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Comment by rahimnathwani | Hacker News Reader

Imagine you live in California and get a job that pays you $X salary plus equity vesting at 1000 shares per year.

After a year, you move out of California and continue at the same job.

In year 1, you'll pay California taxes on the 1000 shares that vested at the end of that year.

What about years 2, 3 and 4? You'd guess that you wouldn't pay any California taxes on those vest events. Because you 'earnt' those shares after you left CA.

Not so fast. Because you were living in CA when those 4000 shares were granted (on a 4 year vesting schedule), you'll pay taxes on these proportions of each vesting event:

Year 1: 100% (lived in CA since grant to vest date)

Year 2: 50% (lived in CA for half the time between grant and vest)

Year 3: 33%

Year 4: 25%

So, even though you lived in CA for only 25% of the time, you pay CA tax on over 50% of your shares.

View on HN

Having spoken to a tax accountant on this, i was told that (1) CA will try to claim this, (2) no state will extradite to CA you over this as they don't recognize it, so (3) at most you just cannot ever go to CA, nothing else will happen to you, if you refuse to pay.

Well I could imagine having outstanding warrants is going to get flagged on a background check.

Got a source for that? I can say with confidence that I personally know dozens of people who have moved out of state with granted but unvested RSUs from their companies and exactly 0 have paid any taxes to California for them.

I can say with confidence that the people you personally know are committing tax fraud.

You might want to double check your confidence - unless I’m reading it horribly wrong, Investopedia supports the previous post, not yours.

[0] - https://www.investopedia.com/articles/tax/09/restricted-stoc...

If you want to know about California tax law, and you have three options:

A) An article on Investopedia, that has a section about taxes in general, but not about California tax in particular.

B) A comment from someone on HN talking specifically about California tax law.

C) A publication by the California Franchise Tax Board.

Which would you pick?

If you chose B, check out my earlier comment.

If you chose C, check out https://www.ftb.ca.gov/forms/misc/1004.html

Not sure why you would choose A, as it's neither specific to California taxes, nor is it an authority.

For RSUs, your link says "California will tax the wage income to the extent services were performed in California from the grant date to the vesting date."

Where did you get the 33%/25% for years 3 & 4?

1 year in Cali out of 3 years after grant before vest = 33%

1 year in Cali out of 4 years after grant before vest = 25%

> If you want to know about California tax law, and you have three options:

This is missing the best and most appropriate option:

D) Consult with tax accountant/lawyer very familiar with California.

If non-trivial money is involved, anything else is playing with fire.

Right, but that option would have been difficult to execute at 8pm on Monday, when I wrote my comment.

Again, provide a source for that confidence.

My FAANG employer and my CPA both agree I owe tax on RSUs that “partially vested” while a resident. An example of 48 shares of RSUs that vest 1/48 every month for 4 years (48 months), and I lived in CA for 6 months after they were granted (not vested, granted). In months 1-6, all were 100% California taxable. In month 7, I owed 6/7ths of the normal California tax. In month 8, it was 6/8ths. In month 48, the final vest, will be taxed by California at 6/48ths of a full resident. My new state also taxes them, but I can deduct taxes I pay to California so I don’t get double-taxes.

This sounds well informed: https://www.upstartwealth.com/blog/will-you-owe-ca-tax-after...

If I'm reading it right, I should move the hell out of CA as fast as possible and skip waiting until next year as planned.

Thanks for the link. This was helpful.

https://www.ftb.ca.gov/forms/misc/1004.html

Search for the phrase 'one reasonable method'.

To me, in the contrived example I outlined, it seems reasonable to pay CA tax only on the first year's vest. But, from reading the linked page, I'm not sure whether the CA tax authorities could be made to see it the same way.

Of course, your friends are free to declare and pay taxes as they see fit, given their understanding of the law, their risk tolerance etc.

Most of that page deals with ISOs and NSOs, which are very different from the case you described. The section "E. Restricted Stock" is itself about Restricted Stock Awards (RSAs) NOT Restricted Stock Units (RSUs), the latter of which is what I imagine most non-executives reading this are getting. In case of RSAs you actually "own" the stock during the vesting period (including having voting rights), so it makes some sense to be taxed on it for that period.

See https://carta.com/blog/breaking-down-rsas-and-rsus/.

It's unclear whether RSUs are covered by section E:

- RSUs are a type of restricted stock, which suggests that they would be covered by section E. (supporting my earlier assumption.)

- The examples in section E talk about 'purchase date' instead of 'grant date', suggesting they're talking about RSAs. (supporting your point.)

However: RSUs must be covered by that publication somehow. If they're not covered by section E, then which section covers them?

RSUs are, I imagine, not covered by this page because – unlike ISO/NSO/RSAs – RSU vesting schedules are simply a vague promise by the employer and not something legally binding or formally recognized by tax authorities.

You may be right on the latter. Not sure I agree with the former. They're usually on the offer letter or employment contract.

My employer withheld California tax on restricted stock grants for me exactly as described here when I moved out of California years ago.

Other states even have forms for you to submit this calculation to them, see for example New York's IT203-F Schedule B. But you still have to apportion the income between states like this whether there's a form to do it on or not.

I wouldn't get tax advice from random people on the internet. If you make above a certain amount of income, and if you have stock options you likely are, it is worth your while to hire a CPA to do your taxes and get tax advice from.

It might sound expensive, but the alternative is worse. Consider a friend of mine during the 1999 stock bubble who had stock options. The bubble burst, and he owed taxes on the bubble amount, even though he never sold the stock. He was bankrupted, lost his house, and moved in with his family to a trailer. He had no idea about the tax consequences of his options.

This is similar in vein to GDPR (hear me out) - not in content of course but in the general thought process (ideology?) of those behind it.

California is free to make up whatever nonsense California wants to make up. It doesn't mean that anyone needs to recognize it or be bound by it if they're in California. Just as the GDPR doesn't actually have any authority over US companies that don't operate within the EU, if I'm not a resident of California, California can say whatever it wants about my tax status but that's just not how it works in reality. No other state recognizes FTB's jurisdiction over former-Californian-now-State-X-residents. If you don't live in California when your shares vest, California can claim it has a right to some tax revenue, but it doesn't.

To my knowledge this hasn't been adjudicated to any court outside of California so whether or not it's legal in a broader sense remains to be seen. It's certainly possible, but until there's case law to support California taxing former residents on income earned/vested after California residency ended, it's fanciful.

You're right about the parallel. If you never again step foot in California, and have no assets in California, then perhaps there's no way for California to enforce their claim.

But, even if no other state would enforce California's claim, couldn't the FTB get a court judgement against you in California? And then enforce by nabbing you next time you pass through SFO, or by seizing any property you might have?

> No other state recognizes FTB's jurisdiction over former-Californian-now-State-X-residents. If you don't live in California when your shares vest, California can claim it has a right to some tax revenue, but it doesn't.

There are a ton of people in the Northeast waiting for the courts to review why NY and MA are entitled to income tax from them even though they have not stepped foot in either state in 18 months.

The question is do you have enough time and money to fight it long enough in court while CA/NY/MA can lean on the employers and national banks to simply withhold the funds.

Edit: I missed this update, but apparently the SC told NH they cannot sue MA, so as far as I now, NY and MA have been cleared to continue collecting income tax from people not working in their states.

https://www.cbsnews.com/news/supreme-court-wont-allow-new-ha...

This is basically my understanding. Any income that could be connected to California will be subject to taxes. Or at least the FTB will try.

I know some folks who left the state and got a “taxes owed” notice from FTB. They replied with “i haven’t set foot in CA for 3 years, I don’t owe anything” and the FTB dropped it.

It’s basically the same as NY and NJ which does it’s best to get its pound of flesh.

NY is currently forcing employers to withhold income tax for people in NJ who have not been in NY in the last 18 months. I know quite a few companies who told their employees they will not stop withholding NY taxes from their income, and the issue is currently making its way through the courts.

https://www.cbsnews.com/news/supreme-court-wont-allow-new-ha...

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