Ohio High Court Upholds Taxation of a Nonresident’s Income from Stock Options

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The Supreme Court of Ohio upheld the City of Cleveland’s taxation of a nonresident’s income from stock options even though the income was recognized by the nonresident seven years after the nonresident had ceased working or residing in the city. Willacy v. Cleveland Bd. of Income Tax Revenue, No. 2020-0795, 2021 Ohio LEXIS 988 (Ohio May 25, 2021). This is the second time in as many years that the court has upheld the city’s taxation of nonresidents on their income from stock options. See Willacy v. Cleveland Bd. of Income Tax Review, 151 N.E.3d 561 (Ohio 2020) (“Willacy I”). The case is noteworthy for both individuals receiving compensation in the form of stock options as well as employers required to withhold state and local income tax that have issued stock options to employees. The Ohio Supreme Court’s decision here follows decisions from other states in the last several years that have upheld similar attempts by state taxing agencies to tax nonresidents on their income from stock options despite the nonresident having no connection to the state in the year that the income is recognized.[1]

Facts: Willacy earned stock options in 2007 from her former employer while she was working in Cleveland for the employer. She retired and moved to Florida in 2009, without having exercised the options. Willacy exercised a portion of the options in 2016, resulting in taxable income, and her former employer withheld Cleveland income tax on that income. Her refund claim for the withheld tax was denied and this appeal followed. Willacy, 2021 Ohio LEXIS 988, at **1-**2.

The Decision: The court rejected Willacy’s argument that the city’s assessment was time-barred because the statute of limitations period began to run when she filed her 2016 income tax return in 2017, not when she received the stock options in 2007. The court also declined to overrule its prior decision in Willacy I, which held that there was a sufficient minimum connection between Willacy and the city for constitutional due process purposes because the income from Willacy’s stock options was derived from work performed by Willacy in the city (albeit several years earlier). Willacy, 2021 Ohio LEXIS 988.

A spirited dissent in the case argued that Willacy’s due process rights had been violated inasmuch as “by the time the city imposed its tax in 2016, Willacy had not been a resident or worker there for over seven years.” Willacy, 2021 Ohio LEXIS 988, at **12 (Fischer, J., dissenting). As the U.S. Supreme Court has not yet weighed in on the constitutional issue, this due process argument remains viable for both employers and employees seeking to challenge similar taxation schemes in other states.


[1] See, e.g., Allen v. Comm’r of Revenue Servs., 152 A.3d 488 (Conn. 2016); Matter of Gleason, DTA No. 823829 (N.Y.S. Tax App. Trib. Mar. 18, 2014).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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