Subject:   CA State Income Tax applicable on ISO’s held for LT Cap Gain?
Date:   Fri, 02 Feb 2007
From:   Beth

Hi-

I exercised ISOs during 2006 from a California employer. I left the company during July. I received the stock in September, and I plan to hold the stock until October of 2007, when I should qualify for long-term capital gain treatment. I plan to move to another state mid-year and sell the stock after I am no longer a California resident. Will the gain be subject to California tax?

I’ve searched high and low for guidance on this to no avail… hope you may be able to share your opinion.

Thanks, Beth

Answer

Date:   28 Feb 2007

Hello Beth,

The exercise of the ISO is subject to California AMT reporting for 2006. The sale of the stock will not be subject to California tax, but you will not receive the benefit of the California AMT credit, so you will be taxed twice – once by California and once by your new state of residence -on the gain.

Happy?

Good luck!

Mike Gray

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