California is one of the wealthiest U.S. states by quite a margin. California is the home for movers and shakers of the whole world. In August of 2020, California introduced Assembly Bill 2088 and it has shaken the world of the big chunks of residents. AB 2088, is at its center, a wealth tax, so you can imagine the howl and concern as it came into effect in California, the wealthiest state in America.
In this blog, we will highlight the key moments of California exit tax also discuss how it will affect the California economy and its residents. So, without further ado let’s begin.
What is California Wealth Tax?
California exit tax is a part of the state’s tax on the wealthy side- termed as the Wealth Tax. California had proposed a bill that would tax its residents on the value of their wealth and it was approved in Sacramento in August 2020.
Bill AB 2088 implies a 0.4% tax on all Californian residents worldwide net worth that exceeds $30,000,000. If a married taxpayer is to file separately from their spouse then the amount will be cut into half to $15,000.
Now most of the ordinary people are concerned about the wealth tax which is of no concern. The wealth tax is calculated on an annual basis, which means that a resident will have to earn over $30,000,000 in a single year to qualify.
Bill AB 2088 relates to the worldwide net worth that shows specific federal provisions. This does not include several types of assets which includes property as well. This bill also allows the Franchise Tax Board to carry out provisions and adopt regulations that detail the value of non-publicly traded assets.
What is Exit Tax California?
The other side of California’s tax on the wealthier side is the California exit tax. The exit tax is where most of the state’s wealthy residents think that California has crossed a line and there is no doubt there will be some high-flying battles to follow in the coming years.
Why has the exit tax in particular got the rich and famous in their arms you might wonder? This all boils down to California taxing their wealthiest residents for ten years after they have left the state. The exit tax has followed up the plans of the mega-wealthy who were deciding to fly before the wealth tax came into effect.
Why Has California Introduced The Exit Tax?
California has introduced taxes on the wealthier side because its tax base has shrunk down quite enormously. Right from 2010, the state’s tax base shrank by a huge $24.6 billion which even by Californian Standards is remarkable.
The loss in taxes is primarily put down due to a loss in residents, and therefore, their income taxes. However, most of the residents and observers believe that they have missed the mark. Instead of addressing the cause of the exodus, they have decided to rule with an iron fist and make it even more daunting for the residents. Of course, the exit tax only affects the wealthiest people, but it does not look good for what is to come in the future.
How Does California Determine Residency?
The agency is tasked with determining who are classified as California residents and who are not in the Franchise Tax Board. To determine the ruling, the Franchise Tax Board will scout over 19 preordained factors. This is what they tend to call the closest connection test.
The close connection test is tasked with determining the residency status by examining the economic and community relations of the residents. Below mentioned factors are included but are not limited to:
- Where a resident’s children and spouse reside.
- Location of the resident’s widest residential property.
- Where a resident’s children go to school.
- Where a resident claims their homeowner’s property tax exemptions.
- A resident’s credit card account statement.
- The residency is listed on a resident’s tax return.
- Where a resident has their vehicle registered.
The Franchise Tax Board provides each of these determining factors a particular value. These values are then tallied up to determine the residency status of the individual in question.
What if a Resident Has Already Left California?
If a resident has already left California but continues to have financial ties with the state under the Californian Revenue and Tax Code 17591 they are still required to pay state income tax. This income tax is only relatable to income earned within California but is still a headache for wealthy people.
For example, when a resident moves to another state but continues to buy or sell a property within the state- in these types of circumstances the ventures will be taxed. California uses the principle rule of source income to figure out exactly who is obliged to pay the state taxes which now includes Bill AB 2088.
Did California Exit Tax Bill Pass?
No, the California Exit Tax Bill was not passed. A bill seeking to impose a huge tax increase on all forms of personal property and wealth was held in the Assembly Revenue and Taxation Committee and was not advanced. Governor Newsom reportedly opposed the bill.
Conclusion
As it is clear by this blog California certainly is not afraid to come into controversy. The Golden State needs to regain its lost taxes over the last 10 years which has resulted in wealth and exit tax. Whether you agree or disagree, there is no denying that it is a controversial movement that will view them battling it out with their most wealthiest residents for years to come. If you’re searching for a free paystub generator then Online Paystub is your answer to your questionnaire.
