Elon Musk loudly quit California after years of attacking its taxes, politics and business climate, moving SpaceX to Texas. Now the biggest fiscal event of his career could hand the state he trashed a giant tax windfall anyway.
That is the awkward punchline hanging over SpaceX’s expected IPO next week. Because while the company’s relocation gave it a new Texas headquarters, it did not move the thousands of soon-to-be-wealthy SpaceX employees who still live and work in the Los Angeles area, and will face California’s so-called millionaires’ tax. Texas, which doesn’t tax personal income, won’t get that bump.
SpaceX is preparing to sell 555.6 million shares at $135 apiece, raising about $75 billion and valuing the company at roughly $1.77 trillion. For investors, that is a Mars-shot valuation. For California, it is something more terrestrial: taxable income landing in Los Angeles County.
SpaceX, now headquartered in Boca Chica, Texas, said in its S-1 filing that it employs more than 22,000 people worldwide, including staff at artificial intelligence company xAI and social media platform X. While it didn’t disclose how many work at its former HQ in Hawthorne, California, that “designs and builds its reusable rockets and spacecraft,” the Los Angeles suburb put the number at 7,661 in an annual city report last June. SpaceX also operates an in-house airline that shuttles California-based engineering staff from Los Angeles International Airport to Texas when needed there, allowing many to continue living in the Golden State.
“It seems quite plausible to me that California collects far more than Texas, for the simple reason that Texas has no income tax, and many of these employees still live and work in L.A.”
“When this thing goes public, the California economy is just going to boom. It’s going to be a huge boost to the economy and the tax coffers of California,” said Ross Gerber, CEO of Santa Monica-based investment firm Gerber Kawasaki, whose clients include current and former SpaceX employees. “California’s budget is 100% paid for by rich people in capital gains. That’s just the way it is.”
That’s a bit of an overstatement, but not as much as California budget officials would wish. For decades, the state has benefited richly from tech IPOs led by Silicon Valley giants, including Google, Facebook and Uber. The SpaceX listing will be closely followed by fast-growing San Francisco-based AI developer Anthropic, also targeting a $1 trillion valuation when shares begin to trade. Rival OpenAI, also based in San Francisco, is expected to IPO this year with a similar valuation. The impact on state tax revenues from SpaceX’s IPO may be higher, however, simply because it has thousands more California employees than the AI startups, some of whom may have been working for Musk for over 20 years–and thousands more who’ve left the company but retain shares.
“On the income taxes from this IPO, it seems quite plausible to me that California collects far more than Texas, for the simple reason that Texas has no income tax, and many of these employees still live and work in L.A.,” said Owen Zidar, professor of economics at Princeton University.
Though SpaceX shares are about to start trading on Nasdaq, it’s not entirely clear when current and former employees’ tax bills will spike, said Christina Lewellen, an associate professor of accounting who studies state taxes.
“If you have restricted stock, when the stock vests is the first time you get the tax hit or when you sell it afterwards, but people who have stock that appreciates like crazy, they can kind of time that and understand how that’s going to be taxed,” she said. “But yeah, it’s going to obviously hit employees that are in California so much harder than the ones in Texas.”
California has a 12.3% tax rate for its highest earners, but those who have $1 million or more of gross income in a year pay an additional 1% tax to help fund mental health care services. Texas does not tax personal income at all. That is the whole story in miniature: where SpaceX is based matters less than where its newly liquid employees are.
In his revised 2026 budget proposal last month, California Governor Gavin Newsom eliminated a potential deficit, based on the impact of big gains for shares of tech and AI companies based in the state. There’s no estimate yet for the potential budget impact of the SpaceX, Anthropic and OpenAI IPOs, though H.D. Palmer, director of external affairs for the state’s Department of Finance, told Forbes the effect should be positive.
“Real estate brokers in Manhattan Beach are going to be thrilled once all these people get their money cause they’re all going to buy houses”
“Certainly, there’s anticipation and an expectation that it will be to the benefit of the state’s bottom line,” he said. “Having this uncertainty out there is a pleasant problem to have.”
Likewise, the Legislative Analyst’s Office, which provides fiscal advice to California legislators, doesn’t yet have estimates for how the big IPOs will affect the state.
The SpaceX filing is public and offers some hints of relevant information, said Deputy Legislative Analyst Brian Uhler, but there are still many unknowns. “There are reasons to believe these IPOs will not be the same type of tax revenue realization event that prior big tech IPOs have been.”
One reason is the use of “single trigger” restricted stock units that vest, and therefore have income taxes withheld, on a regular schedule before the IPO, Uhler said. Previous big tech IPOs, such as Facebook’s, had a big backlog of “double trigger” RSUs that vested all at once at the time of IPO, according to Uhler. In other words, California does not get one clean geyser of revenue. It gets a long spray.
“The headquarters location of the company isn’t really where the revenue comes from here,” said Chris Hoene, executive director of the progressive California Budget and Policy Center. “The revenue from an initial public offering comes when several hundred or several thousand people suddenly go from maybe upper middle class to millionaire status, multimillionaire status. And a lot of people who get wealthy very fast and want to use some of that gain.”
A Tesla Cybertruck drives past SpaceX’s facility in Hawthorne, California.
NurPhoto via Getty Images
“They’ll buy houses. They’ll make other investments,” he said. “There’s an increase in economic activity at a level that’s very high and produces a lot of revenue very quickly. So it’s really on the personal income tax front, and within that the capital gains revenue, where the state will see the bump.”
The financial and tax implications of the IPO have been a huge topic in messaging and chat groups with current and past SpaceX staff all year, said a former engineer who left the company a few years ago to launch his own startup.
“Everyone I know still retains their stock because we weren’t able to sell a lot of our shares when SpaceX was still private,” said the engineer, who asked not to be identified by name. The company’s S-1 filing includes lockup periods for current and former staff, permitting them to only sell portions of their holdings throughout the year, rather than all at once.
“They have these tiered tranches after the Q2 earnings report, after the Q3 earnings report, after such and such other periods, you can sell,” he said. “The first milestone is you could sell, I don’t know, like 7% of your holdings, then 13%. Then it kind of tiers up like that until the 180-day mark.”
As a result, the tax impact for SpaceX holders “will be more of a long-tail event, stretching into next year,” the engineer said.
Gerber, who said his firm recently hosted a financial planning session for “about 40” SpaceX employees with company stock, sees a lot of excitement from them about the IPO and the rapid surge in the company’s valuation, which has more than quadrupled in the past year.
“SpaceX a year ago was valued at $400 billion, so almost everybody at the company has already seen a huge bump in their value–from $400 billion to almost $2 trillion,” he said.
Historically, the 22-year-old company has had a fairly generous stock option program, and has done internal buybacks to provide extra funds for staff, according to Gerber and the former company engineer. SpaceX’s bargain with employees has long been brutal and simple: work your hardest, then hope the equity makes the math look sane.
“They’ll layer these options on. And what happens is that over maybe five years of working at SpaceX, you’re exhausted,” Gerber said. “But you’ve accumulated a decent amount of stock. So then when you quit, you’re going to make $10 million or $20 million. There’s a lot of SpaceX guys out there worth $10 million right now.”
Once the company goes public, rather than simply selling the stock, those individuals can also put their shares into margin accounts and then borrow against them to do things like buy new homes, said Gerber. “Real estate brokers in Manhattan Beach are going to be thrilled once all these people get their money cause they’re all going to buy houses,” he said, referencing an upscale, oceanfront neighborhood near Hawthorne.
But other current SpaceX staff intend to dodge those higher tax bills.
“This is a pretty savvy group of people. Some are leaving the state,” the ex-SpaceX engineer said. “As soon as they knew the IPO was coming, they just left.”