If you're planning to leave California, you may have searched for information about a "California exit tax." The short answer is that California does not have a formal exit tax—there's no special levy triggered simply by changing your state of residence. However, the practical reality is more nuanced. Certain tax obligations can follow you after you leave, and many departing residents discover that they never actually escaped California's tax jurisdiction at all.
What California Can't Do
Unlike some countries that impose departure taxes on emigrants, California cannot tax you simply for leaving. Once you've genuinely established domicile in another state, your wage income earned in that new state, your investment income, and most other income streams are beyond California's reach. The state has no legal mechanism to impose a penalty or surcharge on departure itself.
This is an important distinction. Proposals for wealth taxes or exit taxes surface periodically in the California legislature, but as of now, none have become law. If you successfully change your tax domicile, California loses its claim to tax your worldwide income going forward.
What Can Follow You: Deferred Compensation and Equity
While California can't tax you for leaving, it can still tax you on California-sourced income (i.e. partnership income apportioned to CA, CA real estate sales) and income that was effectively earned while you were a California resident but recognized after you've departed. A common example of this delayed recognition income involves employer stock options and restricted stock units (RSUs).
If you received equity compensation while a California resident and did not make a Section 83(b) election, California will tax a portion of the gain when that equity vests—even if you're living in another state at the time. The taxable portion is calculated based on the ratio of your California-resident service period to the total vesting period. If you worked in California for three of the four years your RSUs were vesting, California claims 75% of the income when those shares vest, regardless of where you live when vesting occurs.
This catches many tech employees by surprise. They relocate to Nevada or Texas, their RSUs vest months or years later, and they discover California still has a claim on a substantial portion of the gain.
What Can Follow You: Like-Kind Exchanges
Another mechanism that can extend California's tax reach involves like-kind exchanges under IRC Section 1031. If you exchanged California real property for property located outside California and deferred gain through a 1031 exchange, the Franchise Tax Board requires you to file Form FTB 3840 annually until that deferred gain is finally recognized.
This annual filing requirement applies even if you have no other California filing obligation. If you fail to file Form 3840, FTB may issue a Notice of Proposed Assessment adjusting your income for the previously deferred gains, plus penalties and interest. The deferred California-source gain doesn't disappear when you leave; it follows the replacement property until you have a taxable disposition.
The Real "Exit Tax": Failed Domicile Changes
In practice, the closest thing to a California exit tax is what happens when residents believe they've left the state but haven't actually satisfied the legal requirements for changing their domicile.
This is where the real money is at stake. If you change your filing status to nonresident but FTB successfully argues you never actually changed your domicile, you owe California tax on your entire worldwide income for every year you claimed nonresident status—plus interest and potentially substantial penalties.
We see this pattern repeatedly in Office of Tax Appeals decisions. A taxpayer moves to Nevada, registers to vote there, gets a Nevada driver's license, and files as a California nonresident. But they keep their California home, their spouse stays behind, their doctors and accountants remain in California, and their physical presence in the state remains substantial. Later, when a liquidity event triggers an audit, FTB examines the totality of their connections and determines they never actually left.
The resulting assessment isn't technically an exit tax, it's simply the tax they owed all along as a California resident, now calculated with substantial interest and penalties. But for the taxpayer who believed they had left, it functions the same way: a massive, unexpected California tax bill triggered by their attempt to depart.
How to Actually Leave
The difference between a successful California exit and a failed one typically comes down to planning and documentation. California applies a multi-factor test to determine domicile, examining everything from where you vote to where your family lives to where you spend your time. No single factor is determinative, but the preponderance of evidence across multiple categories determines the outcome. (For a deeper look at how these categories interact, see our analysis of California's three-factor residency framework.)
Taxpayers who prevail in residency disputes are typically those who established clear, contemporaneous evidence of their intent and actions at the time they left California, not those who tried to reconstruct their case years later during an audit. The formalities matter: if you're going to claim you've left, you need to actually leave in a way that satisfies each element of California's residency framework.
If you're planning a move out of California—particularly if you anticipate significant income in the months and years following your departure—understanding these rules before you leave is far less expensive than litigating them afterward.