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California Exit Tax: What's Been Proposed, What's Law, and What Leaving Actually Costs You
California does not have an enacted exit tax โ but proposals have repeatedly come close, and leaving the state still carries real tax obligations that catch many people off guard.
If you're searching this topic because you're planning a move, you need to understand both the legislative proposals (which haven't passed) and the existing rules (which very much apply). This article covers both.
What Is the California Exit Tax Proposal?
The phrase "California exit tax" comes from provisions included in several California wealth tax bills introduced in recent years.
AB 2088 (2020) would have imposed an annual 0.4% wealth tax on California residents with net worth above $30 million โ and continued taxing them for up to 10 years after leaving the state, on a declining pro-rated basis. The idea was that wealth built in California shouldn't escape California taxes simply by changing your address. The bill did not pass.
AB 259 (2023) included similar exit tax language. It also failed to advance out of committee.
So to directly answer "did the California exit tax pass": no. As of the most recent legislative sessions, these proposals have stalled before reaching a floor vote. The concept keeps returning โ California's legislature has shown sustained interest in taxing high-wealth individuals who leave โ but no exit tax is currently law.
What Does California Actually Tax When You Leave?
No formal exit tax doesn't mean a clean break. The Franchise Tax Board (FTB) is aggressive about residency audits, and existing rules can create tax bills well after you've relocated.
Part-year residency. If you move out of California mid-year, you file as a part-year resident and pay California tax on all income earned while you were a resident, plus any California-source income earned after you left. Most states work this way โ California is just more likely to scrutinize the return.
Deferred compensation and equity. This is where complications pile up. Stock options, RSUs, and deferred compensation granted while you were a California resident can still be partially taxed by the FTB when they vest or pay out โ even years after you've moved. The California-source portion is calculated based on how much of the vesting period you spent in California. If you have significant equity, the timing of your move relative to vesting events matters considerably.
California-source income after you leave. Income from California real estate, California business operations, or California-based partnerships generally remains taxable regardless of where you live. Understanding how California property taxes work is part of the picture if you're holding property here after relocating.
Business owners should also note that California's LLC franchise tax doesn't automatically end when you move. The California LLC franchise tax continues as long as your entity is registered in the state, which has real implications for when and how you wind down or re-register your business elsewhere.
How Does California Decide Whether You've Really Left?
California uses a domicile test. Your domicile is the place you intend to make your permanent home โ and California presumes you're still a resident until you prove otherwise.
The FTB considers factors like:
- Where your family and close contacts live
- How many days you're physically present in California each year
- Where your business is located and managed
- Where you maintain bank accounts, doctors, professional licenses, voter registration, and vehicle registration
There's a statutory safe harbor: if you're outside California for at least 546 consecutive days for employment-related reasons, you may qualify as a nonresident. But passive income from California sources can still be taxed under this provision, and the conditions are strict.
The FTB routinely audits high-income taxpayers who claim to have moved โ especially to no-income-tax states like Nevada, Florida, or Texas. Renting a Nevada apartment while spending 180 days a year in California won't hold up. Solid tax planning before and during a move is the difference between a clean exit and an audit you're defending two years later.
For business owners evaluating how entity structure affects their California exit, the S-corp vs. LLC tax differences article covers how California treats each structure.
What Should You Do Before Moving Out of California?
If you're a high-income earner or business owner planning a move, work through these steps before you go โ not after.
Document everything contemporaneously. The date you establish a new domicile, your new lease or home purchase, utility transfers, voter registration changes, and professional licensing moves all matter. The more contemporaneous documentation you have, the stronger your position if the FTB questions your residency.
Map your deferred income. Identify what equity or deferred compensation is outstanding, when it vests, and what share was earned in California. A fractional CFO or tax advisor can model which vesting events to accelerate or delay relative to your move date โ and the math can be significant.
File the part-year return correctly. Misallocating income between your California period and post-California period is a common audit trigger. Getting professional help with state tax problems before an issue develops is far less expensive than responding to a formal FTB inquiry.
Keep your entity registrations clean. If you own a California LLC or corporation, determine when and how to dissolve or re-register before assuming your California tax obligation is over.
This is general tax information, not personalized advice for your situation. California residency and income-sourcing rules involve fact-specific analysis โ consult a tax professional before making decisions about a move or entity changes.
Book a free consultation to talk through your situation with someone who knows California tax.
Frequently asked questions
Does California have an exit tax?
No. California does not currently have an enacted exit tax. Several proposals โ including AB 2088 in 2020 and AB 259 in 2023 โ introduced exit tax provisions targeting high-net-worth residents, but none have passed into law.
Has the California exit tax proposal passed as of 2025 or 2026?
As of the most recent legislative sessions available, the California exit tax has not passed. The proposals have consistently stalled in committee. Verify the current status with the California Legislature's website or a tax professional, as this remains an active legislative area.
What does "10-year exit tax" mean for California?
The 10-year figure comes from the legislative proposals, not current law. Under the proposed structure in AB 2088, a departing California resident would owe a pro-rated share of the annual wealth tax for up to 10 years after leaving โ declining each year they were gone. Since no exit tax has passed, this provision is not in effect.
Does California tax income I earn after I move out of state?
California taxes income earned while you were a resident, plus California-source income earned after you leave โ such as income from California real estate or business operations. Deferred compensation and equity granted during your California residency can also be partially taxable after you move, depending on when and how the income vests.
How do I prove I've left California for tax purposes?
You need to establish a new domicile, and the FTB examines where your family lives, how many days you spend in California, where your business operates, and where you maintain financial and professional ties. Contemporaneous documentation of the move โ new lease or home purchase, updated voter registration, licensing transfers โ is essential, especially for high-income filers the FTB is more likely to scrutinize.