The New York State Division of Tax Appeals determined that income from the vesting of restricted stock units of a nonresident taxpayer were subject to New York State personal income tax based on the taxpayer’s performance of services in New York during the restricted stock units’ vesting period. The Tribunal also determined that dividends on stock paid out of a deferred compensation plan were not New York source income because the stock on which the dividends were paid had vested before the dividends were issued.
There were two sources of income at issue for the nonresident taxpayer: income from the vesting of restricted stock units and dividends paid out of a deferred compensation plan on restricted stock units that had substantially vested.
The nonresident individual taxpayer argued that the income from the vesting of the restricted stock units was New York source income only to the extent that the taxpayer worked in New York (i.e., a workday allocation method). However, the administrative law judge concluded that the restricted stock units fell within the ambit of a state tax regulation governing the determination of New York source income from restricted stock, 20 NYCRR 132.24. That regulation provided that income from compensation received from stock appreciation rights or restricted stock is New York source income if at any time during the “allocation period” a nonresident individual performed services in New York State for the corporation granting such options. The allocation period is the time from when the stock was received to the earliest of the date that the stock is substantially vested, the individual’s services terminate, or the date that the stock is sold.
With respect to the dividend income, the ALJ determined that, because the stock on which such dividends were issued had vested prior to the issuance of the dividends, the dividends were “clearly not taxable” to the nonresident taxpayer.
In the Matter of the Petition of Adams, Det’n DTA No. 850026 (N.Y. Div. of Tax App. Aug. 8, 2024).