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That distinction explains why founders and investors are discussing relocation, borrowing, secondary share sales, and other defensive strategies. The measure is no longer merely a signature drive: it qualified as Proposition 40 for California’s November 3, 2026, statewide ballot.
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What Proposition 40 would do
Proposition 40 would create a one-time wealth tax of up to 5% on individuals and certain trusts with qualifying net worth of at least $1 billion. It would generally apply to people who were California residents on January 1, 2026. Payment would be due in 2027.
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1Repair Windows errors before they cause bigger problems2Scan for outdated or missing drivers - takes under a minute3Clear out junk files and repair common Windows errorsThe measure would allow eligible taxpayers to spread payment over five years. That option would not make the liability disappear: the unpaid balance would carry a 7.5% annual nondeductible deferral charge.
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The measure generally excludes real estate, pensions, and retirement accounts. Covered wealth can include business interests, securities, art, collectibles, intellectual property, and other personal property. Ninety percent of the proceeds would go to healthcare, with the remainder allocated to education, food assistance, and administration, according to the California Legislative Analyst’s Office.
The measure qualified for the ballot on June 17, 2026, after officials verified 874,641 valid signatures. The Secretary of State’s official ballot materials list Proposition 40 for the November 3 election.
Why the headline rate is misleading
A 5% charge sounds manageable when the underlying asset is cash or a liquid portfolio. It is very different when the tax base is a founder’s private-company stake.
- A person with $2 billion in qualifying taxable wealth could face an illustrative $100 million liability.
- A person with $10 billion could face an illustrative $500 million liability.
- A founder could owe money even without selling shares, receiving a dividend, or taking personal cash out of the company.
These are illustrations, not forecasts. The actual outcome would depend on the measure’s definitions, exclusions, valuation rules, ownership structures, and the taxpayer’s circumstances.
The central question is therefore not just whether a billionaire can afford 5%. It is whether California can collect a large cash payment from wealth that is private, volatile, difficult to appraise, and not yet liquid.
The liquidity mismatch: paper wealth versus a cash bill
Startup founders often hold wealth in forms such as:
- Shares in a private company with no public market.
- Restricted stock or shares subject to lockups and transfer agreements.
- Intellectual property and other assets without a readily observable market price.
- A stake valued partly by a recent financing round rather than daily trading.
- A concentrated position that the founder does not want to sell because it would reduce voting control or signal concern about the company.
Those assets may be valuable without being readily spendable. Converting them into cash could require a secondary sale, a loan secured by shares, an early sale at an unattractive price, or dilution in a future financing.
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Illiquid does not mean worthless. It means that converting value into money can be slow, expensive, disruptive, or impossible at the assumed valuation. A tax obligation, by contrast, is payable in money.
Why dual-class stock makes the debate more complicated
Many technology companies use dual-class stock. One class may carry multiple votes per share, while another class carries fewer votes. A founder can consequently control company decisions while owning a smaller percentage of the company’s economic value.
That creates two different questions: How much of the company’s value does the founder own? and How much control does the founder exercise?
A January report by TechCrunch highlighted Larry Page as an example, reporting roughly 3% economic ownership of Google alongside about 30% voting control through dual-class shares. The report and other coverage presented the possibility that control-related interests could have significant tax consequences.
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Private-company valuation may be the real fight
For a publicly traded stock, a market price provides a reference point, even though prices can change rapidly. A private company presents harder questions:
- Which valuation date applies?
- How much weight should a recent financing round receive?
- Should the value reflect discounts for lack of marketability or minority ownership?
- How should preferred-stock liquidation preferences affect the value of common shares?
- How should options, warrants, earn-outs, carried interests, pledged shares, trusts, or layered entities be treated?
- What happens if the company’s next financing values it substantially lower?
The initiative permits alternative valuation methods in certain circumstances, but an alternative method does not make the result objective. Reasonable professionals may produce materially different estimates for an asset that has never traded publicly.
TechCrunch quoted tax expert Jared Walczak warning about the difficulty of valuing private companies and the risks for the professional preparing an appraisal if the state disagrees. That is a reported concern, not an adjudicated finding about how every appraisal would be handled.
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The practical dispute could involve not only the tax bill but also who bears the risk if a valuation is challenged, whether the taxpayer must provide extensive company information, and how a dispute affects future financing or an eventual sale.
Deferral helps—but does not eliminate the liquidity problem
The measure’s payment and deferral mechanisms complicate the argument that founders would necessarily be forced to sell immediately. Reported explanations, including comments from David Gamage cited by TechCrunch, describe circumstances in which the state could receive payment when shares are eventually sold and a failed startup would not produce a tax payment on value that ultimately disappears.
That is important. A founder may not have to liquidate a private stake on the assessment date.
But “not forced to sell immediately” is not the same as “there is no liquidity problem.” Deferral can create:
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- A continuing claim tied to a future sale or other liquidity event.
- A 7.5% annual nondeductible charge on the unpaid balance.
- Financing and documentation costs.
- More uncertainty if the company’s valuation rises or falls.
- Complications if the founder wants to transfer shares, raise capital, pledge stock, or change residence.
Whether deferring is preferable to borrowing or selling would depend on the taxpayer’s expected returns, borrowing terms, company prospects, control objectives, and legal position.
Why relocation is being discussed
Relocation is not a simple “move to another state and avoid the tax” decision. The proposed tax’s January 1, 2026, residency date is central. A person who leaves after that date may still face liability under the measure, subject to its final interpretation and any legal challenges.
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A genuine change of domicile would also require more than moving a company headquarters or buying property elsewhere. Relevant facts could include a person’s home, family, time spent in California, business activity, voting activity, social ties, and continuing economic relationships.
A founder also has to weigh whether leaving would affect access to:
- Specialized employees and executive talent.
- Investors, customers, laboratories, suppliers, and advisers.
- The networks that support venture financing and company formation.
- Family arrangements, estate planning, and personal commitments.
Moving a company is not the same as changing the founder’s personal tax residence. Changing personal residence is not necessarily an immediate escape from a liability tied to an earlier date. Any strategy involving domicile, trusts, holding companies, transfers, or pledged shares would require advice from California tax counsel.
Why Silicon Valley is unusually exposed
The technology sector combines several features that make a wealth tax particularly consequential for some founders:
- Wealth is often concentrated in one company rather than diversified across liquid investments.
- Founders may control companies through dual-class shares.
- Private valuations can rise sharply between financing rounds, then fall just as sharply.
- Personal wealth can increase long before an IPO, acquisition, or secondary sale produces cash.
- Selling shares can reduce control or send a signal to employees, investors, and customers.
- Future financing rounds can change both valuation and ownership percentages.
This does not mean every technology executive or startup founder is affected. The direct population is billionaires and qualifying trusts, not ordinary employees and most founders.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.The case supporters make for Proposition 40
Supporters argue that the measure would ask a very small number of extraordinarily wealthy Californians to make a one-time contribution after accumulating wealth in the state’s economy.
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The initiative also includes provisions intended to prevent the new money from simply replacing existing spending. From the supporters’ perspective, the risk of some taxpayer planning may be justified by the potential healthcare and social-service funding.
The opposition’s strongest arguments
Opponents focus on the possibility that Proposition 40 would:
- Tax unrealized wealth before a founder has received cash.
- Turn disputed private-company appraisals into tax liabilities.
- Encourage wealthy residents to change domicile or restructure ownership.
- Reduce future California income-tax revenue if billionaires leave or change their affairs.
- Create administrative and legal costs through valuation disputes and litigation.
- Make California appear less predictable to founders, investors, and companies.
The LAO estimates that the state could experience an ongoing decrease of less than $1 billion per year in income-tax revenue from billionaires, depending on how taxpayers respond. That is an estimate, not a guaranteed result. It must be weighed against the measure’s projected one-time revenue, which the LAO describes as tens of billions spread over several years.
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Neither the revenue estimate nor the potential income-tax loss can fully predict behavior. Taxpayers may move, borrow, sell, restructure, challenge valuations, or do nothing. The legal outcome could also be affected by litigation or implementation decisions.
The questions that will determine a founder’s exposure
- Residency: Was the person a California resident on January 1, 2026?
- Asset composition: How much wealth is liquid, public, private, restricted, or disputed?
- Control structure: Do voting rights materially differ from economic ownership?
- Valuation evidence: Is there a recent arm’s-length financing or public-market price?
- Payment capacity: Can the liability be paid without selling control?
- Deferral economics: Is the 7.5% charge cheaper than borrowing or selling?
- Company effects: Would a secondary sale affect governance, employees, investors, or future fundraising?
- Legal exposure: Could trusts, transfers, holding companies, or domicile changes trigger anti-avoidance scrutiny?
- Political and legal uncertainty: Could Proposition 40 be delayed, modified, challenged, or invalidated?
- Long-term business value: Does California’s ecosystem justify remaining despite the potential liability?
How the proposal got here
- October 2025: The initiative was filed with the California Attorney General.
- December 26, 2025: The official title and summary for the amended measure were issued.
- January 1, 2026: The key residency date under the proposal.
- January 17, 2026: TechCrunch published its original reporting on the Silicon Valley reaction.
- June 17, 2026: The measure became eligible for the November ballot after signature verification.
- November 3, 2026: California voters are scheduled to vote on Proposition 40.
- 2027: The tax would be due, subject to the measure’s payment and deferral provisions.
What remains unknown
The eventual tax base, treatment of complex control structures, acceptable valuation methods, administrative guidance, litigation, and taxpayer behavior remain uncertain. The original January coverage described a measure still seeking signatures; it is now procedurally outdated because Proposition 40 qualified for the ballot.
The most consequential unresolved issue is how the broad statutory language will operate in difficult cases: a founder with voting control but limited economic ownership, a private company with conflicting classes of stock, or a startup whose valuation changes dramatically before payment or sale.
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