Which state is entitled to taxes on my ISOs?
April 12, 2004
Date: Mon, 15 Mar 2004
I worked for a Colorado-based, publicly-traded company until October 2001. I relocated to California in January 2002. During my tenure with the company, I received incentive stock options. When I attempted to exercise the options in March 2002, the company refused to allow the exercise. An attorney and many dollars later, the company paid out the options in 2004, and collected state taxes for Colorado. Is this correct? Shouldn’t taxes have been collected based on my resident state of California and reflected this way on my W-2?
No. Since you received the options and they vested based on services performed as an employee in Colorado, the income is Colorado-source income, taxable in Colorado. You are also required to report the income on your California income tax return, but you claim a state tax credit for taxes paid with respect to double-taxed income in Colorado.