California's Exit Fee: Myths and Facts

There is a common misconception that California imposes an exit fee or tax on homeowners leaving the state. This article aims to debunk such myths and clarify the actual financial implications of leaving California, particularly in relation to capital gains and stock sales.

Understanding California's Taxation on Capital Gains

No, California does not impose a special exit fee or tax on homeowners leaving the state._states_with_income_taxes_. Generally, states with income taxes, including California, tax capital gains above a certain level on the sale of residences and other types of capital gains. This applies to anyone who realizes capital gains within the state, regardless of whether they are leaving the state.

It is true that all states with income taxes include income earned within the state, including by non-residents. So, a California resident selling a house or other capital assets while in the state may be subject to tax, but this is not unique to California and is not a special exit fee.

Proposed Wealth Tax and the "Exit Tax" Myth

In 2020, there was a proposal for a wealth tax on unrealized capital gains that garnered a lot of media attention but did not materialize. This tax would potentially apply even after someone left the state. This proposal, though, would not be considered an “exit tax”.

Even if such a tax were in place, it would still apply in full to those staying in the state. The tax would be phased out only for those who had already left. The proposal was designed as a way to raise revenue amid the economic uncertainties created by the COVID-19 pandemic. However, with California running a large surplus, the state did not need the additional revenue anymore.

Myths About Physical Departure and Wealth Secrecy

Another myth that has floated around is the idea of a more sinister exit tax involving searches of belongings. There is no evidence to support this notion. No one leaving California will be subject to searches with the goal of confiscating gold or diamonds that are considered "native" to the state. While there are truly bizarre rumors, none of them have any factual basis.

There has been a reported incident involving a cousin of someone's brother's girlfriend having a neighbor detained in a somewhat unusual manner. However, this serves more as an urban legend than a clear and factual scenario. Searches for native materials or attempts to confiscate personal wealth are not part of California's taxation practices.

California's Proposed Tax on Stock Sales

Recently, California has proposed a law that would make individuals who leave the state and then sell stocks that appreciated while they were residents owe taxes on those gains for 10 years after they leave. The rationale behind this law is to tax individuals who have appreciated stock gains while residing in California but are now selling them after leaving the state.

Targeting Billionaires, Specifically Elon Musk

This proposal specifically addresses individuals with substantial stock holdings that appreciated significantly since they were acquired. For example, consider Elon Musk, who owns billions of dollars worth of stock in his companies which he acquired at pre-IPO prices. The basis for these stocks is almost zero, yet they are now worth billions. The majority of the value appreciation occurred while he was a resident of California and California wants to levy taxes on a portion of this gain.

While there is public support for this type of tax, it is debatable whether it will pass and withstand constitutional challenges. Nonetheless, there are proponents of such a law who believe that California should raise more revenue and that no other state tax is too high for the state to implement.

California has a history of consistently seeking new tax measures. If this proposal is implemented, it would be an example of their willingness to impose taxation where they believe it is justified.

Conclusion

In conclusion, California does not impose an exit fee or search for native materials when someone leaves the state. The tax issues surrounding sales of capital assets and stock gains are more nuanced. While there is a proposed tax on individuals selling appreciated stocks after leaving California, it is still subject to legal scrutiny and political debate.