Mark Zuckerberg threatens to leave California over 5% billionaire tax, Meta creates new Class C shares to help him stay

Mark Zuckerberg warned Wednesday that he could leave California if the state enacts a billionaire tax, according to a report by Politico. The tech billionaire threatened to move out of California if the new billionaire tax is implemented when voters head to the polls on November 3, the company said in a new regulatory filing. The measure, which would impose a one-time 5% tax on state residents with a net worth of more than $1bn (£750m), is yet to pass.

Zuckerberg owns a relatively small percentage of Meta's total economic value, but he controls most of its voting power because some of his shares carry extra votes. However, Meta has stepped in and has agreed a deal with Mark Zuckerberg to stop the Facebook co-founder from leaving California. The agreement allows Zuckerberg to sell shares in Meta without losing control of the Californian-based company if he needs to pay a large tax bill.

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Zuckerberg told Meta that he was "evaluating relocating his primary residence outside California and that steps toward any such relocation, including any listing of his residential real estate in California on the market, would be public and inevitably noted and commented upon by company employees and, accordingly, raise questions for management of the company going forward," the filing states.

What has Meta changed for Mark Zuckerberg?

Meta has announced a new type of share called Class C stock and unlike its existing voting shares, these new shares will have no voting rights. Zuckerberg secured a deal with a special committee at Meta after "robust", and "at several points, contentious" negotiations. In a blog post, Meta said, "The Board of Directors has approved the establishment of a new class of publicly listed, non-voting Class C common stock, with an effective date in January 2027. The approval by Meta's Board follows the unanimous recommendation of a Special Committee of disinterested and independent directors, which was established by the Board to evaluate the company's capital structure."

In simple terms, Meta will distribute one Class C share for every existing Class A or Class B share. This is expected to work similarly to a two-for-one stock split in terms of the existing Class A share price, all else being equal. "The Special Committee concluded that Mr. Zuckerberg is best suited to lead Meta into its next era and beyond. They recognized that Meta's track record of significant value creation for its shareholders is in large part due to his strong leadership, unique and creative vision, and exceptional management abilities. The creation of the Class C common stock will continue the founder-led model that has driven the company's success since its inception," the post read.

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Zuckerberg had told Meta's board that it was his intention to remain with the firm for "the foreseeable future". However, he said he was evaluating relocating his primary residence outside California and, if he listed his home on the real estate market, it "would be public and inevitably noted and commented upon by company employees". This, he told the board, "would raise questions for management of the company going forward".

Meta says Mark Zuckerberg’s presence near its headquarters in Menlo Park, California, is very important to the company’s success. In return, Zuckerberg has agreed to remain a California resident for eight years. However, if Meta moves its headquarters to another state, he has agreed to move there as well.

How is it linked to California tax?

California is considering a proposed one-time 5% tax on billionaire wealth. California is home to most of the US's technology giants and there are around 225 billionaires who reside in the state, according to the Americans for Tax Fairness campaign group.

Zuckerberg told Meta's board he was considering moving out of California because of the potential tax bill. Under the new agreement, he can sell 20% of the Class C shares he receives to help pay a potential bill without losing voting control. Selling most of the remaining 80% is subject to restrictions linking those sales to sales or conversions of voting shares. In other words, the new shares offer a way to raise cash while preserving his control over Meta.

The company believes "it is critically important to keep Mr. Zuckerberg in a leadership position with our company and that he continue to reside in and manage the company from our headquarters in California to ensure his continued ability to effectively drive our performance during this era of unprecedented challenge and competition in our industry," Meta said in its filing.

The purpose of Class C common stock is also intended in part to boost the company's ability to raise capital for AI infrastructure investments. It will also use the new stock to raise capital, compensate employees, make acquisitions and for other general corporate purposes.

"Meta plans to issue nonvoting shares to fund AI investments without diluting CEO Mark Zuckerberg's control," said Andrew Rocco, stock strategist at Zacks Investment Research.