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Ready to pick up and move to another state? Well, you might have to think twice because broke blue states are coming up with a new, creative way totaxyou when you crosstheborder:theEXITTAX.
You would imagine this could only happen if you were leavingthecountry, but thistaxexists for some individuals and businesses whenthey move fromthestate of California.
California is already known for havingthemost significant state incometaxesinthecountry, with a maximum rate of13.3%.There is a reason people are fleeing California to move to states including Florida, Nevada and Texas, wherethere are no state incometaxes.
California is already known for having the most significant state income taxes in the country. (iStock)
California already has cities that include “mansiontaxes” for sales of real estate properties.This is why you’ve seen so many wealthy people move to Nevada. Business owners often tell me that California is one oftheofthemost difficult states to do business in right now.
NEW YORK, CALIFORNIA LOST MORE INCOME THAN EVERY OTHER STATE AS PEOPLE FLED LIBERAL ENCLAVES
With allthese factors, many people who have built uptheir wealth are now thinkingtheGolden State isn’t so golden anymore.
So, how does California attempt to solvetheir massive deficit problem and create a newtaxscheme that other broke blue states are likely to follow?They create anEXITTAXfor those who want to move fromthestate.
Here’stheAmerican Dream….
VideoYou wake up one day and want to start a business in California. You take financial risk, family risk, legal risk, human resource risk, and put your 401(k) and your house ontheline.Over a period of years, you become very successful through your hard work, sweat and tears that it takes to build that business while creating jobs and employing lots of Americans alongtheway.
Then when you decidethere may be a better state to headquarter your business, a better state for you personally, and a more cost-effective place for your employees to live,thestate can literally charge you anEXITTAX,like a foreign country would, if you move from California.
How does thisEXITTAXwork?
VideoThisis a one-timetaxthat must be paid by businesses and individuals who relocate outside the state.Thetaxis based onthevalue ofthebusiness or individual’s assets, including property, stocks and other investments, but not real estate.
Theexittaxis 0.4% of an individual’s net worth over $30 million in ataxyear, no matter where it’s located — within California, other states withintheU.S. or overseas.This amount is halved to $15 million if a marriedtaxpayer files a separate return totheir spouse. ThisEXITTAXfollows you to another state for up to10 years.
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Naturally, high-tax,huge-deficit states have a lot to lose from wealthy people vacatingtheir states.
VideoIt is difficult to assess the value of a business as market conditions change allthetime, especially intheprivate market. California is making an unprecedented policy decision here to essentiallytaxunrealized capital gains and preventingthereal spirit of free market enterprise in order to collecttheir13.3% no matter what it does totheindividual orthecompany.
If you own a $40 million business and have no other assets, will you be forced to fire people and sell part ofthebusiness just to paythetax?It’s just another policy that seems short-term obvious with more negative, long-term and not-so-obvious consequences.
VideoWhentaxpolicies like this get passed in one state, more follow withtheir own ideas on how to protecttheir state revenue, especially ifthey are working at a budget deficit. It may start with a high number (in this case $30 million), but don’t be surprised intheupcoming years if states make this a much more normalized number and include items like your stock options at work, employee stock and other assets they can argue you paytaxon where you “earned”themoney and not where you live when it’staxed.
The2017taxcuts expire in less than two years.Do you want your unrealized capital gainstaxed inthefuture?TheEXITTAXis justthefirst step toward reaching deeper intothewallets of Americans.
CLICK HERE TO READ MORE BY TED JENKIN
Ted Jenkin is CEO and co-founder of Oxygen Financial and president of Exit Stage Left Advisors.
