5 ms·

I mean, you could just as easily argue that the problems of California are what caused his move to Texas, as simply testing the waters for the move of the HQ.

by darawk 5y ago

random314 5y ago
Musk had billions of dollars in performance based stocks vesting over these years. The simplest reason for moving is avoiding billions of dollars in California state income taxes.
- darawk 5y ago
  No it isn't. CA will still try to tax those shares if and when he decides to liquidate them. However, Musk does not ever need to liquidate any shares. If he never wants to pay any tax, all he has to do is buy a hedge against the shares (thereby locking in a particular price) and take out loans against the now hedged asset. And like magic, he's got all the cash he could ever need and zero capital gains.
  - jtsiskin 5y ago
    …but how does he pay back those loans?
    - plorkyeran 5y ago
      His estate pays them back when he dies. Inherited shares have their cost basis reset to the current value, so if his heirs sell them immediately there's no capital gains to be taxed.
      - double_nan 5y ago
        The loan will be cheap but not free. The problem with shares is that their price can go down to zero in case of company bankruptcy. So there will be premium for that risk.
        darawk 5y ago
        Not really. His loan will be way way way way over-collateralized, and like I said, he can even hedge it perfectly. His cost will likely be about the RFR.
  - random314 5y ago
    Can I do this with my vesting stocks? I get tax deducted stocks, always!
    - darawk 5y ago
      You sure can. You just need to find a bank/broker/anyone willing to lend to you against them as collateral.
asdff 5y ago
The main problem for musk in this case being his tax burden, since he is otherwise entirely insulated from every other issue affecting most californians.
- darawk 5y ago
  His tax situation really has nothing to do with it. If he sells his Tesla shares, he's still going to owe CA tax. But he never has to sell any Tesla shares, he can just buy hedges against them and take out loans. If you have sufficient capital assets, you never have to actual earn any "income" or generate any "capital gains" if you don't want to.
  - asdff 5y ago
    He has options he will be selling soon and they are taxed where they will be sold, in this case texas.
  - skissane 5y ago
    > But he never has to sell any Tesla shares, he can just buy hedges against them and take out loans So he takes out a $1 billion loan, and he offers $1 billion in stock as a security, and then also buys a futures contract (or a put option) on his $1 billion of stock to lock in the current price, so if the stock goes down in value over the life of the loan, the lender doesn't lose their security? And then when the loan falls due, he refinances – get a new loan using the same mechanism, and use it to repay the existing one? And he doesn't owe capital gains tax on the stock he uses as security, because he doesn't actually sell it? I suppose though, you can't just go on refinancing forever. One day he will die, and then it will have to come out of his estate, and I guess his estate may pay the capital gains tax then? So it is really delaying paying tax, rather than getting out of it forever? Unless, I suppose, he leaves the stock to a trust in his will, and transfers the loan to the trust too, and then the trust can continue this process long after he is gone? And maybe, if it is a charitable trust, even use some charitable tax exemption to get out of paying the tax permanently?
    - darawk 5y ago
xoa 5y ago
>I mean, you could just as easily argue that the problems of California are what caused his move to Texas Who knows. But the biggest fundamental problem for California here honestly is geography: Boca Chica is the best single land based potential BEO spaceport in the continental US, simple as that. That's why SpaceX is there. As close to the equator as they can get, with a lot of water in front of most of the launch paths they want, and no urban buildup there. For the small percentage of polar orbits they'll want to do there will remain Vandenberg, or eventually converted oil rigs for sea launch, but the vast majority of SpaceX's cadence for the foreseeable future will be Starship going to more standard orbits where the bulk of Starlink will exist or eventually beyond Earth's orbit for trips to Mars. Sure taxes and all the typical rigamarole that typically comes up in these discussions might have weighed a little one way or another, and in the vast majority of CEO/HQ moves weigh quite a bit. But to the extent that SpaceX is the biggest guiding unified dream of Elon Musk, and given the constraints of logistics, economics and the physics of orbital launch, it basically had to be there. Which means he has to be there. Which means it's a lot easier even for someone with a private jet if the HQ of his other big enterprise is around 300mi away nearly due north in the same TZ vs ~1650mi west. If for some reason the jobs situation and housing was just perfectly impossible in Texas maybe he would have sucked it up but even then I doubt it given his (and Tesla's) resources. At the end of the day like everyone else he can't buy more than 24 hours in a day. He can buy more efficient use of them.

I mean, you could just as easily argue that the problems of California are what caused his move to Texas, as simply testing the waters for the move of the HQ.

by darawk 5y ago

I mean, you could just as easily argue that the problems of California are what caused his move to Texas, as simply testing the waters for the move of the HQ.

random314 5y ago

Musk had billions of dollars in performance based stocks vesting over these years. The simplest reason for moving is avoiding billions of dollars in California state income taxes.

darawk 5y ago
No it isn't. CA will still try to tax those shares if and when he decides to liquidate them. However, Musk does not ever need to liquidate any shares. If he never wants to pay any tax, all he has to do is buy a hedge against the shares (thereby locking in a particular price) and take out loans against the now hedged asset. And like magic, he's got all the cash he could ever need and zero capital gains.
- jtsiskin 5y ago
  …but how does he pay back those loans?
  - plorkyeran 5y ago
    His estate pays them back when he dies. Inherited shares have their cost basis reset to the current value, so if his heirs sell them immediately there's no capital gains to be taxed.
    - double_nan 5y ago
      The loan will be cheap but not free. The problem with shares is that their price can go down to zero in case of company bankruptcy. So there will be premium for that risk.
      - darawk 5y ago
        Not really. His loan will be way way way way over-collateralized, and like I said, he can even hedge it perfectly. His cost will likely be about the RFR.
- random314 5y ago
  Can I do this with my vesting stocks? I get tax deducted stocks, always!
  - darawk 5y ago
    You sure can. You just need to find a bank/broker/anyone willing to lend to you against them as collateral.

asdff 5y ago

The main problem for musk in this case being his tax burden, since he is otherwise entirely insulated from every other issue affecting most californians.

darawk 5y ago
His tax situation really has nothing to do with it. If he sells his Tesla shares, he's still going to owe CA tax. But he never has to sell any Tesla shares, he can just buy hedges against them and take out loans. If you have sufficient capital assets, you never have to actual earn any "income" or generate any "capital gains" if you don't want to.
- asdff 5y ago
  He has options he will be selling soon and they are taxed where they will be sold, in this case texas.
- skissane 5y ago
  > But he never has to sell any Tesla shares, he can just buy hedges against them and take out loans So he takes out a $1 billion loan, and he offers $1 billion in stock as a security, and then also buys a futures contract (or a put option) on his $1 billion of stock to lock in the current price, so if the stock goes down in value over the life of the loan, the lender doesn't lose their security? And then when the loan falls due, he refinances – get a new loan using the same mechanism, and use it to repay the existing one? And he doesn't owe capital gains tax on the stock he uses as security, because he doesn't actually sell it? I suppose though, you can't just go on refinancing forever. One day he will die, and then it will have to come out of his estate, and I guess his estate may pay the capital gains tax then? So it is really delaying paying tax, rather than getting out of it forever? Unless, I suppose, he leaves the stock to a trust in his will, and transfers the loan to the trust too, and then the trust can continue this process long after he is gone? And maybe, if it is a charitable trust, even use some charitable tax exemption to get out of paying the tax permanently?
  - darawk 5y ago

xoa 5y ago

>I mean, you could just as easily argue that the problems of California are what caused his move to Texas Who knows. But the biggest fundamental problem for California here honestly is geography: Boca Chica is the best single land based potential BEO spaceport in the continental US, simple as that. That's why SpaceX is there. As close to the equator as they can get, with a lot of water in front of most of the launch paths they want, and no urban buildup there. For the small percentage of polar orbits they'll want to do there will remain Vandenberg, or eventually converted oil rigs for sea launch, but the vast majority of SpaceX's cadence for the foreseeable future will be Starship going to more standard orbits where the bulk of Starlink will exist or eventually beyond Earth's orbit for trips to Mars. Sure taxes and all the typical rigamarole that typically comes up in these discussions might have weighed a little one way or another, and in the vast majority of CEO/HQ moves weigh quite a bit. But to the extent that SpaceX is the biggest guiding unified dream of Elon Musk, and given the constraints of logistics, economics and the physics of orbital launch, it basically had to be there. Which means he has to be there. Which means it's a lot easier even for someone with a private jet if the HQ of his other big enterprise is around 300mi away nearly due north in the same TZ vs ~1650mi west. If for some reason the jobs situation and housing was just perfectly impossible in Texas maybe he would have sucked it up but even then I doubt it given his (and Tesla's) resources. At the end of the day like everyone else he can't buy more than 24 hours in a day. He can buy more efficient use of them.