Massachusetts has broadened its ability to tax nonresidents on income derived from businesses started and sold in the Commonwealth. In the recent case of Welch v. Commissioner of Revenue, 105 Mass. App. Ct. 391 (2025), the Appeals Court held that stock sale proceeds could be taxed as compensation where the equity was closely tied to the taxpayer’s prior employment in Massachusetts.
Mr. Welch, a founder and longtime executive of a Massachusetts company, sold his shares after moving to New Hampshire. Despite his nonresident status at the time of sale, the court found that the equity had been earned through his Massachusetts-based work and upheld the state’s right to tax the gain.
The lesson for founders, executives, and early-stage employees is clear: stock grants conditioned on employment, or sold in connection with resignation or relocation, may be treated as deferred compensation rather than investment income. This treatment exposes the sale proceeds to Massachusetts personal income tax.
To reduce risk, equity should be acquired through a clear investment transaction, with purchase documentation, and without linking ownership or sale to continued service. Timing of relocations and stock sales should be planned with care.
D’Ambrosio LLP advises clients on structuring equity to minimize exposure under G.L. c. 62, § 5A and related regulations. If you are planning a stock sale or exit, we are available to review your agreements and ensure they support non-compensation treatment.
