QSBS in NY State 👀 🚨

Happy Sunday Brex Community,

Typically we publish on Tuesdays but wanted to flag a time sensitive matter that could have a negative financial impact on startup founders, startup employees and investors in startups, which is the primary audience of this newsletter.

There is a bill proposed in NY State, S8921A, if it passes, QSBS (Qualified Small Business Stock) would be eliminated.

If you hold stock options or early equity in a startup structured as a C corporation, QSBS is financially beneficial. Under current federal law (post-OBBBA), you can exclude up to $15M in gains per company, completely tax free federally. New York has historically let that exclusion flow through to your state return too.

If S8921A passes, NY residents would owe state income tax on those gains even if they're fully excluded federally. New York's income tax uses "rolling" conformity, meaning it automatically adopts federal IRC changes as they occur, so the decoupling bill is specifically designed to sever that link. For a NY based employee or founder with, say, $10M in QSBS gains, that would mean owing NY state income tax at rates up to ~10.9% on gains that were previously fully sheltered, potentially a $1M+ state tax bill that didn't exist before.

The retroactive effective date of January 1, 2025 makes this especially acute: founders or employees who already sold QSBS in 2025 thinking they'd get the state exclusion could face an unexpected tax liability when they file.

The bill's justification explicitly calls out that QSBS investments don't have to be in state to qualify for the state tax break, a Georgia based VC, for example, could claim QSBS exemptions on investments in startups anywhere in the U.S., reducing NY revenue but providing no guaranteed economic benefit to the state. For NY based investors, gains from QSBS exits that were fully excluded at the federal level would now be fully taxable at the state level.

One nuance worth noting: the amended bill (S8921A) extended the decoupling beyond just personal income tax filers to also cover corporate tax (Section 208) and franchise tax (Section 1503), meaning institutional investors or fund structures domiciled in NY could also be affected, not just individuals.

Bottom line: if you're a NY based founder, employee, or investor and concerned about QSBS, this bill warrants a conversation with a tax advisor.

In terms of what can you about it? There is a petition put on by a group called Tech:NYC. If you would like to make an effort to maintain QSBS, please take a look and sign the petition if you support it, see below. They are looking to get signature by noon ET on Monday (March 23).

Have a great week,

Shai Goldman

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