Mark Zuckerberg threatened to leave California over wealth tax

Meta CEO Mark Zuckerberg threatened to move out of California if residents of the state approve a first-of-its-kind billionaire wealth tax when voters head to the polls on Nov. 3, the company said in a new regulatory filing. 

Because of his concerns over the wealth tax, Zuckerberg told Meta that he was "evaluating relocating his primary residence outside California and that steps toward any such relocation, including any listing of his residential real estate in California on the market, would be public and inevitably noted and commented upon by company employees and, accordingly, raise questions for management of the company going forward," the filing states.

Meta said that because Zuckerberg's presence near the company's Menlo Park, California, headquarters is "critically important" to its success, the company took an unusual step: Its board approved a new class of nonvoting common stock that he can sell to raise cash to pay the wealth tax, if voters approve it. 

Without that change, Zuckerberg faced the prospect of having to sell voting shares to raise funds to pay the tax, which would have reduced his control of Meta. 

As a result of that decision to issue new stock, Zuckerberg has told Meta he will commit to remaining a California resident for eight years. If Meta moves its headquarters to another state, Zuckerberg will move to that jurisdiction, according to the regulatory filing. 

The disclosure highlights the public debate over the proposed billionaire wealth tax, known as Proposition 40, which will be on the Nov. 3 ballot in California. Under the proposal, the tax would impose a one-time 5% state tax on billionaire wealth — about $12.4 billion of Zuckerberg's estimated $247 billion net worth, according to the Bloomberg Billionaires Index.

The company believes "it is critically important to keep Mr. Zuckerberg in a leadership position with our company and that he continue to reside in and manage the company from our headquarters in California to ensure his continued ability to effectively drive our performance during this era of unprecedented challenge and competition in our industry," Meta said in its filing. 

The billionaire tax is aimed at raising $100 billion from the state's wealthiest residents, with the money earmarked for shoring up California's healthcare system. Stanford University economists have questioned whether the tax could backfire, given that several billionaires have already moved out of the state. The economists said that could result in lower projected wealth taxes and reduced overall income tax collections.

Nonvoting Class C shares

Creating a new stock class isn't only designed to keep Zuckerberg near Meta's headquarters, according to the filing. 

The publicly listed, nonvoting Class C common stock, which will become effective in January, is also intended in part to boost the company's ability to raise capital for AI infrastructure investments. It will also use the new stock to raise capital, compensate employees, make acquisitions and for other general corporate purposes.

"Meta plans to issue nonvoting shares to fund AI investments without diluting CEO Mark Zuckerberg's control," said Andrew Rocco, stock strategist at Zacks Investment Research.