Stock Compensation, Deferred Compensation and State Income Taxes

Outline

1. Background on stock compensation and its taxation
   1. Types of stock compensation
      1. Stock options
      2. Restricted stock and restricted stock units
      3. Others
   2. Other types of deferred compensation
      1. Bonus
      2. Pension
      3. Other
   3. How stock compensation is taxed at the federal level
   4. How stock compensation is taxed at the state level
      1. Explanation of how states piggyback off feds
      2. Exceptions where states do not follow federal law
      3. Specific examples of state approaches
      4. Different state methodologies for taxation
2. How the use of stock compensation can trigger nexus
   1. Employee withholding
      1. Explanation of how employer nexus is triggered
      2. Specific examples
      3. Telecommuting issues and challenges
   2. Implications and issues related to corporate income apportionment
      1. Payroll factor: general rules
      2. Alternative methods or discretionary adjustments
   3. Corporate income, franchise, and sales tax exposures
      1. "Doing business" vs. "transacting business"
      2. Employee withholding creates a paper trail
      3. Specific examples
   4. State legislation of note
      1. Wayfair
   5. New York State example
      1. Withholding rules
      2. Allocation rules
      3. Audit guidelines
      4. Work-at-home rule and other nuances
   6. California State example
      1. Withholding rules
      2. Allocation riles
      3. Audit guidelines
3. Administrative challenges and practical solutions
   1. Examples of states
   2. Trends in audit
      1. Specific examples of states and audit practices
      2. Policy issues companies need to examine
         1. What companies and their tax staffs can do if employees have cash flow problems or file returns in multiple states
   3. Background on HR, stock plan, relevant payroll systems
      1. What tools are available and systems limitations
      2. How to make these more sophisticated
      3. How tax specialists can help in this effort
   4. Challenges with employee movement
      1. Creating internal mechanisms to track employee movements
         1. How tax specialists can help in this effort
      2. What companies are doing
         1. The habit of monitoring only executives and the inherent dangers
         2. Situations in which execs move from low-tax to high-tax states
         3. Need for additional controls

Benefits

The panel will review these and other essential issues:

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