California who is outside the state for a temporary or transitory purpose. A person who spends more than nine months of a year in California is presumed to be a resident.
Collect what is owed. The FTB generally has 20 years to collect a liability, and its collection tools include liens and withholding orders, such as wage garnishments and other levies.
Publication 1031 explains that a person is generally a resident of the place with which he or she has the closest connections. The FTB considers factors such as time spent in and outside California, the location of a spouse or registered domestic partner and children, the principal residence, where the person is licensed to drive and registered to vote, where vehicles are registered, where bank accounts and professional advisors are located, social ties, and the location of real property and investments.
What the FTB Generally Cannot Tax After a Move
Most investment income. Publication 1031 states that interest and dividends generally have a source where the taxpayer is a resident, unless the account or security is used in a California trade or business or pledged as security for a loan. Gain from the sale of stocks or bonds generally has a source where the taxpayer resides at the time of the sale.
Qualified retirement distributions. According to the FTB, California does not tax nonresidents on IRA distributions or on distributions from qualified pension, profit-sharing, and stock bonus plans.
Income earned elsewhere. Wages for work performed outside California after a genuine change of residence are generally not California-source income.
Practical Points
Because the source of some income depends on residency on a particular date, the timing of a move relative to events such as a sale of stock or the receipt of a bonus can matter. Records that document the move, such as a lease or deed, utility and moving records, new registrations and licenses, and a calendar of days spent in and out of California, help support the date of the change. Special rules apply to items such as stock options, deferred compensation, and installment sales, so those items deserve individual review.
Planning a move out of California?
Tax attorney Cassra Minai, Esq. can review your residency facts and remaining California tax exposure in a confidential consultation.