Microsoft's $26.2 billion purchase of LinkedIn has created a multibillion-dollar payday for co-founder and chairman Reid Hoffman. But along with the windfall will come a massive tax bill that could top $300 million for the state of California alone.
As of February, when the firm filed its annual 10-K with the Securities and Exchange Commission, Hoffman owned roughly 11 percent of LinkedIn's shares. Given that ownership and a purchase price of $196 a share, his take from the all-cash deal could be more than $2.8 billion.
Hoffman didn't respond to CNBC's requests for comment. Yet because he lives in Palo Alto, Calif., his shares would presumably be subject to California state and federal taxes.
The Golden State taxes capital gains, such as the sale of stock, at a top rate of 13.3 percent. So its take from Hoffman's windfall could top $370 million, if he used no special tax strategies. When combined with a federal capital gains tax of 23.8 percent for the highest earners, his total tax bill could be more than $1 billion.
"For Reid Hoffman, the good news is that he's just made a boatload of money," said Daniel Morris, partner with Morris+ D'Angelo, an accounting firm in San Jose, Calif., that advises many tech founders. "On the other hand, it's also really great for the state of California because of the taxes."