California expected a tax bonanza from AI IPOs. Modern compensation structures may blunt the windfall.

SpaceX is now valued at $2.5 trillion. OpenAI and Anthropic are expected to go public later this year at valuations approaching $1 trillion each. California, where all three companies are based or have significant operations, should be looking at the largest IPO tax windfall in state history. The reality may be more complicated.

Facebook’s 2012 IPO generated $1.3 billion in California taxes on a $104 billion valuation. Simple math would suggest that IPOs at 10 to 25 times that valuation should produce proportionally more. But the way tech employees are compensated has changed, and so have the tools available to minimise tax bills.

SpaceX uses a stock-pay structure that is unusual among private companies. Most startups issue dual-trigger RSUs, where shares vest only when two conditions are met: continued employment and a liquidity event like an IPO. That creates a massive taxable event on IPO day. Many SpaceX employees, however, have single-trigger RSUs, meaning their shares vest on employment alone. They have been paying income taxes on those shares for years, pulling the tax revenue forward and making it less predictable.

The California Legislative Analyst’s Office said the structure makes it “challenging” to estimate SpaceX’s tax impact. “Revenue totals will depend more on financial decisions made by employees and investors who hold pre-IPO SpaceX shares and stock options,” the LAO wrote. “Relative to past IPOs, tax revenues from the SpaceX IPO are likely to be less immediate and more unpredictable.”

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Tender offers have also drained the pool. OpenAI ran a $6.6 billion secondary share sale at a $500 billion valuation and plans another at $852 billion. Employees at all three companies have had ample opportunity to sell pre-IPO. Those gains were taxed, but the revenue arrived before the IPO, not on the day regulators plan for.

The “buy, borrow, die” strategy is the biggest structural leak. Instead of selling shares and paying capital gains tax, shareholders take loans against their stock. They pay interest instead of taxes, stay invested, and benefit from future appreciation. Musk himself has used this strategy extensively, borrowing against billions in Tesla shares rather than selling them. A cottage industry of wealth managers, donor-advised funds, and financial advisors now makes these tools available to ordinary employees, not just founders.

“Historically, the only people who had equity in a private company and were in a position to give it away were millionaire or billionaire founders,” said Richard Lowry of Cresset. “Now there is a cottage industry around allowing people to avail themselves of this.”

California’s Franchise Tax Board is “notoriously aggressive” in auditing, according to tax analyst Robert Willens. The state will still collect significant revenue from the vesting of RSUs. But the windfall will be spread over years rather than arriving in a single quarter, and the most sophisticated shareholders will reduce their bills substantially. Anthropic and OpenAI have both filed confidentially, and their listings could still be delayed by market conditions. For California’s budget planners, the AI IPO windfall is real but unpredictable, large but less concentrated, and far more diffuse than the Facebook precedent suggests.