Zuckerberg’s new stock class avoids billionaire tax

California voters could soon face a billionaire tax, and Mark Zuckerberg has a way to avoid it. The tech giant Meta plans to use a new class of nonvoting stock to pay the tax if it passes, keeping control in his hands. The company revealed the stock during its earnings call on Wednesday, and it will be available in January. This class of shares gives ownership but no voting power, and Zuckerberg controls 60% of the vote through current voting structure. If the tax passes, he could sell some of the new shares to cover it without giving up his voting control.

The new stock class will help him avoid the tax, and it was approved by the company's board. The plan was influenced by Proposition 40, a one-time 5% wealth tax on California billionaires. The tax could generate up to $100 billion over five years, and it is being sponsored by California’s largest healthcare union.

Zuckerberg pressed the board to create the stock class to protect himself from the tax. He told the board that if they couldn’t reach an agreement, he would list his Palo Alto property for sale, potentially starting a media firestorm. Not long after, the new stock class was made public, as reported by the New York Times.

The plan was partially based on a recent SEC filing, which documents the concern surrounding Proposition 40 and how it informed the discussions that led to the new stock class. The filing says that Zuckerberg discussed the billionaire tax with board members in July. The topic came up again in additional meetings and communications throughout that month and August.

The filing describes how the plan would work. Meta is creating a new class of nonvoting 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. This 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.”

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. Proposition 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.