What's happening
This bill limits the corporate tax deduction for stock options to the amount recognized as compensation cost under generally accepted accounting principles.
Why it matters
Narrows tax benefits for companies. By capping the corporate tax deduction for stock options to what is reported as compensation cost under generally accepted accounting principles (GAAP), the bill prevents corporations from claiming larger deductions on their New York taxes than what they show as expenses to shareholders.
Aligns tax and accounting treatment. This change addresses a long-standing mismatch where companies could deduct much more for tax purposes than they actually reported as compensation expense to investors, increasing transparency and consistency between financial statements and tax filings.
Could affect corporate compensation strategies. Limiting the deduction may make stock options a less attractive form of compensation for companies, potentially leading to compensation structure changes, especially at firms that heavily rely on equity-based incentives.
Potential revenue impact for the state. By shrinking allowable deductions, the bill is likely to increase state tax revenue from corporations, which could be significant for companies with large stock-based compensation programs.
Albany, before your first meeting.
Every bill that moved yesterday, summarized in a sentence and ranked by impact. The Albany Scorecard follows on Sundays.
Free. Unsubscribe in one click. Want alerts on specific bills? Create an account.
Who cares
Headline styles
Limit Stock Option Deductions
Plain English, a few words. Used as the page title.
Sponsors
No co-sponsors yet.
History
- Referred to budget and revenue
- Referred to budget and revenue
Companion bill
The same bill in the other chamber. A bill becomes law when one version passes both houses and the governor signs it, so either number can carry it.
Allow Stock Option Deduction
In Assembly Committee · Ways And Means · Sponsor Sandy Galef
Full text
1 pageUnderlined is new[Struck] is removedOfficial text on nysenate.gov ↗
STATE OF NEW YORK
2725
2019-2020 Regular Sessions
IN SENATE
January 29, 2019
Introduced by Sen. KRUEGER -- read twice and ordered printed, and when printed to be committed to the Committee on Budget and Revenue
AN ACT to amend the tax law, in relation to the deduction for stock options
The People of the State of New York, represented in Senate and Assembly, do enact as follows:
Section 1. Paragraph (b) of subdivision 9 of section 208 of the tax law is amended by adding a new subparagraph 25 to read as follows:
(25) in the case of property transferred to a person in connection with the performance of services, any deduction relating to stock options pursuant to the Internal Revenue Code section 83(h) for property described in subsection (a) of that section, in excess of the amount the taxpayer was allowed to treat as compensation cost with respect to that property in the year the stock option was granted under generally accepted accounting principles for the purpose of ascertaining income, profit, or loss in a report or statement to shareholders, partners or other proprietors (or to beneficiaries).
§ 2. This act shall take effect immediately and shall apply to taxable years beginning on and after January 1, 2020.
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[ ] is old law to be omitted.
LBD06767-01-9
Reflowed for reading: line numbers and page breaks removed. Cite the official text.
Sponsor's memo
Title of bill
An act to amend the tax law, in relation to the deduction for stock options
Purpose
This legislation would specify that the deduction can only be based on the price of the stock at the time of issuance of the option, not the price of the stock when sold.
Summary of provisions
The Tax Law is amended by adding a new paragraph 25 to paragraph (b) of subdivision 9 of section 208.
Justification
Currently, there is a loophole in the Federal Tax Code which allows for a corporation to take a tax deduction based on the price of a previously given stock option when it is sold, rather than the price when it was issued. Specifically, many corporations have given stock options at a set value to executives within their company instead of cash bonus payments. If the stock increased in value and the compensated executives sold their stocks at a higher price than the original value, the corpo- ration would then be eligible for a tax deduction based on the higher price rather than the lower original price. As with many taxes, New York State is currently coupled with the Federal Tax Code on this issue. It is unclear how much New York State is currently losing because of the loophole.
The legislative solution to this loophole, is to specify at what term in the issuance of the stock options a corporation may take a compensation deduction.
Legislative history
2017-18: S.4581 - Investigations 2015-16: S.3431 - Investigations 2013-14: S.3276A - Investigations 2011-12: S.6885 - Investigations 2009-10: S.3276 - Investigations 2007-08: S.6885 - Investigations
Fiscal implications
The current tax loophole is estimated to cost the Federal Government approximately $2.5 billion annually which would increase New York State revenue by an undetermined amount. Additionally, the fiscal impact of this legislation may greatly increase in the future as the compensation packages on Wall Street rely less on cash bonuses and more on stock options.
Effective date
This act shall take effect immediately and shall apply to taxable years beginning on and after January 1, 2020
Summaries, headlines and scores are AI-generated from the official bill text. How we score bills. Source: NYS Open Legislation.