A 5% Tax Bill and a Plan to Keep Votes at Home

If a proposed California ballot measure passes, some of the state's wealthiest residents may need to pay a significant tax bill. One of them is the chief executive of Meta, Mark Zuckerberg, who holds a large number of his company's shares. To manage a potential tax liability, the company is creating a new type of stock. This new share class would be sold to generate cash for taxes while keeping voting power with its current owner.

The plan is tied to Proposition 40, a measure on the ballot drafted by Berkeley tax law professors. This proposal calls for a one-time 5% tax on the net worth of several hundred billionaires who live in the state. Backers of the measure say it could raise as much as $100 billion over five years to fund healthcare, food assistance, and education programs. For a person like Zuckerberg, this could mean a tax bill estimated to be as high as $11 billion.

According to a report from The New York Times, the idea for a new stock class was developed to help address this potential tax. The report states that in September, Zuckerberg told board members he would list his Palo Alto home for sale if they could not find a solution, which might have led to negative media attention. Not long after, the stock plan was created. Meta's recent filing with the SEC confirms that discussions about the new stock class were happening as early as July.

The company is creating Class C common stock. This new share gives its holder ownership in the company but no vote on company decisions. Every shareholder will get one Class C share for each Class A or Class B share they own. This is a one-time stock dividend, which is the same as a two-for-one stock split. Meta states this action will not change the voting power of any current shareholder.

This structure allows Zuckerberg to sell up to 20% of the Class C shares he receives from the dividend. This represents 10% of his total economic interest in the company. He could use the money from those sales to pay a tax liability under Proposition 40 without affecting his control of the company. Zuckerberg currently controls about 60% of the voting power at Meta.

The proposal has drawn criticism from some in the tech industry. Google co-founder Sergey Brin has campaigned against it, and others have called it bad for the state's economy. However, some supporters see the plan as a workable solution. Democratic U.S. Representative Ro Khanna, who supports the tax, wrote on X: “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.”