New Stock Class Shields Zuckerberg From Tax

Meta announced on Wednesday a new class of nonvoting stock, a move that would allow Mark Zuckerberg to pay for a proposed California tax on billionaires without relinquishing his control over the company. The plan, detailed in an earnings call, is designed to address Proposition 40, a measure on the November ballot that would levy a one-time 5% tax on the net worth of several hundred California billionaires.

The proposal, drafted by Berkeley tax law professors and sponsored by SEIU United Healthcare Workers West, could generate as much as $100 billion over five years. Proponents state the majority of the funds would be used to cover the state's healthcare needs, with the remainder directed toward food assistance and education. The measure has faced significant pushback from prominent figures in the tech industry, including Google co-founder Sergey Brin, who has actively campaigned against it.

According to a New York Times report, the creation of the new stock class is a direct response to the proposed tax. The report states that in September, Zuckerberg informed Meta's board members that if they could not devise a plan to protect him from the tax, he would list his Palo Alto property for sale, a step that could have triggered a media firestorm. The stock plan was developed shortly thereafter.

The company's filing with the Securities and Exchange Commission corroborates this, detailing how the plan would function. Meta is creating a new class of nonvoting shares, called Class C, and will issue one Class C share for every Class A or Class B share a shareholder owns. Meta describes this as a one-time stock dividend that functions as a two-for-one split and will not alter any shareholder's voting power.

This structure is key to navigating the proposed tax. Because half of the post-dividend shares would be nonvoting Class C shares, the filing specifies that Zuckerberg can sell or transfer up to 20% of his Class C shares. This represents 10% of his total economic stake in the company and would allow him to cover any potential tax liability from Proposition 40 while his voting control remains untouched. It has been estimated that he would owe as much as $11 billion under the proposal.

The filing also indicates that discussions about the billionaire tax between Zuckerberg and the board began as early as July and continued through August. Meta's public statements have emphasized its desire to retain Zuckerberg's leadership, with a quote in its earnings release affirming the importance of him continuing to lead the company from California due to his proximity to Meta Superintelligence Labs.

The development has drawn comment from political figures. After the news of Meta's strategy emerged, Democratic U.S. Representative Ro Khanna, a supporter of the tax, wrote on X: "Looks like billionaires will stay and figure out a way to pay the tax." He added, "If we pass Prop 40, poor California kids can have healthcare."