The Federal Facial Constitutionality of California’s Proposed Billionaire Tax Act

The 2026 Billionaire Tax Act (BTA) authorizes a facial constitutional challenge to its provisions by any interested person within sixty days of voter approval through a validation action that does not impose a tax-prepayment requirement.¹ To prevail in this facial constitutional challenge, the interested person must establish that the BTA always operates unconstitutionally and that judicial enforcement is constitutionally barred under any potential set of circumstances.²

Some opponents of the Act urge that the Act should be rejected by California voters due to federal constitutional infirmities with the Act that would render it facially invalid in such an action. We believe, similar to the attached litigation risk assessment by Gupta Wessler LLP, that the Act would be upheld against federal constitutional facial challenges. None of the opponents’ federal constitutional claims support that the BTA is facially unconstitutional.

Retroactivity under the Due Process Clause

The BTA imposes a one-time 5 percent tax on the net worth of billionaires residing in California as of January 1, 2026, based on their wealth valued as of December 31, 2026. The BTA thus locks in tax liability before voter approval of the tax.

The Supreme Court has explained that such retroactive application of a tax statute is constitutional when “supported by a legitimate legislative purpose furthered by rational means.”³ This standard is exceptionally deferential; the judiciary does not adjudge the wisdom and fairness of taxation because such economic policy determinations “remain with the exclusive province of the legislative and executive branches.”⁴ All retroactive economic laws, including tax legislation, trigger this same deferential judicial scrutiny.⁵ Retroactive tax laws are thus upheld under the Due Process Clause unless the retroactive application bears no rational relationship to a permissible legislative purpose.

The BTA’s look-back mechanism for triggering its tax obligation readily survives this minimal due-process threshold. The state’s legitimate purpose is to ensure that individuals who accumulated and sustained immense wealth under the protection, infrastructure, and economic benefits of California contribute their equitable share to critical public needs, specifically healthcare, education, and nutrition. Raising revenue to fund state programs and adjusting the tax burden are quintessential legitimate government purposes.⁶ California has a strong interest in preventing the artificial erosion of its tax base for these purposes through locking in the tax obligation as of January 1.

The retroactive period in the BTA is a rational means to accomplish this legitimate purpose. It spans less than a single year to ensure that those benefiting from California’s laws in accumulating and sustaining their wealth do not maneuver to avoid paying their fair share. Because billionaires possess highly mobile assets, a wealth tax effective only after BTA’s passage would invite capital flight and portfolio restructuring. The look-back mechanism is therefore an appropriate means to ensure that the tax base is not subverted by short-term gamesmanship. The Supreme Court routinely upholds retroactive tax applications of similar durations to avoid such gamesmanship.⁷

Opponents’ reliance on Nichols v. Coolidge (1927), Blodgett v. Holden (1927), and Untermyer v. Anderson (1928) is misplaced. As the Supreme Court explained in United States v. Carlton (1994), those cases were products of the Lochner era's rigid and long-discarded judicial second-guessing of economic tax legislation through heighted judicial scrutiny.⁸ Modern decisions merely require a rational basis for the retroactive application.⁹

While California did not previously tax the accumulation and maintenance of wealth, affected taxpayers possessed constructive notice of the potential for impending liability as of the tax obligation date of January 1, 2026. Although opponents claim that the BTA is a “wholly new tax” that cannot be retroactive under the holdings of two century-old Lochner-era precedents, those cases have never been relied on again by the United States Supreme Court to invalidate any tax as retroactive. The Court’s modern cases, such as United States v. Darusmont, explain that, to the extent these century-old cases have any remaining vitality, they would only apply when the taxpayer has “no reason to suppose that any transactions of the sort will be taxed at all.”¹⁰ A statewide initiative requires public filing, title and summary preparation, and months of highly publicized signature gathering before it ever reaches the ballot, and the California legislature for several years before that considered wealth tax proposals.¹¹ Ballot proponents initially filed the BTA with the California Attorney General on October 22, 2025, and amended the filing on November 26, 2025. A taxpayer is not unfairly surprised when such a tax measure was a matter of active public debate during the period of retroactivity.¹²

Finally, even assuming the United States Supreme Court overruled Carlton and reinvigorated its 1920s decisions on retroactive tax liability, that would not render the BTA facially invalid. A statute is facially invalid only if it is unconstitutional in all applications.¹³ Because federal constitutional facial challenges are “disfavored” by the Supreme Court,¹⁴ a challenged law that is constitutional in at least some applications must be upheld.¹⁵ Any judicial holding that the BTA operated impermissibly retroactively under those century-old decisions when applying to some California billionaires who left the state before its passage would not establish that the BTA was invalid in all its applications. This is especially true because the BTA details that the Act’s provisions are severable and that the tax obligation date is subject to judicial reformation to cure any constitutional infirmity.¹⁶

Fair Apportionment under the Due Process and dormant Commerce Clauses

Some opponents have also claimed that the BTA would violate the fair apportionment requirements of the Due Process and dormant Commerce Clauses of the U.S. Constitution. Like the claims addressed in the prior part, those claims are not supported by established Supreme Court precedent.

Taxpayers who bring constitutional challenges to state apportionment methods face a heavy burden.¹⁷ This is particularly true for facial challenges, as evidenced by the fact that the Supreme Court has never held an apportionment formula unconstitutional on its face.¹⁸

The standards under the Due Process and dormant Commerce Clauses overlap. The Due Process Clause requires only that the values being taxed are “rationally related to values connected with the taxing state.”¹⁹ A taxpayer bringing a facial challenge to a statute under that standard must show that the apportionment of the tax was “inherently arbitrary.”²⁰ In this context, the Court has said that state apportionment methods are “presumptively valid.”²¹ The taxes that the Court has upheld under this standard are instructive. For example, for corporate income tax purposes, the Court has repeatedly upheld the use of single-factor methods while acknowledging that those methods do not produce results that represent actual in-state profits.²² The use of a single factor, like sales, is not an inherently arbitrary method, despite being an imprecise way to apportion income.

For personal income taxes, the Supreme Court has held that residence, standing alone, is a constitutionally sufficient basis for taxing individuals on their income wherever earned.²³ The same principle applies to the taxation of intangible property. A state may tax a resident’s intangible property wherever that property is located.²⁴ As stated by the Court, “[f]rom the beginning of our constitutional system control over the person at the place of his domicile and his duty there, common to all citizens, to contribute to the support of government have been deemed to afford an adequate constitutional basis for imposing on him a tax on the use and enjoyment of rights in intangibles measured by their value.”²⁵ The Court has recognized that this rule permits more than one state to tax the same intangibles and has held that the resulting exposure to multiple taxation does not violate the Due Process Clause.²⁶

The risk of multiple taxation, or more precisely of higher burdens on interstate commerce than on intrastate commerce, is more appropriately a dormant Commerce Clause concern. Formally, the dormant Commerce Clause requires that state taxes be fairly apportioned, which requires that a statute be both externally and internally consistent.²⁷ The external consistency test is functionally the same as the Due Process “rationally related” test.²⁸ The internal consistency test is different. That test looks to whether the tax, if applied by every jurisdiction, would result in higher tax burdens on interstate commerce as compared to purely intrastate commerce.²⁹ Internal consistency can be met in several ways, including by apportioning taxes or by using unapportioned taxes along with tax credits for taxes imposed by other states on the same base.³⁰

The BTA meets these Due Process and dormant Commerce Clause standards. To start, the BTA would apply only to California residents as of the tax obligation date and would be imposed on “net worth,” which is defined to exclude tangible property located outside of the state.³¹ Residence therefore supplies the constitutional basis the Due Process Clause requires, and the exclusion of out-of-state tangible property keeps the tax within the rule described above.³²

The BTA would also be apportioned in a constitutional manner. The tax apportions 100% of the tax base to California, but it also provides taxpayers with credits against the resulting tax for taxes paid to other states on the same base.³³ That structure is no different from the structure that states use for purposes of their personal income taxes. Comptroller v. Wynne (2015) confirmed that this structure satisfies the dormant Commerce Clause, as long as the tax credit mechanisms make the statute internally consistent.³⁴

The tax credit provisions of the BTA are broad and ensure that the tax would be internally consistent. Section 50307(a) provides a general credit for taxes paid to other states, with credits specifically apportioned based on part-year residencies, and Section 50307(b) directs an additional credit wherever the Constitution requires one. These credit provisions eliminate the multiple-taxation exposure that the internal consistency test targets.

Opponents of the BTA have come to a different conclusion, in one case based on a hypothetical where a person is a resident of two states for a single day. But that analysis ignores that application of the internal-consistency test requires an assumption that all states have the exact same laws. That exercise would mean incorporating the BTA’s tax base, apportionment percentages, and the California residency requirements that it uses. The latter is particularly important because the California residency requirement is satisfied only if an individual is in the state for other than a temporary or transitory purpose or if they are domiciled in the state but outside the state for a temporary or transitory purpose.³⁵ The state’s regulations clarify that only one state, “the state in which a person has the closest connection,” is the state of residence under that law.³⁶ Therefore, if every state used the exact same residency standard, there would be no situation where a person had two states of residency for purposes of the tax. And there would concomitantly be no violation of the internal consistency requirement. Here too, then, any plausible facial constitutional infirmity is addressed by the tax credit provisions and the residency standard used.

The BTA also contains provisions that would remedy any potentially unconstitutional apportionments of the tax. Specifically, section 50306(b) of the BTA contains an alternative apportionment method that applies if the prescribed method does not “fairly represent” the portion of the wealth that is taxable by California.³⁷ The BTA also contains both a standard for establishing that an alternative formula may be used and a provision that permits the use of an alternative when a taxpayer shows that the standard method would violate federal law, the U.S. Constitution, or the California Constitution.³⁸ These provisions give taxpayers an as-applied remedy for any unfair apportionment, which defeats a facial challenge to the prescribed method.

Opponents also take exception to the provision of a “minimum” apportionment percentage of twenty-five percent under the BTA’s alternative apportionment section. But that minimum is not required in all cases. The BTA explicitly provides that the twenty-five percent minimum can be waived if a lower percentage is required to avoid violating federal law or the U.S. or California constitutions.³⁹ On its face, then, the BTA provides a remedy for any application that would violate federal law, and a facial challenge on this ground therefore fails. As-applied challenges will turn on individual facts, but the statute supplies the mechanism to resolve them.

Right to Interstate Travel

Opponents’ inventive right to travel argument is not supported by any relevant judicial authority. The Supreme Court identifies three components to the constitutionally protected right to travel: (1) the right to enter and leave another state, (2) the right when visiting another state to enjoy the “privileges or immunities” that state grants its own citizens, and (3) the right to become a citizen of a new state and have all the same rights as the existing citizens of that state.⁴⁰ The BTA does not interfere with any of these components of the right to travel.

The BTA does not prohibit, penalize, punish, or tax the right to enter and leave California. It is not an “exit tax” on every person departing or passing through the state, as it is not triggered by a taxpayer’s exit or departure like the tax invalidated in Crandall v. Nevada.⁴¹ Instead, the tax obligation is triggered based on enjoying the benefits and protections of California law as of the January 1, 2026 tax obligation date in accumulating and sustaining wealth. It is irrelevant to the tax obligation whether the taxpayer billionaire thereafter leaves the state. No precedent, constitutional text, or constitutional history supports the opponents’ position that billionaires’ inability to wholly avoid the tax by departing from California somehow restricts their ability to travel or move to another state.

The BTA also has no connection to the second and third components of the right to travel. California is not denying anyone who visits the state the “privileges or immunities” it grants its own citizens—instead, it is taxing certain of its citizens to pay their fair share of the state’s financial needs. California also is not denying rights to newly arrived citizens through the BTA. The BTA does not implicate the constitutional right to travel.

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The primary federal constitutional arguments raised by opponents thus do not facially invalidate the BTA. We also concur with the attached litigation risk assessment from Gupta Wessler LLP that other potential federal constitutional challenges to the BTA are not well taken. We believe that the Act would be upheld against federal constitutional facial challenges in a validation action or other similar proceeding.