Zuckerberg commits to California stay for eight years under new Meta deal

Nonvoting shares release from voting-stock tie over eight years, with up to 20% carve-out

Meta’s filing, released with the company’s earnings report on Wednesday, described a “Founder Alignment Agreement” under which Zuckerberg committed to keeping his primary residence in the same state as the company’s headquarters for eight years, barring “material unforeseen circumstances.” The filing said Zuckerberg had informed board members he was weighing a move in response to Proposition 40, a first-of-its-kind wealth tax scheduled to go before California voters on Nov. 3. The Wall Street Journal reported that provisions around the 2-for-1 split of Meta Platforms’ stock are designed to keep Zuckerberg in California.

Proposition 40, proposed by a healthcare union, would levy a one-time, 5% tax on the net worth of California residents with net assets of $1 billion or more. It would apply to billionaires who lived in California on Jan. 1 and would be based on net worth as of Dec. 31 of this year. Unlike traditional taxes on income or real estate, the proposal would apply to financial assets—including unrealized capital gains on stocks—as well as art, intellectual property and other holdings. The filing said Zuckerberg would owe a “significant, multi-billion dollar tax payment” based on his Meta shares if the measure became law.

The filing warned that the resulting bill could force a share sale that would reduce Zuckerberg’s voting interest from 60.6% to 53% or lower. The company said “Mr. Zuckerberg’s continued leadership role in our Company, and his continuing presence at the Company’s headquarters in California, is critical at this current inflection point for the Company and the tech industry.” It also said it wanted to ensure Zuckerberg “remains working closely with Meta Superintelligence Labs.”

The company said it wanted to avoid the challenges encountered during the Covid-19 pandemic, when Zuckerberg was not working from the same location as the management team.

During its earnings report Wednesday, Meta announced the creation of a new class of nonvoting stock to fund its continued artificial-intelligence expansion, to be issued to existing shareholders as a dividend. To align Zuckerberg’s interest with the company’s, his new shares will be “stapled” to the original ones, preventing him from selling them without also selling his voting shares. The shares will be gradually released from stapling over a period of eight years according to a preset schedule.

The Founder Alignment Agreement would not cover all of Zuckerberg’s new shares. He will be able to immediately sell up to 20% of his new Class C shares, representing 10% of his financial stake in Meta, “for any reason, including so that he may pay his potential tax liability under California Proposition 40, if enacted into law.” The remainder of his new shares will remain tied to the eight-year schedule.

Proposition 40’s novel approach—taxing assets rather than income—has prompted some of California’s wealthiest residents to consider moves to lower-tax states, including Florida and Texas. But proving that someone has left California isn’t simple. State auditors have no hard-and-fast test for establishing residency, relying instead on 19 factors—which can include credit-card transactions, gym memberships and doctors’ appointments—to verify whether wealthy taxpayers who claim to have left the state are telling the truth.

The state depends on high earners to pay for basic services. In 2023, more than one-sixth of California’s personal income tax revenue came from the top 0.1% of earners, or about 17,500 filers. The proposal has sparked concern among wealthy Californians that other wealth taxes could follow even if voters reject Proposition 40.