California is preparing to audit former residents who relocated to avoid the state's proposed wealth tax, targeting individuals with substantial assets and scrutinizing their ties to the Golden State. The state's Franchise Tax Board will conduct intrusive residency audits to determine if these ultra-wealthy individuals still maintain California as their primary home.
Notable individuals who relocated last year following the consideration of the 5% billionaires tax, and who are now expected to face these audits, include Google co-founder Sergey Brin, venture capitalist David Sacks, and Uber co-founder Travis Kalanick. If these individuals cannot prove they have severed their connections to California, they could face significant financial repercussions, potentially amounting to billions of dollars.
Brin, with an estimated net worth of $270 billion, reportedly purchased property in Nevada and listed it as his home state in campaign finance filings. However, financial experts suggest that establishing a new residency can be complex. Pat Dwyer, co-founder of Aligned Wealth, described the potential disputes as a "game of chess" where residency is determined by more than just physical presence.
According to a handbook for staff, the Franchise Tax Board will investigate whether departed billionaires have "substantially severed" their California connections or maintained them in preparation for a return. This includes examining factors such as children's school enrollment in the state, car registrations, and the locations of doctors, veterinarians, and bank accounts.
Darien Shanske, a professor at UC Davis School of Law, cautioned that superficial actions like having an assistant obtain a driver's license in another state or spending holidays elsewhere might not be sufficient to prove a change in residency. "Sending your assistant to get a driving licence in Nevada, spending Christmas at your home in Miami and writing a mean tweet about California are only moves on paper," he told the Financial Times.
Wealthy individuals have reportedly funded efforts to challenge the wealth tax, which is slated for a statewide referendum in November. If approved, the tax would apply to individuals with a net worth exceeding $1 billion and would be retroactive to January 1, 2026. Proceeds from the tax are intended to fund healthcare and education initiatives.
Alex Kugelman, a tax attorney based in the San Francisco Bay Area, indicated that the Franchise Tax Board is prepared to pursue collection if the tax is enacted, anticipating that wealthy individuals will hire top legal counsel, leading to protracted legal battles.