Abstract:
Meta’s CEO fears a proposed billionaire tax will force him to sell a large number of shares, threatening his voting control. A proposed billionaire tax had Mark Zuckerberg considering leaving California. Now, the relevant provisions in the Meta Platforms stock split plan are designed to allow him to stay in California while helping him pay the huge taxes he may face.
As Meta's board of directors negotiated with CEO Zuckerberg over the terms of a stock split, Zuckerberg told directors he was evaluating whether to leave the state in light of California's plans to introduce an unprecedented wealth tax, according to a newly disclosed regulatory filing.
The Proposition 40 plan proposed by the health care industry union would impose a one-time 5% tax on the net worth of residents living in California on January 1 this year with a net worth of $1 billion or more. The novel way of taxing assets rather than income has prompted some of the state's wealthiest residents to consider moving to lower-tax places like Florida and Texas.
Meta said in a regulatory filing that if California voters pass the proposal on November 3, Zuckerberg will face a "huge amount of billions of dollars in taxes" for holding Meta stock. To pay the tax, Zuckerberg may be forced to sell shares, resulting in a reduction in the proportion of his voting rights, the company said.
The lengthy regulatory filing reveals Zuckerberg’s negotiations with Meta’s board over potential tax implications, providing a rare window into how the threat of this new tax proposal is affecting the decisions of some of California’s most powerful companies and their leaders.
Meta announced on Wednesday that it will establish a new non-voting stock class and distribute it to existing shareholders in the form of stock dividends to support the company's continued expansion of its artificial intelligence business. To align Zuckerberg's interests with the company, the new shares he receives will be "tied" to his existing shares, making it impossible to sell the new shares separately without selling shares with voting rights. This bundling restriction will be gradually lifted over the next eight years.
Under the agreement, Zuckerberg can immediately sell up to 20% of the new Class C shares, equivalent to 10% of the economic interest in his Meta shares, with no restrictions on the reasons for the sale, including "to pay the tax burden that may arise if California Proposition 40 formally becomes law."
In exchange, Zuckerberg agreed to maintain his primary residence in the state where Meta is headquartered for the next eight years, unless "major unforeseen circumstances" occur.
Meta said Zuckerberg's leadership role and his personal presence at the California headquarters are "critical" at "this critical turning point for the company and the technology industry." The company hopes to avoid a repeat of the challenges it encountered during the pandemic. At the time, Zuckerberg was not co-located with his management team.
According to regulatory filings, Meta board members discussed the forecast in June. These projections show that Meta will need to raise hundreds of billions of dollars in funding to achieve the company's AI development goals, with financing potentially starting as early as the fall of 2026.
The directors also discussed a recommendation from Zuckerberg's outside legal counsel to create a new non-voting stock class to meet the above-mentioned financing needs.
Meanwhile, Zuckerberg raised concerns about a potential wealth tax.
Regulatory filings detail a conversation he had with a board member in July. Zuckerberg said he has been receiving a salary of just $1 a year since 2013, and a potentially huge tax bill would force him to sell stock, reducing his voting share to about 53%. Currently, Zuckerberg holds 60.6% of Meta’s voting rights.
Later that summer, Zuckerberg required a 20-to-1 dividend distribution ratio for the newly created Class C shares. He also told board members he was considering moving his residence out of California before the election in light of the wealth tax proposal, according to regulatory filings.
A board committee subsequently proposed a "conditional dividend" plan that would pay dividends only if the wealth tax was passed, but company management opposed this plan.
In early September, outside legal counsel representing Zuckerberg submitted a new term sheet, proposing a 4-to-1 dividend distribution ratio for Class C shares and stating that Zuckerberg would need to start taking steps to establish his residency in other regions by mid-October.
Regulatory filings show that Zuckerberg told board members on September 9 that he planned to put his Palo Alto, California, home up for sale four days later.
The next day, his outside legal counsel proposed a new term sheet that adjusted the dividend distribution ratio to 1:1 and stipulated that 80% of Zuckerberg’s Class C shares were subject to sale restrictions and the remaining 20% could be sold immediately.
A few days later, Zuckerberg signed a final agreement pledging to continue to live in California, or another state where Meta would be headquartered, for at least the next eight years.
In the end, Zuckerberg did not put his Palo Alto home on the market.
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