There's no shortage of talk about Facebook's looming $10 billion initial public offering. Analysts point out that the social network's estimated $100 billion valuation would make it the largest internet IPO in history, trouncing the current record-holder, Google, which had a $1.67 billion IPO in mid-2004.
One thing's for certain: Many people at Facebook are going to become very wealthy. Take founder and CEO Mark Zuckerberg, for example. The hoodie-clad 27-year-old currently owns 24 percent of the company, so with a $100 billion valuation ... well, you do the math.
But the hype around Facebook's much-anticipated IPO has sparked conversation about a number of other issues. This week, Bloomberg published an article on the "Facebook effect." The state of California, which is home to the 800-million member social media giant, could enjoy a massive tax windfall from a Facebook IPO. More importantly, though, it points out how much the Golden State relies on capital gains taxes, a volatile revenue stream that damages its credit rating.
"Capital gains tax revenue as a percentage of [California's] general fund plummeted from 12 percent to just 3 percent between 2007 and 2009 as investors pulled away from the stock market, a decline of $9.3 billion, according to state finance department figures," report Bloomberg contributors Michael Marois and James Nash.
New York is another state that relies heavily on capital gains. In the fiscal year that ended March 31, New York collected roughly $2 billion from capital gains tax - about 3 percent of total tax revenue, according to the state comptroller.
Both California and New York also impose significantly high income taxes. The states' approach to taxation is reflective of their wider economic philosophies, which often motivate entrepreneurs to form an LLC in Texas instead. While they boast the first- and third-largest state economies in the U.S., respectively, they've never ranked well when it comes to small business and entrepreneurship.
A survey released last year by Chief Executive magazine ranked California and New York as the two worst states for business.
"[California is] expensive," said T.J. Rodgers, CEO of Cypress Semiconductor, a California-based computer chip maker. "It's hostile to business and environmental regulations are more of a drag on business than protecting the environment."
Tags : Taxes, New York, California, Texas, Corporate Bylaws, Corporate Books, C Corp
Posted: 01/13/2012