During Meta’s earnings conference call on Wednesday, the company revealed that its board had approved a new class of non-voting shares, called Class C common stock. The shares give the holder an ownership stake but no vote in company decisions. This class goes into effect in January. Meta says it will use the shares to raise capital, pay employees and make acquisitions, including its expensive push into AI, while maintaining the current voting structure that favors its founder and CEO, Mark Zuckerberg, who controls about 60% of the votes. Now, however, the New York Times has reported that there is another reason for the new class: to help Zuckerberg pay the proposed “billionaire tax” in California, if voters approve it. Since the new shares do not carry votes, you could sell some of them to cover the tax without giving up voting control. Proposition 40, which was drafted by Berkeley tax law professors and sponsored by California’s largest healthcare union (SEIU United Healthcare Workers West), would establish a flat 5% tax on the net worth of several hundred California billionaires who primarily live in the state. Supporters say the policy could generate up to $100 billion over five years, most of which would be used to pay for the state’s health care needs, and the rest would be used for food assistance and education. The Times also reports that Zuckerberg pressured Meta’s board of directors to come up with a plan to shield him from the tax. According to the newspaper, he told board members in September that if they couldn’t reach a deal, he would put his Palo Alto property up for sale, which could spark a media firestorm. The action plan materialized shortly afterwards, the newspaper writes. The Times report is based partially on a recent filing by Meta with the SEC, which documents the concern around Proposition 40 and how it informed the discussions that led to the new share class. The filing says that as early as July, Zuckerberg was discussing the billionaire tax with board members. The topic came up again in additional meetings and communications throughout that month and into August. The presentation also describes how the plan would work. Meta is creating a new class of non-voting shares, called Class C, and will give shareholders one of them for each Class A or Class B share they own. The company calls this a one-time stock dividend and says it should result in a two-for-one stock split. The dividend “will not change any shareholder’s voting power,” Meta says. That’s where Proposition 40 comes in. The filing says the dividend “will allow Mr. Zuckerberg to immediately sell or transfer up to 20% of the Class C common stock he receives in the Dividend, representing 10% of his total economic interest in the Company, for any reason, including so that he can pay his potential tax liability under California Proposition 40, if enacted into law, without affecting his majority voting control.” Because the dividend is one-for-one, half of your post-dividend shares will be Class C, so the 20% limit is equal to 10% of your total economic interest. When TechCrunch contacted us for comment, Meta referred us to a quote included in its recent earnings press release that reiterates that part of the motivation for the stock’s creation was to keep Zuckerberg on board: “The Special Committee affirmed its belief that it was important for Mr. Zuckerberg to continue leading the Company from California, even as it was crucial that Mr. Zuckerberg remain in close coordination with the Company’s management and in close proximity to Meta Superintelligence Labs.” It is estimated that Zuckerberg would have to pay up to $11 billion as part of the tax. Proposition 40 has noticeably irritated many of Silicon Valley’s most prominent entrepreneurs. Google co-founder Sergey Brin has aggressively campaigned against the measure, even spending a small fortune in an effort to defeat it. Other business leaders and critics of the proposal have criticized it online, with many saying it amounts to economic suicide for California, causing capital flight from the state. However, as Meta’s new policy appears to show, the state’s mega-businesses and the people who run them have creative ways of dealing with the tax, should it materialize. “It looks like the billionaires will stick around and find a way to pay the tax,” Democratic U.S. Rep. Ro Khanna, a strong supporter of the tax, wrote in X after news of Meta’s strategy spread online. “If we pass Proposition 40, poor children in California will be able to have health care,” he added. When you buy through links in our articles, we may earn a small commission. This does not affect our editorial independence.
