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New York State Tax Treatment of Stock Options, Restricted Stock, and
Stock Appreciation Rights Received by Nonresidents and Part-Year Residents
Chapter 62 of the Laws of 2006 added sections 631(g) and 638(c) to the Tax Law. These
sections require nonresidents and part-year residents who have been granted stock options, restricted
stock, or stock appreciation rights and who performed services within New York State during the
grant period to allocate to New York State their compensation income attributable to these items
according to regulations prescribed by the Commissioner of Taxation and Finance. The law also
required that the regulations regarding the allocation of such compensation income be proposed
within 180 days of the effective date of the law (by October 23, 2006). The regulations were
proposed by the Commissioner on October 10, 2006, and adopted on December 12, 2006.
These amendments to the Personal Income Tax Regulations (Parts 132 and 154) address the
allocation method for tax years beginning on or after January 1, 2006.
In 1995, the Tax Department issued TSB-M-95(3)I, which explained the methods to be used
by nonresidents and part-year residents to determine the amount of compensation income attributable
to stock options, restricted stock, and stock appreciation rights that is includable in New York source
income. TSB-M-95(3)I generally called for a grant-to-exercise allocation method for stock options,
nonstatutory stock options without a readily ascertainable fair market value, and stock appreciation
rights.
This memorandum supersedes TSB-M-95(3)I. It explains the New York State tax treatment
of stock options, restricted stock, and stock appreciation rights for tax years beginning on or after
January 1, 2006, reflecting the new law and regulations. It reflects the general use in the regulations
of a grant-to-vest allocation method for stock options, nonstatutory stock options without a readily
ascertainable fair market value, and stock appreciation rights. ..."