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plaintiffmotionsummary judgmentcorporationmotion for summary judgment
plaintiffdefendantmotionsummary judgmentcorporationsustainedmotion for summary judgment

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McBroom v. Department of Revenue, State of Or., 1997 WL 680650, 14 Or. Tax 239

Facts

The plaintiff, an Oregon resident employed by Intel Corporation, received stock options under a 1984 plan. Upon leaving Intel in 1991, he exercised one of the options, realizing a significant gain due to the increased market value of Intel stock. However, he was a nonresident of Oregon at the time of exercising the option and did not report the gain on his nonresident Oregon income tax return. The Oregon Department of Revenue assessed additional taxes, claiming the gain was Oregon source income.

While plaintiff was an Oregon resident employed by Intel Corporation (Intel), he received stock options under a 1984 stock option plan. The options entitled plaintiff to purchase Intel stock at its fair market value as of the date the options were granted. The stock options were not transferable, could not be exercised for five years, and could be canceled by the company at any time prior to exercise.

Issue

Was the gain realized upon exercise of the stock option taxable by Oregon as Oregon source income?

Was the gain realized upon exercise of the stock option taxable by Oregon as Oregon source income?

Rule

ORS 316.127(6) imposes a tax on income of nonresidents which is 'derived from or connected with sources in this state.'

ORS 316.127(6) imposes a tax on income of nonresidents which is 'derived from or connected with sources in this state.'

Analysis

The court analyzed whether the income from the exercise of the stock option was sourced in Oregon. It concluded that the stock options were granted in exchange for personal services rendered while the plaintiff was a resident of Oregon, thus the income derived from the exercise of the option had its source in Oregon, regardless of the plaintiff's residency at the time of exercise.

The court analyzed whether the income from the exercise of the stock option was sourced in Oregon. It concluded that the stock options were granted in exchange for personal services rendered while the plaintiff was a resident of Oregon, thus the income derived from the exercise of the option had its source in Oregon, regardless of the plaintiff's residency at the time of exercise.

Conclusion

The court granted the Department of Revenue's motion for summary judgment, ruling that the plaintiff's gain from the stock option was taxable by Oregon.

Based upon the above analysis, the court finds that the department's Opinion and Order No. 96–0157 must be sustained. Now, therefore, IT IS ORDERED that the Defendant's Motion for Summary Judgment is granted, and IT IS FURTHER ORDERED that plaintiff's Motion for Summary Judgment is denied.

Who won?

The Department of Revenue prevailed in the case because the court determined that the income from the stock option was sourced in Oregon, making it taxable despite the plaintiff's nonresident status at the time of exercise.

The Department of Revenue prevailed in the case because the court determined that the income from the stock option was sourced in Oregon, making it taxable despite the plaintiff's nonresident status at the time of exercise.

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