The exit tax is intended to recoup some of the money that California has invested in these businesses and individuals. For example, if a business owner has received tax breaks or other financial incentives from the state, the exit tax ensures that they will still contribute some money to California's economy even after they leave. The primary reason for the enactment of the exit tax was to close a loophole that allowed people to avoid paying taxes on their capital gains.Under federal law, capital gains are only taxed when they are realized. This means that if someone buys a stock for $1,000 and it goes up to$10,000, they don't have to pay taxes on that $9,000 until they sell the stock.If that person livedin California and then moved to another state before selling the stock, they would never have topay taxes on that $9,000 in capital gains.