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Massachusetts finally gets some tax revenue out of an Amazon purchase
By adamg on Wed, 08/29/2012 - 11:38am
The Supreme Judicial Court ruled today a former executive at an Amazon subsidiary owes the state more than $320,000 - and interest - on Amazon stock he bought and then sold while living in the Back Bay.
Kenneth Dotson, originally a Florida resident, had argued he didn't owe the money on the $5.3 million he made selling the stock because he never intended to stay in Massachusetts and was in the process of moving to Florida.
The court, noting that Dotson had bought a condo in the Back Bay, had his mail delivered there, got a landline phone there, joined a local gym and obtained a subscription to an unnamed Boston newspaper, said he was most definitely a Massachusetts resident when he executed the options and sold the stock. Even though he was in the process of fleeing the state, he had not yet actually taken up residence again in Florida, the court said.
According to the ruling, Dotson was living in Florida when he accepted a job as senior vice president at PlanetAll, a Cambridge-based online calendaring concern. Before he came up, though, the company was acquired by Amazon, which had a history of moving its acquisitions to Seattle. Dotson had no interest in moving there, and decided not to take the job.
However, he changed his mind when Amazon CEO Jeff Bezos called and told him Amazon would be keeping PlanetAll in the Boston area - but just Amazon changed course and did move PlanetAll to Seattle, he'd be remunerated for his trouble.
Sure enough, Amazon changed its mind a couple months after Dotson moved into his new $480,000 Back Bay condo, and sure enough, he decided to quit. Amazon agreed to immediately vest his stock options, and he sold them and then moved to Florida. The court wrote:
Dotson's Massachusetts domicil would continue presumptively until and unless Dotson proved its change. To achieve an abatement, he would have to establish the evacuation from Massachusetts to Florida as of the receipt of the disputed income on January 22, 1999. The evidence did show that by that date he had decided to return to Florida, and had made an offer to purchase a residence in the Fort Lauderdale area.
However, he continued to reside in his Boston condominium until March 7, 1999. He did not complete the purchase of the Florida residence and move into it until March 10. A completed change of domicil demands the concurrence of both physical presence and the requisite state of mind. ... The seller of Dotson's eventual new home did not accept his offer until February 4. Dotson did not close the purchase until March 10. Consequently, he remained a domiciliary of Massachusetts on January 22, 1999. Substantial evidence supported a finding of Massachusetts domicil at the time of receipt of the disputed income.
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Comments
An interesting and timely
An interesting and timely story, and a great writeup.
When people use loopholes to avoid paying taxes
When people use loopholes to avoid paying taxes, they shift their tax burden to the rest of us.
What loophole?
I don't see a loophole here, he was just claiming that he wasn't a MA resident. That's a pretty ballsy claim for someone whose only home is in MA.
I find the meaning of the word "loophole" gets stretched a lot. A lot of people use "loophole" simply as "a tax law I don't like".
If he had won his argument
If he had won his argument the reasoning would create a precedent, and that would be accurately described as a 'loophole'.
Agreed
This wasn't a loophole. It was either fraud (he knowingly attempted to avoid paying the tax by ignoring it) or just stupid error (he innocently botched his tax preparation). Since it reached a point that he was in court defending his action as legal, it's basically tax fraud that he was trying to get away with.
"Loophole" is an irregular verb
I engage in tax planning.
You have a deduction.
He or she has a loophole.
faux pas
You've broken the syllable count in your haiku.
Pretty stupid and greedy
$5M bonus for a few months work? AND he cashes it all in right away paying full tax rates instead of capital gains? Yeah, that makes him stupid enough to also not correctly report the income to Massachusetts! The guy needed an team of accountants and tax attorneys like Romney has. Set up some off shore accounts and trusts!
How about lucky?
Stupid and greedy? I call him lucky, lucky enough to be in a position where the company got bought in a timely manner. Jealous much?
As for capital gains, he would have had to hold the stock for a year, and there's a good amount of risk involved doing that. One has to figure out if it's worth the risk to wait a year before selling the stock, or if it's better just to sell it. If it drops 50%, any tax savings would be lost. I'm not saying it's a good choice or a bad choice - it's his choice. Everybody is different when it comes to managing risk. Sometimes the best choice is to take the money and run.
Not necessarily
This can get incredibly complicated - and risky.
Depends on the type of options granted. Not my particular specialty but my understanding is:
regular options are taxed as income upon vesting and short of evasion there is no way around the taxes. They are effectively compensation and the difference between the option price and the stock price is taxed at your marginal tax rate as income.
Some are granted as incentive options and work roughly the way you state - any gains above what you pay for them are taxed as short term if you sell them within a year of exercising (or I think within two years of granting) and long term if you sell them after a year of exercising.
There are also complicated AMT rules.
There is also the problem that depending on the type granted and how you handle them you can end up owing massive amounts of taxes on stock that has become worthless. There are horror stories about employees who received and exercised options worth millions during the dotcom bubble on stock that went to zero - but they still owed the taxes on worthless stock and no money to pay the taxes.
Bottom line - if you have stock options available to you - best to review it with an accountant.
Doesn't change the nature of this case though - sounds like the guy was trying to have his cake and eat it too. I'd be curious to know if he tried to claim the residential exemption on his condo.
Awwwwwwww....
poor baby.
When is the DOJ going to CRIMINALLY prosecute those responsible for massive fraud in the financial services industry? Why are they 'soft peddling' prosecutions? If I robbed a CVS for oxy and got caught and prosecuted, the DA wouldn't 'soft peddle" the charges. Just saying.
Simple
1) Most of what goes on in the financial services isn't illegal - it should be, but it's not (this is both parties' fault - both have had full power at times over the past 50 years - neither ever did anything about it or even really tried for that matter).
2) If you actually "steal" that's illegal and you will go to jail. However, if you convince somebody to do something of their own volition even if it's really stupid, that just makes you a good salesperson, not a criminal or an incompetent or even a bad person - at least in this business.
3) And in the case of so-called "fee-only" advisers (the industry's latest scam) - if you are too stupid to know that your fees usually make it almost impossible for your clients to achieve their financial goals, well that's the client's fault for not figuring that out.
After all, if your livelihood depends on you not understanding something, why would you try to understand it? And why should government officials who milk the system for billions of dollars in donations understand it either?
If someone lives in Florida
If someone lives in Florida (or New Hampshire) in the first place, are they stealing from Massachusetts as well?
No, but ...
If they move from Florida or New Hampshire to a condo in the Back Bay and then they try to avoid paying taxes on income earned in Massachusetts, then, yes, they are stealing from Massachusetts.
When people avoid paying taxes
When people avoid paying taxes they owe to the Commonwealth, they shift their tax burden to the rest of us.
For two years Mitt Romney lived in Utah and paid residential taxes there. Then he told Massachusetts citizens he wanted to run for governor and that he had been a resident of Mass for seven consecutive years including the years he was in Utah.
After they bought his story (a panel heard his case), he amended his Utah tax return and filed Mass tax returns to reflect his updated story so that he could run for governor.
Mitt seems to be the kind of guy who has learned that the rules do not apply to him. What I don't understand is why people in positions of authority allow him to do as he pleases when its clear no one is supposed to.
The same is true when Romney voted for Scott Brown in 2010 claiming he lived in his son's unfinished basement in Belmont. Someone should check to see if he filed MA income tax in 2009.
And what has this got to do with the subject?
Financial services industry? Huh? This is a tax case.
You people
You people are small-minded.
You people hate success. You want to punish success. It is because you are envious.
The businessmen in high finance are the smartest people in the room and probably in the world. Their compensation is millions upon millions and it is because they are worth it. It's a meritocracy and you bitches should pay for your own damn government. Millionaires don't need social security or Medicare becuase we can pay our own damn way... except for farming subsidies, bailouts, oil exploration credits, special corporate tax deductions, carried interest, offshore investment vehicles that shield our income from US taxes, you get the idea.
Please! We can hire all of the lobbyists we want, even using our corporations money to do it, and get whatever we want done in the tax code done. Bitches, you're envious.
Mitt, don't you have an acceptance speech to write?
...
2/10
2/10. Overused 'bitches' and didn't sound like you believed your own bullshit--obvious troll is obvious. Also, you get better traction if you lead off with something about job-creation exempting you from the social contract.
re-write it!
I'd like to read your version.
Re: 2/10
Nah, not a troll. Started out as a passable attempt at a troll, ended as a mediocre rant.