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>High earners pay an effective tax rate of > 50%. Musk has not paid any tax because he hasn't cashed out any of his stock options yet. Some of his options will

>High earners pay an effective tax rate of > 50%. Musk has not paid any tax because he hasn't cashed out any of his stock options yet. Some of his options will expire next year so he will pay tax then, but I am sure California will get the lion share of the tax revenue (as Musk lived in California up to 2021.)

refurb 5y ago
The Propublica article said Musk paid $500M in tax on a $1.5B options exercise. Is that incorrect?
prepend 5y ago
Tesla employees lots of people who pay income tax. Capital gains is taxed on the residence at time of sale, not time of purchase. So if Musk sells when he’s not a resident of CA, he won’t pay CA taxes.
- outside1234 5y ago
  That's not actually true - California will probably consider this California income because he earned it while in California.
  - deadmutex 5y ago
    Are you a tax lawyer by any chance? or is this just guessing?
    - KingMachiavelli 5y ago
      This is somewhat unique to CA but it was in the news recently. https://www.sambrotman.com/personal-income-tax-residency-california/income-sources-california-state-tax https://www.sambrotman.com/personal-income-tax-residency-cal... https://www.ftb.ca.gov/forms/misc/1004.html https://www.ftb.ca.gov/forms/misc/1004.html
    - holler 5y ago
      I know people who have been harassed by CA franchise tax board many years after leaving the state, and had to prove they had left.
      - deadmutex 5y ago
        Sure, though, they probably weren't one of the wealthiest people on Earth that could afford ton of accountants and lawyers. Billionaires aren't known for paying taxes, so pardon me for being skeptical.
- dmitrygr 5y ago
  CA already came up with a convoluted way to tax even that: https://www.upstartwealth.com/blog/will-you-owe-ca-tax-after-you-leave https://www.upstartwealth.com/blog/will-you-owe-ca-tax-after... And yes indeed, the taxable event is vesting, it indeed happens outside of ca, and yes CA still intends to tax you! They will even come after you in another state for it, after you permanently move out. !!!
- deleted 5y ago
  [deleted]
- AmericanChopper 5y ago
  Isn’t any equity he is awarded for the period of work he did as a tax resident of California, taxable in California, regardless of whether those gains are realized today or in 20 years?
  - brianwawok 5y ago
    Equity is taxed on sale. He will never sell it. He will give it to a bank and take a loan against it. When he dies bank can sell it and pay itself back.
    - AmericanChopper 5y ago
      I really don’t think this is true. Being granted the stock is a taxable event, even if you don’t liquidate any of it, and even if that means you have to sell some to pay the taxes. Also, the methodology you’ve described for avoiding taxes is used to benefit from offshore holdings, not avoid paying taxes on locally held assets.
      - jessaustin 5y ago
        This scheme finances the personal spending of every American worth more than $50M. Sure, any time they're sloppy enough to personally receive real income, they pay taxes on it. Usually they are not that sloppy. The income goes to shells or other assets in which they've "invested". The assets become more valuable, and thus can be used as collateral for larger loans.
        AmericanChopper 5y ago
        I’ve worked with organisations that trade SLOCs other types of instruments that are typically used for these types of transactions. They can be used to defer taxable events in some cases (by taking a loan today instead of selling your shares/options), but there’s no way to use them to avoid paying taxes on local assets. This is especially true with Musk, because he’ll have to sell expiring options soon, which will be a taxable event no matter what. The only way they can be used to avoid paying taxes all together is if you’re trying to derive income from assets held (usually secretly) offshore, and this is almost always criminal tax evasion. The only thing they’re achieving in this circumstance is basically an international fund transfer without creating any taxable income. There are no secret tricks you can do to transfer your assets beyond the control of the IRS, you can’t “give” them to a bank, and if they’re collected as collateral on a defaulted loan, that’s a taxable event too. Companies can get away with moving their profits to other jurisdictions, because a collection of subsidiary companies can exist in as many different tax jurisdictions as you want. Individuals can’t (legally) do this, especially not US citizens, because they remain US tax residents for their entire lives, regardless of where they live or work. A lot of billionaires don’t pay a lot of taxes every year, because they don’t have a lot of income every year. The only way to turn it into a scandal is if you ignore all the years in which they do pay a lot of taxes. Which is, of course, fundamentally stupid.
- sjg007 5y ago
  He will pay gains on where the stock vested. So CA in this case.
- paxys 5y ago
  Nope. CA taxes you on the shares you earned in the state, regardless of where you sold it.
  - 8note 5y ago
    They don't tax it at the time you recieved the shares?
    - paxys 5y ago
      Depending on the grant type receiving it might not be a taxable event. And even otherwise, in a lot of cases the majority of income is realized in the form of capital gains.
kingTug 5y ago
I think OP meant Tesla's workforce being the overly-taxed. Maybe it's easier to recruit talent there?
- guardiangod 5y ago
  Maybe, although I would imagine Tesla's the premiere destination for fresh triple-star college graduates that don't mind taking a pay hit to work for Tesla (and burn out after 3 years.) Or California's housing market is just too fucked. I think this is more plausible than the income tax too high theory.
  - haliskerbas 5y ago
    Every talented meche or swe I know either gets paid multitudes more somewhere else. Or has worked there and didn’t want to work 7 day weeks anymore. It’s all anecdotal but I’ve only heard negative things about working at a Musk co.
    - paxys 5y ago
      I was on the job market a few years ago and on a whim decided to look at the careers sites of SpaceX and Tesla. While there were openings that were interesting to me, both companies' listings had spelled out in clear terms – this job is for people who are passionate about the work. You will be expected to work long hours, nights and weekends. This is an exempt position so there will be no overtime pay. I backed away real quick.
ekianjo 5y ago
i did not know there was only one high income employee at Tesla.
kelnos 5y ago
Musk isn't eligible for ISOs, so any options he gets are taxed in the year they are exercised. Sure, he can avoid exercising them, but options nearly always have an expiration date. And assuming the stock price has gone up since the options were granted, the taxable amount will be even higher upon exercise. CA also has some fairly unique (and IMO unfortunate) tax rules where they will still require you to pay taxes on some things even after you've moved out of state. I believe option exercise (for options granted+vested while living in CA) is one of those.

refurb 5y ago

The Propublica article said Musk paid $500M in tax on a $1.5B options exercise. Is that incorrect?

prepend 5y ago

Tesla employees lots of people who pay income tax. Capital gains is taxed on the residence at time of sale, not time of purchase. So if Musk sells when he’s not a resident of CA, he won’t pay CA taxes.

outside1234 5y ago
That's not actually true - California will probably consider this California income because he earned it while in California.
- deadmutex 5y ago
  Are you a tax lawyer by any chance? or is this just guessing?
  - KingMachiavelli 5y ago
    This is somewhat unique to CA but it was in the news recently. https://www.sambrotman.com/personal-income-tax-residency-california/income-sources-california-state-tax https://www.sambrotman.com/personal-income-tax-residency-cal... https://www.ftb.ca.gov/forms/misc/1004.html https://www.ftb.ca.gov/forms/misc/1004.html
  - holler 5y ago
    I know people who have been harassed by CA franchise tax board many years after leaving the state, and had to prove they had left.
    - deadmutex 5y ago
      Sure, though, they probably weren't one of the wealthiest people on Earth that could afford ton of accountants and lawyers. Billionaires aren't known for paying taxes, so pardon me for being skeptical.
dmitrygr 5y ago
CA already came up with a convoluted way to tax even that: https://www.upstartwealth.com/blog/will-you-owe-ca-tax-after-you-leave https://www.upstartwealth.com/blog/will-you-owe-ca-tax-after... And yes indeed, the taxable event is vesting, it indeed happens outside of ca, and yes CA still intends to tax you! They will even come after you in another state for it, after you permanently move out. !!!
deleted 5y ago
[deleted]
AmericanChopper 5y ago
Isn’t any equity he is awarded for the period of work he did as a tax resident of California, taxable in California, regardless of whether those gains are realized today or in 20 years?
- brianwawok 5y ago
  Equity is taxed on sale. He will never sell it. He will give it to a bank and take a loan against it. When he dies bank can sell it and pay itself back.
  - AmericanChopper 5y ago
    I really don’t think this is true. Being granted the stock is a taxable event, even if you don’t liquidate any of it, and even if that means you have to sell some to pay the taxes. Also, the methodology you’ve described for avoiding taxes is used to benefit from offshore holdings, not avoid paying taxes on locally held assets.
    - jessaustin 5y ago
      This scheme finances the personal spending of every American worth more than $50M. Sure, any time they're sloppy enough to personally receive real income, they pay taxes on it. Usually they are not that sloppy. The income goes to shells or other assets in which they've "invested". The assets become more valuable, and thus can be used as collateral for larger loans.
      - AmericanChopper 5y ago
        I’ve worked with organisations that trade SLOCs other types of instruments that are typically used for these types of transactions. They can be used to defer taxable events in some cases (by taking a loan today instead of selling your shares/options), but there’s no way to use them to avoid paying taxes on local assets. This is especially true with Musk, because he’ll have to sell expiring options soon, which will be a taxable event no matter what. The only way they can be used to avoid paying taxes all together is if you’re trying to derive income from assets held (usually secretly) offshore, and this is almost always criminal tax evasion. The only thing they’re achieving in this circumstance is basically an international fund transfer without creating any taxable income. There are no secret tricks you can do to transfer your assets beyond the control of the IRS, you can’t “give” them to a bank, and if they’re collected as collateral on a defaulted loan, that’s a taxable event too. Companies can get away with moving their profits to other jurisdictions, because a collection of subsidiary companies can exist in as many different tax jurisdictions as you want. Individuals can’t (legally) do this, especially not US citizens, because they remain US tax residents for their entire lives, regardless of where they live or work. A lot of billionaires don’t pay a lot of taxes every year, because they don’t have a lot of income every year. The only way to turn it into a scandal is if you ignore all the years in which they do pay a lot of taxes. Which is, of course, fundamentally stupid.
sjg007 5y ago
He will pay gains on where the stock vested. So CA in this case.
paxys 5y ago
Nope. CA taxes you on the shares you earned in the state, regardless of where you sold it.
- 8note 5y ago
  They don't tax it at the time you recieved the shares?
  - paxys 5y ago
    Depending on the grant type receiving it might not be a taxable event. And even otherwise, in a lot of cases the majority of income is realized in the form of capital gains.

kingTug 5y ago

I think OP meant Tesla's workforce being the overly-taxed. Maybe it's easier to recruit talent there?

guardiangod 5y ago
Maybe, although I would imagine Tesla's the premiere destination for fresh triple-star college graduates that don't mind taking a pay hit to work for Tesla (and burn out after 3 years.) Or California's housing market is just too fucked. I think this is more plausible than the income tax too high theory.
- haliskerbas 5y ago
  Every talented meche or swe I know either gets paid multitudes more somewhere else. Or has worked there and didn’t want to work 7 day weeks anymore. It’s all anecdotal but I’ve only heard negative things about working at a Musk co.
  - paxys 5y ago
    I was on the job market a few years ago and on a whim decided to look at the careers sites of SpaceX and Tesla. While there were openings that were interesting to me, both companies' listings had spelled out in clear terms – this job is for people who are passionate about the work. You will be expected to work long hours, nights and weekends. This is an exempt position so there will be no overtime pay. I backed away real quick.

ekianjo 5y ago

i did not know there was only one high income employee at Tesla.

kelnos 5y ago

Musk isn't eligible for ISOs, so any options he gets are taxed in the year they are exercised. Sure, he can avoid exercising them, but options nearly always have an expiration date. And assuming the stock price has gone up since the options were granted, the taxable amount will be even higher upon exercise. CA also has some fairly unique (and IMO unfortunate) tax rules where they will still require you to pay taxes on some things even after you've moved out of state. I believe option exercise (for options granted+vested while living in CA) is one of those.