‘People don’t see the point unless they love living in California…’
(Michael Barnes, Liberty Headlines) A slew of giant California tech companies are preparing to go public this year, in what will become the biggest initial public offering, or IPO, bonanza since the “dot-com” days of 2000.
Multitudes of millionaires and billionaires will be created overnight, including company founders, executives, tech investors and even employees who were paid with private stockholdings.
But the dirty secret of Silicon Valley’s progressive startup culture is that many of the soon-to-be nuevo riche are looking to ditch their California tax liabilities and protect their money.
“I’m moving out of state,” one former executive at Airbnb told “Recode,” a tech news website.
The executive said he’s talked about various exit strategies with other colleagues, and is determined to learn from those who got stuck with paying California’s astronomical taxes when their companies went public.
“I’ve talked to a lot of people from Google, and lots of people who stayed in California are upset and lost a lot of money,” he said.
Airbnb is a privately-held global hospitality company headquartered in San Francisco. It’s just one of the mega-billion-dollar behemoths about to convert into publicly traded status, others being Uber, Lyft, Slack, Peloton and Pinterest.
Re-establishing their primary residences in nearby lower-tax states is a prime objective for many, as California is literally the highest-taxed state—and most liberal—in the country.
Incline Village, Nevada is often called “Income Village” because of its reputation as a tax haven for wealthy Californians. It’s scenic landscape makes for an attractive destination, although Nevada’s state income tax rate is it’s real beauty — roughly half of California’s stunning 13.3 percent state income tax.
California also imposes a matching state capital gains tax of 13.3 percent, on top of various city-based taxes.
One former Uber executive told Recode that as much as one-quarter of Uber’s earliest executive team has recently moved out of state.
Another former executive said she knew of 17 people who moved out of the San Francisco Bay Area in recent years, with seven of those having moved to states with no income taxes.
The moves are decidedly anti-“fair share,” despite the professed hyper-political progressivism that dominates Silicon Valley, San Francisco and California culture.
Other high-tax states are facing similar problems. Last week, New York Gov. Andrew Cuomo—a Democrat and, himself, part of an elitist political dynasty—announced a 2019 budget shortfall of $2.3 billion. Cuomo blamed the Republican-led tax cut law from 2017, and high-income New Yorkers fleeing to low tax states.
While moving out of California may be a desirable way to avoid its soul-crushing taxes, simply moving on paper and continuing to work in the state is grounds for trouble—as large tax regimes often come with large and aggressive tax enforcement.
“California is by far the most aggressive [state] in figuring out how quickly, how cute you are with these changes,” said Vicken Ekmekjian, a top San Francisco wealth adviser, who has had several soon-to-IPO clients recently approach him about residency changes.
“They’re relentless. They’ll get you,” he said.
But Ekmekjian also said that if you’re sitting on tens of millions of dollars, or perhaps billions, in private stock—or life-changing money—then California’s taxes just don’t make sense.
“People don’t see the point unless they love living in California,” he said.