Stock Options & State Income Taxes

Stock options and restricted shares are a popular employee incentive in the competitive U.S. marketplace. However, due to an increasingly mobile workforce, it’s all too easy for a company to unwittingly trigger costly state tax compliance and tax obligations in the process.

Many states aggressively enforce withholding requirements on out-of-state employers for workers who perform services within the state, yet state guidelines are generally fuzzy. Employers and their advisors must understand when withholding nexus arises and how to comply with various state standards.

In addition to the complexities of monitoring employee movement, understanding various state payroll laws, and applying them to equity-based compensation, employers may find that filing withholding taxes then exposes them to nexus inquiries for other types of state and local business tax.

Listen as our panel of experienced corporate tax advisors breaks down and clarifies the state tax implications of employee stock incentives including the specific risks your company faces.

Our panel includes:

Peter Leonardis is an attorney in the state and local tax practice at Jones Day in New York. He works with corporate, individual and pass-through clients and spends much of his time on allocation of income from deferred compensation.

Carol Rutlen is managing partner of Rutlen Associates, a Palo Alto, Calif.-based specialty consulting firm that focuses on mobile corporate employees and global stock plans. Previously, she was the partner-in-charge of PricewaterhouseCoopers’ Palo Alto office, where she led an expatriate practice.

Andy Gibson, Partner and Regional Leader, Benefits and Compensation Group, BDO Seidman, Atlanta, GA.

With their guidance, you’ll be ready to craft a strategy for dealing with:

• The conflicting state standards on withholding obligations and withholding amounts when it comes to stock options.
• Setting up a tracking system for the tax department to monitor the movement of highly compensated staff from state to state.
• Managing the apportionment formulas in states where stock-based compensation creates problems for the company.
• Potential state nexus inquiries for other business taxes.

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