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When is a 5% tax not 5%? When imposed by a poorly drafted ballot measure.
California’sproposed wealth taxwould already be theworld’s highest wealth taxby a substantial margin –– but 5% could be a dramatic understatement.
Through a mix of aggressive valuation rules and careless drafting, the proposal would often yield effective rates well above that.
California’s tech industryis sounding the alarm over a provision that could tax founders based ontheir voting sharesrather than their economic stake in the company they founded.
While the measure’s drafters have tried to assuage these worries,the concern is real. Whether or not drafters intended it, if founders hold private super-voting shares in their companies, they could be taxed based on the percentage of the company they control rather than theeconomic stakethey hold.
Many tech founders could be forced to liquidate enormous shares of their company –– mass sell-offs that would roil markets –– to pay a tax that is many multiples of the ostensible 5% rate on their net worth.
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Drafters saythey intended this provision to apply only to voting stakes in non-traded companies, but under a straightforward reading, it applies to shares that are not traded on an exchange (like super-voting shares) even if the underlying company is publicly traded.
Drafters also say that if the law achieves this undesirable result, founders could pursue an alternative valuation.
Source: California Post – Breaking California News, Photos & Videos
