Apr 3rd 2013
By Teresa Ambord
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When your income is in the billions, it stands to reason your tax liability will top a billion dollars too. On May 18, 2012, Facebook founder Mark Zuckerberg took his company public, and his income shot to $13 billion . . . with a "b." That included $2.3 billion in stock options, which the IRS views as income whether or not the stock is sold.
As a California resident, Zuckerberg is looking at an effective tax rate of 48.3 percent on his 2012 income. That's 35 percent for federal and 13.3 percent for state. Since the news of his tax liability hit the media, reporters have been having a ball throwing around Facebook terms, as in he should "unfriend" the IRS or at least he won't "like" the tax agency. But gigantic tax bill or not, Zuckerberg doesn't seem too troubled by it. It appears that someone is, and has been, giving him good financial advice.
On the day of the initial public offering, Zuckerberg exercised his stock options and bought 60 million shares of Facebook, for 6 cents each, according to CNNMoney.com. Unlike the celebrities and sports stars we read about every week – the ones who earn mega millions, blow through it quickly, and end up with nothing but a hefty unpaid tax bill – Zuckerberg didn't seem at all surprised by his tax bill.
Since buying those 60 million shares of Facebook less than a year ago, he sold 30.2 million for $1.13 billion. According to a regulatory filing, that little pile of money will be used to pay his 2012 taxes, which, according to unofficial estimates by several accountants, will easily exceed $1 billion. While he may not be sweating the tax bill, he is taking steps to minimize it. For example, there's that little charitable contribution he made in December of $500 million to the Silicon Valley Community Foundation.
Zuckerberg's plan for going public, collecting a bundle, and providing the money to cover the tax bill was strategic, and so was his choice of which stock to sell. Facebook stock is sold in two classes, Class A and Class B. By selling Class A stock he gained the right to own Class B stock, which comes with ten times the voting power. In the end, he's left with 58 percent of the voting rights of the company. In other words, he's still in charge.
Paying the Bill
As mentioned earlier, Zuckerberg is a California resident; therefore, he'll pay some of the highest rates in the nation on his personal income tax. He could've done what many wealthy individuals did – left California for a tax-friendlier state, at least long enough to establish residency elsewhere. And most of us ordinary citizens wouldn't blame him. One accountant estimated that if Zuckerberg would've moved to Florida, which has no state income tax, he would've saved over $300 million in state income taxes (again, it's only a ballpark estimate since we can only guess at the details of his total income). But one thing is certain, Jerry Brown, the governor of cash-strapped California should be "liking" Zuckerberg and his advisors a lot these days.