Stock Options and State Income Taxes

Avoid Costly Nexus and Apportionment Traps

Recording of a 90-minute CPE webinar with Q&A


Conducted on Thursday, October 16, 2008

Program Materials

Description

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.

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Outline

  1. Background On Equity Compensation And Its Taxation
    1. Types of equity compensation
      1. Stock options
      2. Restricted stock and restricted stock units
      3. Others
    2. How options are taxed at the federal level, from grant date to exercise
    3. How options are taxed at the state level, from grant date to exercise
      1. Explanation of how states piggyback off feds
      2. Specific examples of state approaches
      3. Different state methodologies for taxation
        1. Specific examples of states and methodologies
  2. How Use Of Equity Compensation Can Trigger Nexus
    1. Employee withholding
      1. Explanation of how employer nexus is triggered
      2. Specific examples
      3. Telecommuting issues and challenges
    2. Corporate income, franchise and sales tax exposures
      1. “Doing business” vs. “transacting business”
      2. Employee withholding creates a paper trail
      3. Specific examples
    3. Implications and issues related to corporate income apportionment
      1. Payroll factor: General rules
      2. Alternative methods or discretionary adjustments
    4. Federal legislation of note
    5. Example of New York State
      1. Withholding rules
      2. Audit guidelines
      3. Work-at-home rule and other nuances
  3. Administrative Challenges And Options
    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 relevant 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. Habit of monitoring only executives, and the dangers inherent
        2. Situations in which execs move from low-tax to high-tax states
        3. Are additional controls, documentation needed?
      3. Potential SoX 404 implications
        1. Are additional controls, documentation needed?

Benefits

The panel will prepare you to craft a strategy for:

  • Dealing with 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.
  • Preparing for potential state nexus inquiries for other business taxes.

Faculty

Marlene Zobayan
Marlene Zobayan
West Coast Practice Leader, Global Rewards
Deloitte & Touche

She has more than 15 years of international tax and benefits experience including U.S. and U.K. expatriate tax,...  |  Read More

Andy Gibson
Andy Gibson
Partner and National Practice Leader, Compensation and Benefits Group
BDO USA

He provides compensation, benefits and tax consulting services to public, private and tax-exempt entities. He sits on...  |  Read More

Tom Geppel
Tom Geppel
Partner, Employment Tax Services Group
PricewaterhouseCoopers

He had more than 18 years of experience in federal and state employment taxes and led an initiative on non-resident...  |  Read More