Now that we are halfway through 2026, we want to provide a summary of the proposed and enacted wealth taxes emerging in states and localities. Our mid-year update surveys six recent developments: New York City’s Pied-à-Terre Tax, California’s proposed Billionaire Tax Act, Rhode Island’s Millionaires’ Surtax and Tax on Second Homes, Connecticut’s proposed Mansion Tax, and a failed San Diego Empty Homes Tax.
New York City’s “Pied-à-Terre Tax” Proposed Rules
New York City’s Pied-à-Terre Tax became effective on July 1, 2026. The tax applies to high-value New York City residences that do not serve as a primary home. To help administer the tax and to address outstanding questions on how the tax will be enforced, the City’s Department of Finance recently authored proposed rules. The proposed rules cover a variety of topics that remain uncertain as the city’s tax goes into effect, including primary residency determinations and audit procedures.
First, the proposed rules provide a detailed framework whereby the Department of Finance will determine that property constitutes a primary residence exempt from the tax. The proposed rules require that this determination be made on an annual basis based upon credible information in the department’s possession. The proposed rules establish the presumption that a property is a primary residence if the owner lists the property as his/her permanent home address on a federal or state income tax return; if the owner received a School Tax Relief (STAR) credit, or if the owner received New York property tax credits.
Second, the proposed rules establish robust audit procedures. Under the proposed rules, the department may conduct audits to determine the amount of the tax owed by a property and may conduct the audit by collecting records and issuing subpoenas. The proposed rules also establish a penalty regime whereby the department is authorized to impose penalties where: a certification or any documentation submitted to the department contains inaccurate or misleading information that was material to the determination made regarding the imposition of the tax and was submitted negligently or in bad faith, or a condominium property has been divided into more than three units to avoid application of the tax and such division was made in bad faith. Currently, penalties range from a 50% penalty of the tax for submission of misleading documentation to a 300% penalty based on any underpayment of tax.
Our perspective
The publication of the proposed rules is a reminder that residence-based planning and entity structuring must now be stress-tested against new and untested audit rules. Clients holding a New York City residence in a trust or LLC should confirm, before any determination notice arrives, that their ownership documentation can affirmatively substantiate primary-residence use based on the tax’s statutes and proposed rules. We will continue to monitor the efforts to finalize the proposed rules.
California Billionaire Tax Act
At a glance
In November, California voters will vote yes or no on Proposition 40, which proposes a one-time 5% excise tax on the net worth of California resident individuals and applicable trusts with net worth of at least $1 billion (the 2026 Billionaire Tax Act).
Why this matters
California has already had some high-profile wealthy residents leave the state for more “tax favorable” jurisdictions (such as Texas and Florida). Opponents of the 2026 Billionaire Tax Act argue that ballot measures like this, whether or not successful, will encourage other wealthy residents to flee the state — potentially taking their businesses, which employ California residents and provide other revenue for the state, with them.
If the 2026 Billionaire Tax Act is enacted in California and survives the inevitable constitutional challenges, then there could be a ripple effect that extends to other states. With some jurisdictions facing short-term budget crises, a one-time wealth tax could be an attractive solution to avoid raising other state and local taxes. Moreover, a successful enactment of the 2026 Billionaire Tax Act could reignite calls for a federal wealth tax, particularly if California can demonstrate a framework for enactment, regulation, and administration.
What to watch
California Republicans have staunchly opposed the imposition of a wealth tax. While advocates may have anticipated broad support amongst the left, California Democrats are split on their support for the 2026 Billionaire Tax Act. Governor Gavin Newsom opposes the proposition, while Senator Bernie Sanders has campaigned in California in support of Proposition 40.
Given Governor Newsom’s vocal opposition to Proposition 40, proponents of the measure offered to trim the tax rate from 5% to 2%. Governor Newsom rejected this offer, and the measure qualified for the November ballot at the 5% rate.
Despite lacking support from establishment Democrats, public polls suggest that a slim majority of California registered voters support the 2026 Billionaire Tax Act. Ultimately it will be up to California voters to decide in November.
Rhode Island’s Millionaires’ Surtax and Tax on Second Homes
At a glance
Rhode Island enacted a surtax on income over $1 million on June 12, 2026, and its statewide tax on non-owner-occupied residential property assessed at $1 million or more went into effect for tax years beginning July 1, 2026.
Why this matters
Millionaires’ Surtax
The Millionaires’ Surtax was enacted in Rhode Island’s 2027 fiscal year budget. The surtax will gradually phase in over the course of three years starting with a 1% surtax on income over $1 million starting January 1, 2027, increasing to 2% in 2028 and to 3% in 2029.
Currently, the statute imposing the surtax lacks specificity. While the tax applies to Rhode Island taxable income over $1 million for both married and individual filers, there are no other published rules on the surtax’s application. We will monitor the status of the surtax’s rules, as the January 1, 2027 effective date approaches. The surtax’s delayed effective date also provides planning opportunities for individuals whose income triggers the surtax. Such individuals should begin planning on whether the costs of the surtax outweigh the benefits of remaining in Rhode Island, especially given the state’s newly effective Tax on Second Homes, which is discussed below.
Tax on Second Homes
Rhode Island’s Tax on Second Homes is not merely a local revenue measure, it represents a targeted state-level wealth tax on non-primary residential real estate, similar to that of New York City’s Pied-à-Terre Tax. The tax applies regardless of the owner’s purchase price, meaning properties acquired well below $1 million may still trigger liability if the municipality’s assessed value crosses the threshold. For families holding legacy vacation properties or that own a seasonal home, the potential exposure may come as a surprise.
Several open questions warrant monitoring. The $1 million threshold will be indexed to Consumer Price Index for All Urban Consumers (CPI-U) beginning July 1, 2027, but the initial impact will depend on municipal assessment practices. The Rhode Island Division of Taxation has indicated it will issue notices to owners whose primary residence status it cannot confirm from available records, which suggests an affirmative compliance posture and potential for broad initial inquiries. It remains to be seen how aggressively the Division will enforce the 183-day occupancy test and what documentation standards will emerge beyond the Rhode Island resident income tax return.
Connecticut’s Proposed Mansion Tax
At a glance
Connecticut lawmakers introduced Senate Bill 101, which, if enacted, would impose a statewide property tax on residential real property assessed above $3 million. The bill proposes a tiered tax rate system for high-value residential real property. The tax rate would be: (1) 2 mills on residences with an assessed value above $3 million but less than $5 million; (2) 3 mills on residences with an assessed value of at least $5 million but less than $10 million; and (3) 4 mills on residences with an assessed value of at least $10 million.
Why this matters
A recurring statewide levy on high-value residences would depart meaningfully from Connecticut’s locally administered property tax and layer an ongoing carrying cost onto illiquid assets. As currently drafted, the Connecticut Mansion Tax would function as a statewide surcharge because the tax would be imposed in addition to any locally imposed property tax on real property. A surcharge reaching gains on the sale of appreciated property or a vacation home would also sharpen the tax consequences of ordinary liquidity and succession events.
What to watch
SB 101 is currently being considered in the Connecticut legislature, so the substance of the bill is subject to change. Further, while enactment is uncertain, given the current trend of states seeking to tax high-value real property, there is nothing stopping the Connecticut legislature from reintroducing similar legislation in subsequent years.
San Diego’s Failed Empty Homes Tax
At a glance
On June 2, 2026, San Diego voters voted against approving an annual “Empty Homes Tax” on non-primary residences left vacant for more than 182 days in a calendar year.
Why this matters
Had the tax passed, it would have imposed an $8,000 tax in the first year and $10,000 in subsequent years on qualifying residences. The proposed tax also included a measure for empty residences owned by corporate entities, which would have imposed annual surcharges ranging from $4,000 to $5,000 on such homes. While the Empty Homes Tax failed to pass, the measure itself is notable because it introduced a tax, similar to New York City’s Pied-à-Terre Tax, with a simplified implementation structure. Time will tell whether other states or localities will look to the Empty Homes Tax as a blueprint for similar measures.
