Our mission to make business better is fueled by readers like you. To enjoy unlimited access to our journalism, subscribe today.
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. While something of a tech hub, Austin 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 Amazon founder Jeff Bezos. That wealth is largely 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 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 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 not impose income taxes, it’s among the nine states without capital gains taxes.
The tax savings could be astronomical. According to Bloomberg’s calculation of SEC filings, Musk owns the equivalent of $135 billion in Tesla shares and options as of Thursday. If he executed the options and sold all ensuing shares at their 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 debt: Over half of his equity stake in Tesla is collateral to his personal debt, according to Tesla’s most recent SEC filing.
Over the past year a number of California-based business leaders and corporations have said 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, and Hewlett Packard Enterprise have all announced moves from California to Texas.
More must-read finance coverage from Fortune:
- Why the power to change the female-founder double standard rests with VCs
- Wall Street culture clash: When Coinbase met Cantor Fitzgerald
- How the Slack/Salesforce deal stacks up to history’s other Big Tech acquisitions
- Robinhood’s next adventure: Stealing market share from the rich
- Denied unemployment benefits? Here are your options