The Big Tax Windfall from the Facebook IPO

Facebook insiders aren’t the only ones who will get big paydays from its historic initial public offering, which prices late Thursday and starts trading Friday.

Uncle Sam and Governor Jerry will have their greedy hands out, demanding their cut.

By the time it’s done, it will be the largest technology IPO ever, with an estimated range of $16-$18 billion.

The Wall Street Journal reported Thursday that a very high 57% of the offering’s proceeds will go to existing holders. (The rest will go to the company to fund its growth.) Assuming the IPO sells at the higher end, that means employees and early investors will sell $10 billion worth of stock now.

After a six-month lockup period, ending in November, insiders can sell most of their stock.

I don’t know how much all these people paid for their shares, but their profits will be subject to federal capital gains taxes and California state levies. Facebook has said its employees’ tax obligations will total $4.4 billion.

Federal capital gains taxes may take $1.5 billion of that, but California will be the biggest winner. The state estimates it may get $2 billion from the offering and maybe another billion from follow-on stock sales over the next few years.

Co-founder Mark Zuckerberg may pay a cool $1 billion in taxes on his profits from the sale.

Facebook co-founder Mark Zuckerberg speaks at a 2008 conference. Photo: Flickr/jdlasica

The revenues are much needed by both governments, but they’re not even walking-around money for Washington, whose deficit is in the ten-figure range.

California’s Gov. Jerry Brown said this week the state is $16 billion in the hole, and draconian budget cuts and tax increases are necessary.

The tax revenues from Facebook may keep teachers and fire fighters employed for a year or so, but this is a once-in-a-lifetime deal. The state can’t count on similar windfalls to cover its huge deficit, the result of judicial mandates, voter initiatives that limit taxation, and most of all an imperious, profligate Democratic legislature that can’t say no to its powerful constituents.

The timing of the offering is an accountant’s dream. By going public now, the company locks in a 15% capital gains rate for the IPO and for when the lockup period ends. For the vast majority of holders, that would be November 15th, after the presidential election and before the end of the tax year.

If Congress doesn’t act, the Bush tax cuts will expire, driving capital gains rates back up to 20%. That’s a big difference for people who stand to make hundreds of millions in dollars from stock sales. I wouldn’t be surprised if it was a big factor in the timing of this IPO.

One person who won’t care either way: co-founder Eduardo Saverin, now a playboy in Singapore. (If that isn’t an oxymoron, what is?)

Bloomberg estimates he will save $67 million in taxes by renouncing his US citizenship months before the offering. He could be barred from even visiting the US.

I don’t know about you, but I wouldn’t make that trade—and certainly not for Singapore.


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7 Responses to The Big Tax Windfall from the Facebook IPO

  1. theDuck May 21, 2012 at 7:39 pm #

    Obviously, you don’t know anything about Singapore, its customs or its laws. Saverin gets to park his boots (or actually, his sandals) in one of the most beautiful spots on earth that also has a killer economy and–as anyone who has spent any time there can tell you–a thriving social climate. And gee, he gets to pocket another $67m for his trouble. Sounds pretty rough to me.

    I guess having a gun shoved in your face and being relieved of your valuables in the teeming humanity of NYC is preferable; after all, we’ll just raise your taxes to pay for more law enforcement (psst–they’re at the donut shop). Kinda tough trudging around in that filthy brown snow for 3-5 months every year, ain’t it?

    Here’s a thought: catch a flight on the documented best airline in the world–Singapore Air–touch down at one of the highest-rated airports in the world–Changi–and plan to spend a few weeks in that tropical (and, from what I understand, business) paradise you seem to know so little about. But alas, perhaps in your case, ignorance is bliss.

    • HowardRGold May 21, 2012 at 10:35 pm #

      You\’re right–I haven\’t been to Singapore. And I\’m sure you\’re correct that it\’s very modern and efficient and great for doing business.

      But everybody I\’ve talked to who\’s lived there says it\’s a fairly restrictive and regimented society, although it\’s loosening up a bit from the days of Lee Kuan Yew.

      Still, to renounce one\’s American citizenship–a precious gift that millions of people clamor for every year–to live in a city state of 5 million on the other side of the world is not a trade I, or the vast majority of Americans, would make.

      Thanks for taking the time to comment.

  2. L. Lady May 22, 2012 at 1:52 am #

    Howard, I won’t be so hard on you just because you don’t know EVERYTHING about Singapore, but I know a little about Brazil and he if he tires of Singapore he can always go back to his birthplace! Certainly not a bad place to hang your hat-full of dough. Re: Jerry Brown – I heard him quoted today as saying the train to nowhere will “save money we’d have to spend on airports.” That’s why the “Moonbeam” label still sticks.

  3. Jason Devens May 22, 2012 at 11:33 am #

    Most Americans wouldn’t make the trade because of not knowing better or family and business ties to the US. However, recent numbers suggest that the number of wealthy people dismissing their US citizenship is on the rise.

    You also have to remember that Saverin was from Brazil, not the US, and his US citizenship was acquired. In his case, renouncing it wasn’t very dramatic.

    • ladydi May 23, 2012 at 2:02 pm #

      Wealthy people have no loyalty to their country. What a bunch of ingrates who used America and now renounces her. Good riddance to these Benedict Arnolds!

  4. ladydi May 23, 2012 at 1:58 pm #

    I think renouncing your citizenship for money means your loyalty is to the almighty dollar and you don't deserve to be an American.The gross abandonment of America by these so-called American companies is unpatriotic and the greed is sickening. When WWIII breaks out,don’t come crawling back to the US. Move your hdqtrs and families to Abu Dhabi or Dubai or even Shanghai! Paying taxes is your duty and these companies benefited from the government-funded DARPA project which laid the grounds for the internet and then moved to American universities where research continued. What shameful greed!!


  1. 4 reasons Facebook fizzled | In Digest Biz - May 22, 2012

    […] Also read Howard’s take on how Uncle Sam and Governor Jerry hope to reap a tax windfall from Facebook’s stock on The Independent Agenda. […]

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