Marc M. Stern

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Does the Golden State Want Your Gold? California Legislature Resumes Discussions Of New Annual Wealth Tax

August 17, 2020Client Alert

The California Legislature recently resumed discussion of enacting a new California wealth tax. If A.B. 2088 (referred to as the “Wealth Tax Act”) is enacted, a 0.4% tax would be imposed annually on the worldwide net worth of California residents in excess of $30 Million (or $15 Million for married taxpayers filing separately). The tax would apply to full-time residents, part-year residents, temporary residents as well as former residents who were, within the ten years prior to becoming a former resident, subject to the wealth tax. In each case, an apportionment formula would be applied to determine the fraction of the taxpayer’s net worth subject to the wealth tax based upon the number of years the taxpayer was a resident of California over the prior ten years.

The calculation of an individual’s worldwide net worth would include all assets other than directly owned real property and liabilities secured by the real property, although such real property and liabilities secured by the real property would be required to be listed on the wealth tax return. In contrast, real property owned through an entity such as a corporation, partnership, LLC or trust would be included in the calculation of worldwide net worth. Publicly traded assets would be valued at their end of year value. The value of nonpublicly traded assets would be estimated, subject to later reconciliation, and determined without any valuation discounts.

If the taxpayer is subject to a wealth tax in another jurisdiction, a credit against the California wealth tax would be available, as well as a credit for real property taxes with respect to real property owned through an entity which is included in the taxpayer’s worldwide assets. No credit against the wealth tax would be available for income, capital gain or other taxes paid.

A two-thirds vote of both houses of the California legislature and Governor approval is required for the Wealth Tax Act to become law. If the Wealth Tax Act does become law, it will take effect immediately.

Please contact a member of our Private Client Services Group if you have any questions.