Summary
During Meta’s earnings call on Wednesday, the company revealed its board had approved a new class of non-voting stock, called Class C common stock. Th…
Now, however, the New York Times has reported there’s another reason for the new class: helping Zuckerberg pay for California’s proposed “billionaire tax,” if voters approve it. Because the new shares carry no votes, he could sell some of them to cover the tax without giving up voting control.
Proposition 40, which was drafted by Berkeley tax law professors and is being sponsored by California’s largest healthcare union (SEIU United Healthcare Workers West), would level a one-time 5% wealth tax on the net worth of several hundred California billionaires who primarily live in the state. Backers say the policy could generate as much as $100 billion over five years, the bulk of which would be used to pay for the state’s healthcare needs, with the rest for food assistance and education.
The Times also reports that Zuckerberg pressed Meta’s board to come up with a plan to protect him from the tax. According to the paper, he told board members in September that if they couldn’t reach an agreement, he’d list his Palo Alto property for sale, potentially kicking off a media firestorm. Not long afterward, the stock plan materialized, the newspaper writes.
The Times reporting is partially based on a recent SEC filing made by Meta, which documents the concern surrounding Proposition 40 and how it informed discussions that led to the new stock class.
The filing says that as far back as July, Zuckerberg was discussing the billionaire tax with board members. The topic came up again in additional meetings and communications throughout that month and August.
The filing also describes how the plan would work. Meta is creating a new class of non-voting shares, called Class C, and will give shareholders one of them for every Class A or Class B share they own. The company calls this a one-time stock dividend and says it should work out to a two-for-one stock split. The dividend “will not change the voting power of any shareholder,” Meta says.
That is where Prop 40 comes in. The filing says the dividend “will allow Mr. Zuckerberg to immediately sell or transfer up to 20% of the shares of Class C common stock that he receives in the Dividend, representing 10% of his overall economic stake in the Company, for any reason, including so that he may pay his potential tax liability under California Proposition 40, if enacted into law, without affecting his majority voting control.” Because the dividend is one-for-one, half of his post-dividend shares will be Class C, so the 20% cap equals 10% of his total economic stake.
When reached for comment by TechCrunch, Meta referred us to a quote included in its recent earnings press release that reiterates that part of the motivation for the creation of the stock was to keep Zuckerberg onboard: “The Special Committee affirmed its belief that it was important for Mr. Zuckerberg to continue to lead the Company from California, including because it was crucial that Mr. Zuckerberg remains in close coordination with the Company’s management and in close proximity to Meta Superintelligence Labs.”
It’s been estimated that Zuckerberg would have to pay as much as $11 billion as part of the tax.
Prop 40 has notably riled many of Silicon Valley’s most prominent businesspeople. Google co-founder Sergey Brin has aggressively campaigned against the measure, even spending a small fortune in an effort to defeat it. Other business leaders and critics of the proposal have criticized it online, with many claiming that it amounts to economic suicide for California, driving a capital flight from the state. However, as Meta’s new policy would appear to show, the state’s mega-companies and the people who run them have creative ways of dealing with the tax, should it materialize.
“Looks like billionaires will stay and figure out a way to pay the tax,” Democratic U.S. Representative Ro Khanna, a vocal proponent of the tax, wrote on X, after news of Meta’s strategy spread online. “If we pass Prop 40, poor California kids can have healthcare,” he added.
Source: TechCrunch
