If you're a founder, investor, or startup advisor eyeing a 2026+ exit, the One Big Beautiful Bill Act (OBBBA) just made QSBS (Qualified Small Business Stock under Section 1202) even more powerful: tiered exclusions (50% at 3 years, 75% at 4, 100% at 5), a $15M cap (up from $10M), and a $75M asset threshold (up from $50M). But here's the catch—federal wins don't always mean state wins. Non-conforming states can slap you with a big tax bill on gains you thought were tax-free.
I've pulled together this guide based on the latest conformity rules. It covers whether each state respects the federal exclusion, top individual rates (or cap gains where relevant), and the potential state hit on a $15M QSBS-excluded gain. Assume you're a resident taxpayer at sale; multi-state scenarios add complexity (e.g., sourcing, built-in gains from prior residency).
Quick primer: "Conforming" = no state tax on the federally excluded portion. "Non-Conforming" = full state tax on the gain. "Partial" = limited benefits. No-income-tax states = automatic $0. All current as of early 2026—states tweak yearly, so verify.
| State | QSBS Conformity | Top Rate | Tax on $15M Exclusion |
|---|---|---|---|
| Alabama | Non-Conforming | 5.0% | $750,000 |
| Alaska | No Income Tax | 0% | $0 |
| Arizona | Conforming | 2.5% | $0 |
| Arkansas | Conforming | 3.9% | $0 |
| California | Non-Conforming | 13.3% | $1,995,000 |
| Colorado | Conforming | 4.4%* | $0 |
| Connecticut | Conforming | 7.0% | $0 |
| Delaware | Conforming | 6.6% | $0 |
| Florida | No Income Tax | 0% | $0 |
| Georgia | Conforming | 5.19% | $0 |
| Hawaii | Partial Conforming | 11.0% | Varies |
| Idaho | Conforming | 5.8% | $0 |
| Illinois | Conforming | 4.95% | $0 |
| Indiana | Conforming | 2.95% | $0 |
| Iowa | Conforming | 3.8% | $0 |
| Kansas | Conforming | 5.7% | $0 |
| Kentucky | Conforming | 3.5% | $0 |
| Louisiana | Conforming | 3.0% | $0 |
| Maine | Conforming | 7.15% | $0 |
| Maryland | Conforming | 5.75% | $0 |
| Massachusetts | Partial Conforming | 5% / 9% regime | Varies |
| Michigan | Conforming | 4.05% | $0 |
| Minnesota | Conforming | 9.85% – 10.85% | $0 |
| Mississippi | Non-Conforming | 4.0% | $600,000 |
| Missouri | Conforming | 4.7% | $0 |
| Montana | Conforming | 4.1% | $0 |
| Nebraska | Conforming | 5.2% | $0 |
| Nevada | No Income Tax | 0% | $0 |
| New Hampshire | No Cap Gains Tax | 0% | $0 |
| New Jersey | Conforming (2026+) | 10.75% | $0 (2026+) |
| New Mexico | Conforming | 5.9% | $0 |
| New York | Conforming | 10.9% | $0 |
| North Carolina | Conforming | 3.99% | $0 |
| North Dakota | Conforming | 2.5% | $0 |
| Ohio | Conforming | 3.75% | $0 |
| Oklahoma | Conforming | 4.75% | $0 |
| Oregon | Conforming | 9.9% | $0 |
| Pennsylvania | Non-Conforming | 3.07% | $460,500 |
| Rhode Island | Conforming | 5.99% | $0 |
| South Carolina | Conforming | 6.4% | $0 |
| South Dakota | No Income Tax | 0% | $0 |
| Tennessee | No Cap Gains Tax | 0% | $0 |
| Texas | No Income Tax | 0% | $0 |
| Utah | Conforming | 4.5% | $0 |
| Vermont | Conforming | 8.75% | $0 |
| Virginia | Conforming | 5.75% | $0 |
| Washington | No Income Tax | 0% | $0 |
| Washington DC | Non-Conforming | 10.75% | $1,612,500 |
| West Virginia | Conforming | 4.92% | $0 |
| Wisconsin | Conforming | 7.65% | $0 |
| Wyoming | No Income Tax | 0% | $0 |
Key Notes and Examples
- New Jersey's Big Shift: Full conformity kicks in for 2026 dispositions. If you're holding pre-OBBBA stock, this could save you up to 10.75% on the excluded gain—huge for NJ founders.
- Washington Specifics: No broad income tax, but a 7% capital gains tax hits gains over $250K. Good news: QSBS-excluded gains are exempt here too. Example: Seattle founder sells for $20M gain ($15M QSBS-excluded) → $0 federal + $0 WA on the exclusion, but 7% on the remaining $5M (~$350K hit).
- DC's Decoupling: Late-2025 emergency legislation decoupled from expanded QSBS. If your deal closes in 2026, expect full 10.75% on the gain unless facts fit pre-decouple rules.
- Partial States: Hawaii caps at the old 50% federal exclusion (so 50% of your gain could still face 11% state tax). Massachusetts taxes included QSBS gain at 3% (vs. 5%+9% surtax regime for other cap gains)—varies by facts.
- Missouri Bonus: 100% deduction on all cap gains from 2025, so even non-QSBS is effectively 0%.
- High-Tax Non-Conformers: California at 13.3% on $15M = ~$2M bill. Pennsylvania's flat 3.07% seems low, but it's on the full amount—no exclusion.
- OBBBA Tie-In Example: Founder acquires stock post-July 2025, holds 4 years, sells for $15M gain. Federal: 75% exclusion ($11.25M tax-free, 25% at LTCG rates). In conforming NY: $0 state on the $11.25M. In non-conforming CA: full 13.3% on $15M (~$2M).
Pre-Exit Planning Tips
- Residency Moves: If you're in CA/PA/DC, consider relocating to a conforming/no-tax state like TX/WA/FL before sale. Watch for "exit taxes" or built-in gain rules (e.g., CA taxes accrued gains for 10 years post-move in some cases).
- Section 1045 Rollovers: Roll QSBS gains into new QSBS to defer recognition—state rules vary, but this can reset residency for tax purposes.
- Tiered Holding Periods: With OBBBA's 3/4/5-year tiers, time your exit to hit at least 5 years in a conforming state for max savings.
- Multi-State Deals: If stock was held across states, allocate gain based on residency periods. Get a tax pro early.
- Common Pitfalls: Don't assume "no income tax" = total free ride (see WA). Partial states like HI/MA often surprise with partial hits.
This isn't tax advice—rules evolve, and your facts matter. Consult a QSBS-savvy attorney or CPA for your setup. If you're structuring a new company or planning an exit, hit me up at [your email] or book a call [link to calendar]. Check out my book Angel Investing: Start to Finish for more on equity/tax optimization.
