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Panel hears bill to prevent double taxation of some employee stock options
Summary
Sponsors told the subcommittee SB 211 would grant a subtraction/credit for qualifying incentive stock options to avoid double state taxation when options are earned or taxed in another state and later exercised in Virginia; tax staff said fiscal impact is indeterminate without cross‑state return data, and members voted to carry the bill for additional analysis.
A patron introduced SB 211 to address what they described as double taxation on incentive stock options (ISOs) when taxpayers who earned or were taxed on ISOs in another state later move to Virginia and exercise those options. The sponsor said the bill would provide a subtraction or credit for qualifying ISOs so Virginians would not be taxed twice on the same gain.
Tax staff explained that federal rules (IRC §422) and state treatments differ and that Virginia’s ability to estimate fiscal impact is limited because staff can detect ISO exercises on federal returns but cannot reliably determine whether taxes were already paid to another state. “We have no clue until they file their federal taxes,” staff stated, describing the fiscal estimate as indeterminate.
Committee members asked which states tax ISOs when earned versus exercised; staff said they would research and return with a list. Members also requested tax staff to compile earlier years of data to bound the fiscal exposure. The subcommittee voted to carry SB 211 over for the year so staff could gather the requested information.
What’s next: Tax staff will attempt to identify states that tax ISOs on grant versus exercise and return with available federal‑return data to better estimate fiscal impact.
