4 ms·

Not exactly. They are taxed when the stock vests in the state of the grant, but not on the sale value (as I understand the law).

refurb 7y ago
That makes sense. So let's say your awarded a pile of shares at $1. A year later they vest at a price of $4, so you pay CA taxes on the $3 of appreciation. The company goes nuts and the share price is now $40, so you relocate to TX, establish residency (and cut off CA residency), then sell. CA gets nothing and you pay TX taxes on the $36 of appreciation?
- mrkstu 7y ago
  Which would be exactly $0 in Texas as we have no income tax whatsoever...
  - refurb 7y ago
    Not even a capital gains tax? I know NH doesn't have an income tax, but they do have a capital gains tax.
    - mrkstu 7y ago
      Yep, nothing on top of the Fed side, https://taxfoundation.org/how-high-are-capital-gains-tax-rates-your-state/ https://taxfoundation.org/how-high-are-capital-gains-tax-rat... "The state with the highest top marginal capital gains tax rate is California (33 percent), followed by New York (31.5 percent), Oregon (31 percent) and Minnesota (30.9 percent). The nine states with no personal income tax (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming) have the lowest rate in the United States (25 percent)." Hmmm... interesting that the article disagrees with you on NH. Further research shows they do not currently tax capital gains, but that they are looking into adding one: https://www.watchdog.org/new_hampshire/new-hampshire-house-mulling-imposition-of-percent-capital-gains-tax/article_281b2756-443d-11e9-be38-3347e5abf203.html https://www.watchdog.org/new_hampshire/new-hampshire-house-m...
      - the_watcher 7y ago
        Why is the top Texas blended (state + local + federal) capital gains tax rate 25%, despite the federal top rate being 23.8% and Texas having no state capital gains rate? This seems consistent across all no capital gains tax states, so it can't be a local rate, right?
- gamblor956 7y ago
  This is not the situation I was discussing. My scenario: Founder X has stock. Whether received as stock or converted from options is irrelevant. Founder X, while living in CA, begins talks with Buyer B to buy his stock. Before the sale is signed (or possible even before it is papered), X moves to NV which has no income tax. CA will still tax X on the sale of his stock to B. You guys are all discussing the initial exercise of stock options, which is way before the situation I am discussing. But to discuss your specific scenario: if there was no agreement to sell (or pending agreement) before leaving CA for TX, CA would not be able to tax you on that sale of the $40 stock if you had established TX residency by the time of that sale.
gamblor956 7y ago
I love it when people try to explain tax law to me like I don't know what I'm talking about... Employees are taxed on stock twice. Once, when it is income to them upon vesting options to purchase stock in the black or upon election (i.e., 83b) or (more rarely) when actual stock is receive as compensation for employment, and again when it the actual stock (or more rarely, options) is sold for capital gains. I refer specifically to the sale of the stock, not the execution of the options to acquire stock. If the exercise of options and their subsequent sale are executed jointly and for the same price, the sale part of the joint transaction doesn't trigger its own set of taxable cap gains. But if, for example, options are exercised for $10 when the stock is worth $15 and the stock is sold for $25, the employee must pay tax on the $5 gains from the exercise and on the $10 gains from the sale.
- the_watcher 7y ago
  I understand that you are taxed twice, at vest and at sale. My understanding was that the "California gets taxes no matter where you live" applies to the vest (which is taxed as ordinary income), not the sale (which is taxed as capital gains). Your other comments suggest you were talking about a very specific situation, where you started negotiating to sell stock, then moved, then the sale closed. If so, then I'm not sure how exactly it gets treated so happy to defer to you, but that doesn't seem at all like what is being discussed in the article.
  - gamblor956 7y ago
    Yes, in my original comment I was referring to a very narrow situation in which someone moved from CA to a low/no-tax state to avoid taxes on the sale of stock.

refurb 7y ago

That makes sense. So let's say your awarded a pile of shares at $1. A year later they vest at a price of $4, so you pay CA taxes on the $3 of appreciation. The company goes nuts and the share price is now $40, so you relocate to TX, establish residency (and cut off CA residency), then sell. CA gets nothing and you pay TX taxes on the $36 of appreciation?

mrkstu 7y ago
Which would be exactly $0 in Texas as we have no income tax whatsoever...
- refurb 7y ago
  Not even a capital gains tax? I know NH doesn't have an income tax, but they do have a capital gains tax.
  - mrkstu 7y ago
    Yep, nothing on top of the Fed side, https://taxfoundation.org/how-high-are-capital-gains-tax-rates-your-state/ https://taxfoundation.org/how-high-are-capital-gains-tax-rat... "The state with the highest top marginal capital gains tax rate is California (33 percent), followed by New York (31.5 percent), Oregon (31 percent) and Minnesota (30.9 percent). The nine states with no personal income tax (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming) have the lowest rate in the United States (25 percent)." Hmmm... interesting that the article disagrees with you on NH. Further research shows they do not currently tax capital gains, but that they are looking into adding one: https://www.watchdog.org/new_hampshire/new-hampshire-house-mulling-imposition-of-percent-capital-gains-tax/article_281b2756-443d-11e9-be38-3347e5abf203.html https://www.watchdog.org/new_hampshire/new-hampshire-house-m...
    - the_watcher 7y ago
      Why is the top Texas blended (state + local + federal) capital gains tax rate 25%, despite the federal top rate being 23.8% and Texas having no state capital gains rate? This seems consistent across all no capital gains tax states, so it can't be a local rate, right?
gamblor956 7y ago
This is not the situation I was discussing. My scenario: Founder X has stock. Whether received as stock or converted from options is irrelevant. Founder X, while living in CA, begins talks with Buyer B to buy his stock. Before the sale is signed (or possible even before it is papered), X moves to NV which has no income tax. CA will still tax X on the sale of his stock to B. You guys are all discussing the initial exercise of stock options, which is way before the situation I am discussing. But to discuss your specific scenario: if there was no agreement to sell (or pending agreement) before leaving CA for TX, CA would not be able to tax you on that sale of the $40 stock if you had established TX residency by the time of that sale.

gamblor956 7y ago

I love it when people try to explain tax law to me like I don't know what I'm talking about... Employees are taxed on stock twice. Once, when it is income to them upon vesting options to purchase stock in the black or upon election (i.e., 83b) or (more rarely) when actual stock is receive as compensation for employment, and again when it the actual stock (or more rarely, options) is sold for capital gains. I refer specifically to the sale of the stock, not the execution of the options to acquire stock. If the exercise of options and their subsequent sale are executed jointly and for the same price, the sale part of the joint transaction doesn't trigger its own set of taxable cap gains. But if, for example, options are exercised for $10 when the stock is worth $15 and the stock is sold for $25, the employee must pay tax on the $5 gains from the exercise and on the $10 gains from the sale.

the_watcher 7y ago
I understand that you are taxed twice, at vest and at sale. My understanding was that the "California gets taxes no matter where you live" applies to the vest (which is taxed as ordinary income), not the sale (which is taxed as capital gains). Your other comments suggest you were talking about a very specific situation, where you started negotiating to sell stock, then moved, then the sale closed. If so, then I'm not sure how exactly it gets treated so happy to defer to you, but that doesn't seem at all like what is being discussed in the article.
- gamblor956 7y ago
  Yes, in my original comment I was referring to a very narrow situation in which someone moved from CA to a low/no-tax state to avoid taxes on the sale of stock.