Meta's Zuckerberg Tax Shield Fuels California Wealth-Tax Debate Before Election
Seven Lights
Meta’s disclosure that it built a stock plan to cushion Mark Zuckerberg against California’s proposed billionaires tax is adding fuel to the fight over Proposition 40, the measure that would impose a one-time 5% tax on residents with a net worth of more than $1bn, with voters deciding on Nov. 3, CNBC and the BBC reported. The measure would likely see the Facebook co-founder pay around $10bn in additional state taxes, the BBC reported.
The disclosure came in a filing on Wednesday that coincided with Meta’s third-quarter earnings report, and represents a first among California’s mega-cap tech companies, CNBC said. Zuckerberg, the sixth-richest person in the world with a net worth of about $225 billion, is one of the few tech giants still living in California, while Elon Musk and Michael Dell live in Texas and Oracle founder Larry Ellison calls Florida home, CNBC reported.
“If the California wealth tax is enacted and Mr. Zuckerberg becomes liable for a tax payment, Mr. Zuckerberg would effectively be paying to serve as the Company’s chief executive officer while residing in California,” the filing said, noting the CEO’s “salary of only $1 each year,” according to CNBC. Meta said Zuckerberg committed to remaining in California for eight years, “unless there are material unforeseen circumstances that would render it prudent or advisable for Mr. Zuckerberg to reside elsewhere,” CNBC reported. The company created a new class of non-voting Class C common stock to take effect in January, with Zuckerberg granted a portion via a dividend that he could sell to cover any potential tax liability, CNBC said.
Zuckerberg told Meta’s board last month he was thinking of moving his primary residence out of California, his main homes being in Palo Alto and Lake Tahoe, the BBC reported. Such a move “would be public and inevitably noted and commented upon by company employees” and would “raise questions for management of the company going forward,” he told the board. He secured the resulting deal with a special committee of Meta after “robust” and “at several points, contentious” negotiations, according to a Wednesday financial disclosure, the BBC said. Through the stock split, each existing shareholder received one new share; Zuckerberg will receive more stock, more often, and be able to sell it quarterly, the BBC reported. The arrangement appears effective even if the one-time tax does not pass, and runs for eight years as long as Zuckerberg remains a California resident, the BBC added.
Meta called the deal its “Founder Alignment Agreement,” saying it was “critically important” to keep him leading the company from California given the “dramatic and unprecedented transformation taking place in the tech industry and global economy related to artificial intelligence,” the BBC reported. California is home to most of the US’s technology giants and around 225 billionaires reside in the state, according to the Americans for Tax Fairness campaign group, the BBC said, noting Zuckerberg’s estimated effective tax rate in California was less than 1% each year. International Business Times reported that Meta’s board was convinced Zuckerberg would stay in California despite the wealth tax, and detailed what he was offered.