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Subject:   ISO's and state tax implications
Date:   Fri, 20 Oct 2000
From:   Judy

My questions is this... I have been granted ISO and I work in Massachusetts however, I live in New Hampshire. Do I need to pay Mass Taxes on my gains or am I exempt because I live in New Hampshire?

Answer

Date:   4 Dec 2000

Hello Judy,

There aren’t really any Massachusetts rulings on this point.

If there is any compensation income because of an early disposition of the stock, the wages are taxable in Massachusetts and New Hampshire and you might qualify for a state tax credit.

There was a recent New York ruling that the amount of capital gain up to the tax preference at the time the option was exercised should be taxable in the state where the taxpayer worked. The other states haven’t decided what to do with this yet. For now, I would say only report any long-term capital gain in your state of residence.

There is no alternative minimum tax in Massachusetts. (Thank God!)

Good luck!

Mike Gray

For more information about incentive stock options, request our free report, Incentive Stock Options - Executive Tax and Financial Planning Strategies.

IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained in this answer was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.