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California to reap windfall from Mark Zuckerberg in Facebook IPO

May 03, 2012|By Jessica Guynn
  • Facebook co-founder and CEO Mark Zuckerberg smiles during a presentation at the company's annual developers conference in San Francisco last September.
Facebook co-founder and CEO Mark Zuckerberg smiles during a presentation… (Paul Sakuma / Associated…)

California has a friend about to write a hefty personal check that could help ease the state budget crunch.

Mark Zuckerberg, the 27-year-old founder and chief executive of Facebook whose initial public stock offering in two weeks could value the company at $96 billion, will cut in the state for an estimated $189 million in cash, according to calculations from PrivCo, which researches private companies.

The federal government will be in the money too, collecting an estimated $714 million in federal income tax from Zuckerberg.

PrivCo calculated the windfalls using the high end of Facebook’s pricing range for its IPO of $35 a share. PrivCo expects Facebook to price its IPO as high as $40 a share, which would add tens of millions more to California and the federal government’s coffers.

“The funds are badly needed as California continues to suffer from budget deficits, and could not have come at a better time for the state,” said Sam Hamadeh, PrivCo’s founder and CEO.

And that’s just the payout from Zuckerberg. The windfall for California from the rest of the IPO could net California hundreds of millions more, Hamadeh said.

“More taxes will come due as more shares are sold beginning in December and well into 2013 after the traditional 180-day post-IPO 'lock-up' period expires and employees can sell even more shares, resulting in new capital gains taxes to California -- and the IRS -- with each new stock sale,” he said.

California is hoping Facebook will have a “Google effect” on the state’s economy. Capital gains tax receipts from stock sales rose to $54 billion in 2005 from $39.7 billion in 2004, the year Google went public, according to Franchise Tax Board figures.

When Facebook executives and employees cash in shares, the state takes a 10% cut of the profits.

In February, Legislative Analyst Mac Taylor became the first state official to estimate what Facebook's big Wall Street debut could mean for California's ailing budget. He said the IPO could pump nearly $2.5 billion into state coffers over the next five years.

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