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The news doesn’t come out of nowhere. In May, Musk announced he planned to sell all of his California properties, including his Bel Air mansion. And that same month he flirted on Twitter with the idea of moving Tesla’s California headquarters to either Nevada or Texas—a decision he said would come down to how “Tesla is treated in the future” by the state.
Musk is reportedly considering Austin, Tex. While Austin is something of a tech hub, it pales in comparison to his current home in California.
So why exactly would a tech CEO leave California? Good ole greenbacks.
Musk has a net worth of $139 billion, second globally to only Amazon founder Jeff Bezos. That wealth is largely in Tesla shares, which has climbed over 1,000% since July 2019—a feat that helped him earn the title of Fortune’s Businessperson of the Year. And as Musk begins to tap into that paper wealth, he’ll be required to pay California’s top capital gains tax rate of 13.3%—in addition to the top federal rate capital gains rate of 20%.
But once Musk establishes Texas residency, he should be able to avoid state capital gains altogether. Not only does the Lone Star State have state income taxes, it’s among the nine states without state capital gains taxes.
The tax savings could be astronomical. According to Bloomberg’s calculation of SEC filings, Musk owns the equivalent to $135 billion in Tesla shares and options as of Thursday. If he executed the options and sold all ensuing shares at its current trading price of $599.04, he could owe California as much as $18 billion in capital gains taxes based on a rough calculation—assuming most of Musk’s equity stake was granted to him rather than purchased. If he lived in Texas, he’d dodge that entire potential tax bill. For perspective, the entire market cap of Domino’s Pizza is $15.1 billion.
And those Texas tax savings could entice Musk to sell some of his Tesla shares to pay down his massive debts: Over half of his equity stake in Tesla is collateral to his personal debts, according to Tesla’s most recent SEC filing.
Over the past year California has seen a number of business leaders and corporations say they’re going to flee the state for tax-friendly havens. That includes individuals like comedian Joe Rogan and venture capitalist Keith Rabois. Additionally, Fortune 500 firms like CBRE Group, Charles Schwab, Hewlett Packard Enterprise have all announced moves from California to Texas.
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