Home Business Why would Elon Musk transfer to Texas? Here’s a $18 billion motive

Why would Elon Musk transfer to Texas? Here’s a $18 billion motive

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Tesla CEO Elon Musk has informed family and friends he’s transferring from California to Texas, CNBC reported on Friday.

The information doesn’t come out of nowhere. In Might, Musk introduced he deliberate to promote all of his California properties, together with his Bel Air mansion. And that very same month he flirted on Twitter with the idea of moving Tesla’s California headquarters to either Nevada or Texas—a choice he mentioned would come all the way down to how “Tesla is handled sooner or later” by the state.

Musk is reportedly contemplating Austin. Whereas one thing of a tech hub, Austin pales compared to his present dwelling in California.

So why precisely would a tech CEO depart California? Good ole bucks.

Musk has a net worth of $139 billion, second globally to Amazon founder Jeff Bezos. That wealth is essentially in Tesla shares, which have 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 faucet into that paper wealth, he’ll be required to pay California’s high capital features tax charge of 13.3%—along with the highest federal capital features charge of 20%.

However as soon as Musk establishes Texas residency, he ought to have the ability to keep away from state capital features altogether. Not solely does the Lone Star State have state earnings taxes, it’s among the many nine states without state capital gains taxes.

The tax financial savings could possibly be astronomical. In accordance with Bloomberg’s calculation of SEC filings, Musk owns the equal to $135 billion in Tesla shares and choices as of Thursday. If he executed the choices and offered all ensuing shares at its present buying and selling worth of $599.04, he might owe California as a lot as $18 billion in capital features taxes primarily based on a tough calculation—assuming most of Musk’s fairness stake was granted to him fairly than bought. If he lived in Texas, he’d dodge that complete potential tax invoice. For perspective, your complete market cap of Domino’s Pizza is $15.1 billion.

And people Texas tax financial savings might entice Musk to promote a few of his Tesla shares to pay down his huge money owed: Over half of his fairness stake in Tesla is collateral to his private money owed, in keeping with Tesla’s most up-to-date SEC submitting.

Over the previous yr California has seen quite a few enterprise leaders and companies say they’re going to flee the state for tax-friendly havens. That features people like comic Joe Rogan and enterprise capitalist Keith Rabois. Moreover, Fortune 500 companies like CBRE Group, Charles Schwab, Hewlett Packard Enterprise have all introduced strikes from California to Texas.

Extra must-read finance coverage from Fortune:

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