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New York only conforms to the 50% QSBS exclusion — not the 75% or 100% federal exclusion. Here's what that costs founders and how to calculate your actual tax liability.
| State | State QSBS Conformity | State Tax on $10M Gain | Total Tax (Fed + State) |
|---|---|---|---|
| Texas / Florida | No state income tax | $0 | $0 (full exclusion) |
| Wyoming / Nevada | No state income tax | $0 | $0 (full exclusion) |
| New York (non-NYC) | 50% only — partial | ~$549K | ~$549K state only |
| New York City | 50% only + NYC surcharge | ~$882K | ~$882K state + city |
| California | No conformity (0%) | ~$1.27M | ~$1.27M (13.3% on full gain) |
| Massachusetts | Full conformity (100%) | $0 | $0 (full exclusion) |
QSBS only applies to shares of a C-corporation. LLCs, S-corps, and partnerships do not qualify. Delaware C-corps are the standard for VC-backed startups specifically because QSBS applies.
The company's aggregate gross assets must be $50M or less at the time of share issuance. Once a company raises past $50M in gross assets, newly issued shares no longer qualify — but earlier shares may still be QSBS.
Most tech, SaaS, and hardware companies qualify. Excluded: professional services (law, accounting), hospitality, financial services, and farming. The majority of VC-backed startups pass this test.
Shares must be held for more than 5 years to claim the exclusion. Shares acquired at founding and held through exit typically satisfy this. Options exercised late may not meet the timeline.
QSBS only applies to shares acquired at original issuance — directly from the company, not in a secondary purchase. Options that are exercised represent new share issuance and can qualify if other conditions are met.
The federal exclusion is capped at the greater of $10M or 10x the taxpayer's adjusted basis per issuer. Spouses can each claim $10M separately. Stacking via gifts to family members can increase the effective exclusion.
New York partially conforms to the federal QSBS exclusion (Section 1202). NY only conforms to the 50% exclusion that applied to shares issued before February 18, 2009. It does not conform to the 75% or 100% exclusions available for modern startup shares. Most founders with post-2010 startup stock only get 50% exclusion at the NY state level, resulting in significant state tax on what is federally excluded.
On a $10M gain, NY's partial conformity costs approximately $549K in NY state tax for upstate founders and ~$882K for NYC founders (who pay both state and city income tax). On a $50M gain, the difference is $2.7M–$4.4M. This is a significant cost for NY-based founders compared to peers in Massachusetts (full conformity) or Texas/Florida (no state income tax).
Domicile change is the primary strategy. If you establish legal domicile in a no-income-tax state (Florida, Texas, Nevada) before your company exits, you may avoid NY state and city tax entirely. However, NY aggressively audits domicile changes — you need to change primary residence, voter registration, driver's license, spend fewer than 183 days per year in NY, and establish all primary ties in the new state. Work with a qualified tax attorney.
The federal QSBS exclusion (Section 1202) allows taxpayers to exclude 100% of capital gains (for shares issued after 9/27/2010) up to the greater of $10M or 10x the taxpayer's adjusted basis per company. Combined federal + NIIT savings at $10M are approximately $2.38M (23.8% rate avoided). The exclusion applies per issuer, so a serial founder can claim it multiple times across different companies.