A wave of trillion-dollar tech IPOs is about to hit California. On paper, that should mean a tax jackpot.
Yet the state's own budget office won't put a number on it. The reason is more interesting than the windfall.
An IPO is when a private company first sells shares to the public. It can hand workers a giant payday, and the state a giant tax bill.
Facebook went public in 2012. That deal sent $1.3 billion in taxes to California.
The kicker: Facebook was worth just $104 billion then. The new class is far bigger.
SpaceX is now worth $2.5 trillion after listing. California-based OpenAI and Anthropic could go public this year, each near $1 trillion.
The state once guessed Facebook would bring $1.9 billion. It later cut that to $1.3 billion after the stock fell.
Run the simple math and the state should see billions more. The simple math is where it falls apart.
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The catch is how tech workers get paid. Most own restricted stock units, or RSUs.
RSUs are shares you earn just by staying at the company. At most startups, they only pay out when the firm goes public.
So IPO day usually brings a flood of taxable income. SpaceX did it differently.
Its shares vested on the job, not on the IPO. So its workers have paid income tax for years.
That pulls the tax money forward and spreads it out. California's Legislative Analyst's Office called the SpaceX haul "less immediate and more unpredictable" than past IPOs.
Wealthy workers also have more ways to shrink the bill. Three keep coming up.
Some give pre-IPO shares to charity, which cuts their tax. That move was once limited to founders, said Cresset's Richard Lowry.
Others sell shares early in "tender offers" before the IPO. That pulls their tax forward and is harder to forecast, said Carta's Hamza Shad.
The third is the founder favorite: borrow against your stock instead of selling it. You then pay interest, not capital gains tax, which is the tax on profit when you sell.
Elon Musk has long done this with his Tesla shares, noted UBC's Will Gornall. The state collects far less when no one sells.
California's tax auditors are known for being tough. Analyst Robert Willens says residents can't dodge the bill once shares vest.
One worry, from Columbia's Michael Ewens, is simpler. A big tax hit could push these newly rich workers out of the state.
Big tech IPOs can swing the state's budget. California has ridden that wave before.
The cash is real. The tax bill is the messy part.
The vesting already happened. For California, that's the part no one can plan around.
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