Musk’s move to pay off
Coming to Texas will allow the billionaire to avoid the California tax on capital gains
Elon Musk said he moved to Texas because he was fed up with California’s COVID-19 response and to be closer to his Tesla and SpaceX facilities in the state.
But there could be another reason for Musk’s big move: avoiding California’s capital gains tax.
Musk — CEO of Californiabased Tesla and SpaceX — became the world’s second richest man this year with a net worth of $157 billion, mostly from his roughly 20 percent stake in Tesla.
Shares in the electric-vehicle company have skyrocketed by 700 percent over the past year to $608 from $67 a year ago. Tesla’s market value last week hit $653 billion, earning Musk stock options from his 2018 compensation package that would be worth nearly $18 billion.
If Musk sold his Tesla shares as a California resident, he would be subject to the state’s capital gains tax of 13.3 percent on top of the federal capital gains tax of 20 percent. The California capital gains tax on $18 billion of stock options in Tesla would amount to a charge of nearly $2.4 billion.
But as a resident of Texas, one of nine states that doesn’t im
pose a tax on capital gains, Musk could pocket that money when he sells those shares.
“He can avoid that (capital gains) tax,” said Pramod Khan, a senior tax associate with SG Inc., an accounting firm with offices in Plano and California. “You don’t have to pay capital gains taxes until you sell those stocks.”
In recent years, Musk hasn’t taken a salary from Tesla, company filings
show, so he didn’t pay California state income taxes, which can be as high as 10 percent.
Tesla didn’t respond to a request for comment.
Khan estimates his Plano accounting office sees 50 to 100 clients every year who move from California, in part because of Texas’ lower taxes and cost of living.
In addition to the pass on capital gains, personal income also isn’t taxed by Texas, which boasts lower housing prices and energy costs than those in California.
In 2018, Texas welcomed 86,164 former Californians to the state, the largest group from any state, Texas Realtors’ latest relocation report states.
Musk perhaps is the most famous and definitely the richest Californian to move to Texas.
“It’s good for the state to have somebody like Elon moving to Texas, bringing a lot of investment to the state,” Khan said. “It’s good for the people of Texas. It’s all positive.”