New York Tax Appeals Tribunal Issues Stock-Option Decision

This article originally appeared in State Tax Notes, July 4, 2005. Reprinted with permission.

For years, taxpayers and practitioners have contended that New York's taxation of stock-option income was problematic, in large part because the position was spelled out in a Technical Services Bureau memorandum, not in a statute or regulation. On May 12, the New York State Tax Appeals Tribunal rendered its decision in Matter of Stuckless. In that decision, the tribunal rejected New Yorks' long-standing policy on the treatment of a nonresident's stock-option income.

The decision calls into question New York's grant-to-exercise methodology for the taxation of option income, thereby providing a basis for alternative allocation methodologies in current audits. The decision may also provide a basis for taxpayers to file claims for a refund of taxes, interest, and penalties that were paid based on the grant-to-exercise method.