Facebook IPO to make Zuckerberg pay $903-mn in taxes

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The US tax authorities are in for a major windfall from Facebook chief Mark Zukerberg, as the upcoming IPO of the social networking giant could make him pay in taxes as much as USD 903 million (about Rs 5,000 crore).

Interestingly, his total estimated tax payout amounts to more than 85 per cent of the total proceeds of about USD 1.045 billion Zuckerberg is expected to rake in from part sale of his own shares in Facebook -- leaving him with a net cash proceeds of just about USD 142 million (about Rs 700 crore).

Facebook's IPO is slated to hit the market later this year and could fetch in between USD 77-96 billion, depending on the investors' appetite.

The IPO roadshow, which would seek to attract investors for putting in their money in the social media behemoth, would begin tomorrow.

As per an analysis by US-based research firm, PrivCo, the 27-year old Zukerberg stands to pay as much as USD 714 million in national taxes and another USD 189 million as state taxes to California, while still pocketing USD 142 million.

"According to our calculations, Mark Zuckerberg will be paying an estimated USD189 million payment to the State of California this year as a result of the Facebook IPO, expected to be completed this month," PrivCo Founder & CEO Sam Hamadeh said.

PrivCo assumes total tax of 43 per cent, a combination of maximum federal tax of 36 per cent and the maximum California tax of 9.3 per cent, less partial federal deductions for state taxes paid.

"He will have to incur a combined state and federal tax rate of 43 per cent on the USD 2.1 billion for a total tax payment of USD 903 million incurred at the IPO date," PrivCo said in its report.

The agency added that the tax proceeds from Zuckerberg will help the State of California deal with budget deficits.

"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," Hamadeh said.

Zuckerberg, who holds a total of 533.8 million shares, would sell 30.2 million shares in the IPO -- garnering about USD 1.05 billion in cash at the high end of the proposed price range of USD 28-35 for the sale of shares. The 30.2 million shares, PrivCo noted, would be used to finance the tax liability due at the time of the IPO.

The remaining 504 million shares held by the young CEO after the IPO would be worth USD 17.6 billion, if Facebook hits the top of its IPO price range.

"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 (Internal Revenue Service) - with each new stock sale," Hamdeh noted.