The 5% Rate and the Phase-In

At exactly $1 billion in net worth, no wealth tax is due. However, the tax kicks in gradually for anything above that: For every $2 million above $1 billion, the rate phases in by 0.1 percentage point — 50 increments of $2 million — until the full 5% rate applies at $1.1 billion and above. Taxpayers will need precise valuations—a real challenge because the concept of value is a *range*—to know whether they’re in or out and at what rate. The FTB has no appraisal architecture in place and no meaningful experience in this area. Couple this fact with the draconian penalty structure—both on taxpayers *and* appraisers—and this is looking like a disaster in the making. This is not just a bad policy choice, it is very poorly conceived.

Dakessian Law monitors California tax legislation and litigation. More to come.