Supreme Court Upholds Cleveland Municipal Income Tax on Nonresident’s Stock Option Income


A former Ohio resident could not avoid Cleveland municipal income tax even after retiring and moving to Florida. The Ohio Supreme Court held income generated from employee stock options received as compensation while employed in Cleveland were properly taxed by the City, even though the employee had retired and moved out-of-state before she exercised the options. Willacy v. Cleveland Board of Income Tax Review, 2020-Ohio-314 (Feb. 4, 2020). As this case illustrates, stock options and other deferred compensation may be subject to state and local taxes based upon where the compensation was earned, even if the income is not realized until years later after the taxpayer moves away.


In this case, the taxpayer’s former employer in Cleveland granted her options to purchase shares of common stock at a discounted price as compensation for her employment. Thus, the options constituted qualifying wages subject to Cleveland’s municipal income tax. However, the taxpayer did not exercise the stock options until years later after she retired and moved to Florida. When she exercised the option, the Cleveland employer withheld and remitted municipal income tax on the stock’s appreciation in accordance with Cleveland Codified Ordinances 191.1302(a). The taxpayer challenged the tax, asserting that the income generated was intangible income not subject to taxation, and that Ohio lacked the minimum connection to tax the income required under the Due Process Clause.


The Court rejected these arguments, holding stock options received in exchange for employment services are qualifying wages subject to tax—essentially as deferred compensation. Specifically, the Court held the taxpayer’s Due Process rights were not violated because: (1) the stock-option income was generated from work performed in Cleveland; and (2) since the income was compensation for her work, the income was fairly attributable to her activity in Cleveland. It made no difference that the Taxpayer did not exercise the options until several years later when she was a full-time Florida resident.


If you have received stock options or other assets as compensation from your Ohio employer, you may be subject to Ohio state and local income taxes even after you have moved away. If you have questions about how to minimize taxes on stock options or similar compensation from employment, please feel free to contact us.


Attorney Steven A. Dimengo is Managing Partner of Buckingham, Doolittle & Burroughs, LLC. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reach at [email protected] or 330.258.6460.


Richard B. Fry III is a partner and Buckingham’s Taxation Practice Group Chair. He focuses on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. Rich can be reached at [email protected] or 330.258.6423


Nathan M. Fulmer is an associate in Buckingham’s Taxation Practice Group. He represents clients on a broad range of tax planning and controversy matters. His joint degree in taxation allows him to provide unique solutions when assisting clients on business matters. Nate can be reached at [email protected] or 330.258.6464.


About Buckingham, Doolittle & Burroughs:

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