Behind Musk’s Twitter poll is a tax bill coming due

Elon Musk may have already been compelled to sell a sizable portion of his Tesla shares even if he had not issued an unusual Twitter pledge over the weekend. Musk on Saturday polled Twitter users on whether he should sell 10% of his stake in his company. The poll appeared to be a response to a Democratic proposal to tax the unrealized gains of billionaires.

“Much is made lately of unrealized gains being a means of tax avoidance, so I propose selling 10% of my Tesla stock,” he tweeted.

Musk said he was raising the question because he does not take a cash salary as Tesla’s CEO and therefore would not have any way to pay a large tax bill without selling some of his Tesla shares, which make up the vast majority of his wealth.

Musk wrote in a follow-up tweet that he would “abide by the results of this poll, whichever way it goes.” Tesla’s shares fell nearly 5% Monday.

He closed the poll Sunday, after nearly 3.5 million votes had been cast, with 58% voting for him to sell. Musk has not confirmed what he will do, but after closing the poll, he tweeted, “I was prepared to accept either outcome.”

Either way, Musk may soon have needed to sell a big chunk of his shares. He holds nearly 23 million stock options that were awarded in 2012. Those options have since vested and will expire in August 2022.

But Brian Foley, an executive compensation consultant, says that because of the size of Musk’s grant and the way it was structured, much of his 2012 options are not likely to qualify for the preferential tax treatment. That means Musk would owe income taxes when he exercised the grant, which at current prices would be worth just under $30 billion. Musk’s tax bill could top $10 billion, depending on what percentage of the options did not qualify for the preferential treatment.

“They are a ticking tax time bomb,” Foley said of Musk’s stock options.

The potential sale could roil Tesla’s stock when many analysts say it is already overvalued.