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Elon Musk could save billions in taxes if Tesla moves its headquarters to Nevada or Texas

Elon Musk

Mark Ralston | AFP | Getty Images

Elon Musk could save billions of dollars in taxes over time if he moves his company and his home to Nevada or Texas, according to tax accountants.

Musk, who is embroiled in a battle with the state of California and Alameda County over his efforts to reopen Tesla’s factory, tweeted threats over the weekend to move the company to Nevada or Texas.

“This is the final straw,” Musk tweeted. “Tesla will move its HQ and future programs to Texas/Nevada immediately.”

If Musk moved his primary residence from California, which has the highest income tax rate in the country, he could save hundreds of millions of dollars, if not billions, in income taxes in the coming years. Texas and Nevada have no income tax.

There are no signs that personal taxes factor in to Musk’s decisions regarding the best future location for the electric car maker. Tesla didn’t immediately respond to a request for comment about Musk’s plans.

But accountants for California’s rich say that Musk would join a growing list of wealthy residents moving to Nevada and Texas to avoid California’s famously high income taxes.

“If I were a betting man, I would say the odds are the taxes are a consideration,” said Daniel Morris, a certified public accountant and senior partner at Morris + D’Angelo in San Jose, California, who works with a number of wealthy tech executives. “How could it not be?”

Musk’s tax rates have taken on new importance because of his latest compensation program. The package, awarded in 2018, gives him tranches of stock options based on the company hitting certain operating and market-value goals.

According to Tesla’s filings, the package could net him a total of more than $55 billion over time if the company meets a series of targets. The first tranche was triggered last week, but not yet officially awarded, and would be worth more than $780 million in profits for Musk. He would pay income taxes on the profits from stock options when he exercises the options. 

California imposes an income tax rate of 13.3% on its highest earners. So if Musk exercised the options while he was a California resident, he would pay $104 million in taxes. If he waits until he moves to Texas or Nevada, he would owe no state income taxes on the sale — effectively saving $104 million.

If Tesla meets all the targets set out in the compensation plan, and Musk moves to Nevada or Texas, he would save more than $7 billion in state taxes on the $55 billion in estimated compensation.

Some of the targets Musk must meet in the plan are tied to the company’s market capitalization. Tesla shares have soared nearly 240% over the past year, and 94% since the start of the year, to put the stock’s market value above $150 billion. Other milestones are tied to revenue and profitability benchmarks. 

Morris said the beauty of stock option pay is that the wealthy can choose when to exercise those grants. So even though Musk received the options grant this year while he was a resident of California, he could wait until be establishes residency in Nevada or Texas before exercising them.

“That’s why you see all these wealthy tech guys moving to the Nevada side of Lake Tahoe,” Morris said. “You just have to make sure you don’t go back to California frequently.”

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