Relocating before a major equity event can save on state taxes. How much depends on rules that vary by state, by equity type, and by how long you were in each place.

NSO income is typically sourced over the period from grant to exercise, while RSU income usually follows grant to vest. ISOs are more layered. There's no regular income tax at exercise, but the AMT income triggered at exercise may still be sourced to prior states based on the earning period.

California sources equity compensation income based on a workday allocation over the earning period, comparing California working days to total working days during the period the compensation was earned.

New York uses a similar allocation method but goes further with its "convenience of the employer" rule. If you work remotely from another state for your own convenience rather than the company's necessity, New York may treat 100% of your income as New York-sourced regardless of where you were sitting.

Other states are less aggressive. Some will only tax equity income if you're living there when the exercise or vest happens.

Two things to watch:

🔹 Double taxation. Two states can both claim the right to tax the same equity income if they use different sourcing methods. You'll usually get a credit on your resident state return for taxes paid to the other state, but the credit doesn't always cover the full amount. Different definitions of the earning period or different income classifications can leave you paying more than you'd owe to either state alone.

🔹 Recognition vs. liquidity. States tax equity income based on when it's recognized (exercise, vest) and where it was earned, not when cash hits your account. If you move to a new state but the recognition event already happened, or most of the earning period was spent in the prior state, the move may not shift as much of the tax burden as you'd expect.

If you've worked in more than one state during a vesting period, it's worth modeling the state tax picture before you exercise or sell. If a move is part of the plan, timing it around major equity events can make a real difference in how the income gets allocated. This is one of those areas where a general rule of thumb won't cut it. The details are state-specific and equity-specific, and getting them right usually takes an advisor who lives in this stuff.

For educational purposes only. Not tax, legal, or investment advice.