Thursday, February 22, 2024

Why would Elon Musk move to Texas? The answer could be in the billions

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You’re here CEO Elon Musk has told his friends and family he is moving from California to Texas, CNBC reported Friday.

The news does not come from nowhere. In May, Musk announced that he plans to sell all of his properties in California, including his Bel Air mansion. And that same month he flirted on Twitter with the idea of ​​moving Tesla’s headquarters from California to Nevada or Texas—A decision, he said, would come down to how “Tesla will be treated in the future” by the state.

Musk would consider Austin, Texas. Although Austin is somewhat of a tech hub, it is pale compared to its current home in California.

So why exactly would a tech CEO leave California? Good old greenbacks.

Musk has a $ 139 billion net worth, second worldwide at only Amazon founder Jeff Bezos. Much of that wealth is in Tesla shares, which have soared more than 1,000% since July 2019 – a feat that helped him earn the title of Fortune Businessman of the Year. And as Musk begins to mine this paper wealth, he will have to pay California’s highest capital gains tax rate of 13.3%, in addition to the highest federal rate of 20% capital gains.

But once Musk establishes his residency in Texas, he should be able to avoid state capital gains altogether. Not only does the Lone Star State have income taxes, it is among the nine states without state capital gains taxes.

The tax savings could be astronomical. According to Bloomberg’s calculation of SEC filings, Musk holds the equivalent of $ 135 billion in Tesla stock and options on Thursday. If he executed the options and sold all subsequent shares at his current price of $ 599.04, he could owe California up to $ 18 billion in capital gains taxes based on a calculation. rough – assuming most of Musk’s stake is granted to him rather than purchased. . If he lived in Texas, he would avoid all that potential tax bill. For the perspective, the entire market capitalization of Domino Pizza is $ 15.1 billion.

And those tax savings in Texas could prompt Musk to sell some of his Tesla shares to pay off massive debts: more than half of his Tesla stake is collateral for his personal debts, according to Tesla’s latest SEC filing. .

Over the past year, California has seen a number of business and corporate leaders say they will flee the state for tax havens. This includes individuals like the comedian Joe rogan and venture capitalist Keith Rabois. Additionally, Fortune 500 companies like CBRE Group, Charles Schwab, Hewlett Packard Enterprise all announced moves from California to Texas.

More to read absolutely financial cover of Fortune:


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