Let’s talk about Elon Musk: where he lives, what has just changed, and why it might matter.
First, the background. Musk grew up in South Africa, moved to Canada at the age of 17, and achieved his immigration destination when he went to college in the United States in 1992. He became a US citizen a decade later.
Musk has since sung America’s praises.
“I remember thinking and seeing that great things are possible in America,” Musk once said, “more than in any other country in the world.”
In the US, Musk was in Pennsylvania, then briefly at Stanford University before leaving to start his Silicon Valley businesses. As a result, he seems likely to have been a California resident since then – at least until the decision he posted last week.
“I moved to Texas for myself,” Musk confirmed during an interview with the Wall Street Journal.
He cited two reasons: the expansion of Tesla and SpaceX operations in Texas and the idea that California simply has too many regulations and business restrictions.
But there’s another huge potential benefit Musk gets from legally residing in Texas now: There is no state income tax or capital gains tax for individuals in the Lone Star State.
By comparison, California has the highest state tax rate in the country, 13.3 percent at the top, in addition to federal income taxes.
Now I’m a little certain that Musk is actually technically based in Texas. This is a legal question that boils down to whether he can “pass the teddy bear test,” as tax lawyers and accountants put it.
In all honesty, that’s what makes this type of move very difficult for someone like Musk – although it looks like he pulled it off methodically and easily.
Over the past year, Musk has taken a number of legal and property-related actions. If those are enough to prove that he has disconnected from his base in the Golden State, this will help him a particularly “huge” perk (or “gigantic” or any other Texan word you would like).
It depends on how he’s paid. For example, at Tesla, Musk gets essentially non-normal salary, but massive stock options, an agreement that has labeled him someone with “confusing personal finances” – a multimillionaire who for the past several years has claimed he was low on cash according to court records . “
According to reports, Tesla had literally no Tesla income in a few years as CEO, according to Musk.
But as the company grows and its value hits multiple goals, Musk will qualify for billions of dollars worth of options, enough to jump to # 2 on the world’s richest list this year. (More on that in a second.)
Musk also pointed out that Tesla and SpaceX will be the last major car and aerospace manufacturers in California.
“There used to be over a dozen car factories in California, and California used to be the center of the aerospace industry,” Musk said during the interview. “My companies are the last two left.”
(The full video of Musk’s interview is embedded at the bottom of this column.)
Looking ahead, Musk’s compensation is reportedly very backward: reports say he might be eligible for a $ 50 billion payout in 2028 if Tesla hits its goals.
Now I’m confident that Musk has the best tax advisors possible, and I won’t embarrass myself trying to do complex calculations for his future tax bills in a short online article.
But imagine if Musk was California based when he received that $ 50 billion payout. The state tax bill could easily run into billions. I know a lot of people who would move for a lot less.
This brings us to a more existential question: When we talk about people with such high wealth, does adding another billion dollars change their lives noticeably?
I am confident that I will never know the answer to this question firsthand. But Musk knows.
And while I don’t know if Musk cares about being the second richest person on the planet, you tell me, if you’re number 2, don’t you want to be number 1?
The current holder of this title: Jeff Bezos, who lives in tax-free Washington state.
Bill Gates, # 3, also lives there.
This means that both had a great advantage in competing to accumulate wealth. And if Musk really moved to Texas, that means he will have it now, too.
Here is the video from Musk’s interview in which he announced the move.
The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.
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