Mark Zuckerberg's creative plan to pay California’s proposed billionaire tax without losing control of Meta | TechCrunch

During Meta's recent earnings call, the company announced that its board had approved the introduction of a new category of non-voting stock, referred to as Class C common stock. This new share class will provide ownership stakes to holders but will not grant them voting rights in company decisions. The implementation of this stock class is scheduled for January. Meta intends to utilize these shares for raising capital, compensating employees, and financing acquisitions, particularly in its costly venture into artificial intelligence. This move is designed to preserve the existing voting structure that heavily favors Mark Zuckerberg, the company's founder and CEO, who retains approximately 60% of the voting power.

However, a recent report from the New York Times suggests that the introduction of this new stock class may also serve another purpose: assisting Zuckerberg in managing California's proposed "billionaire tax," should it be approved by voters. Since these new shares do not carry voting rights, Zuckerberg could potentially sell some of them to pay the tax without relinquishing his control over the company.

Proposition 40, which has been formulated by tax law professors from Berkeley and is backed by California's largest healthcare union, SEIU United Healthcare Workers West, proposes a one-time 5% wealth tax on the net worth of several hundred billionaires residing in California. Proponents of the measure estimate it could raise up to $100 billion over five years, primarily aimed at addressing the state's healthcare needs, with additional funds allocated for food assistance and education.

The New York Times report indicates that Zuckerberg urged Meta's board to devise a strategy to shield him from the financial implications of the tax. He reportedly warned board members in September that if they could not come to an agreement, he would consider selling his property in Palo Alto, which could attract significant media attention. Shortly thereafter, the plan for the stock class was announced.

This information is partially derived from a recent SEC filing by Meta, which outlines the discussions regarding Proposition 40 and how they influenced the decision to create the new class of stock. According to the filing, Zuckerberg had been discussing the billionaire tax with board members as early as July, with the topic arising in subsequent meetings and communications throughout July and August.

The filing elaborates on the mechanics of the new stock class. Meta is set to create Class C non-voting shares, providing shareholders with one Class C share for each Class A or Class B share they own. The company describes this as a one-time stock dividend, effectively functioning as a two-for-one stock split. Importantly, Meta asserts that this dividend will not alter the voting power of any shareholder.

In relation to Proposition 40, the filing specifies that the dividend will enable Zuckerberg to sell or transfer up to 20% of the Class C shares he receives from the dividend—equating to 10% of his total economic stake in Meta—without affecting his majority voting control. Given that the dividend is one-for-one, half of his shares after the dividend will be Class C, meaning the 20% cap corresponds to 10% of his overall economic stake.

When contacted by TechCrunch for comments, Meta referred to a statement from its recent earnings press release, which reiterated that part of the rationale for creating the new stock class was to ensure Zuckerberg's continued leadership. The statement emphasized that it was crucial for Zuckerberg to lead the company from California, particularly for maintaining close coordination with Meta Superintelligence Labs.

It is estimated that Zuckerberg could face a tax liability of up to $11 billion if Proposition 40 is enacted. The proposal has stirred significant opposition among many prominent figures in Silicon Valley. Google co-founder Sergey Brin has actively campaigned against the initiative, reportedly spending considerable resources to defeat it. Other business leaders and critics have voiced their disapproval online, arguing that the tax could lead to economic decline in California and prompt capital flight from the state. Nevertheless, Meta's new approach suggests that large corporations and their executives may have innovative strategies to mitigate the impact of the tax if it becomes law.

Democratic U.S. Representative Ro Khanna, a strong advocate for the tax, commented on the situation via X, stating, “Looks like billionaires will stay and figure out a way to pay the tax. If we pass Prop 40, poor California kids can have healthcare,” reflecting the ongoing debate surrounding the measure.