New York currently conforms to the federal QSBS exclusion. A new proposal would reverse this, taxing startup gains that are tax-free in most competing states. Here is what the data says about what is at stake.
$28.5B
NYC VC Investment (2024)
$174.5B
Exit Value (6 Years)
809,000
Total Ecosystem Jobs
14.776%
Proposed Tax on QSBS
The #2 startup ecosystem on earth. More VC than Boston, LA, and Philadelphia combined.
According to the NY State Comptroller (Report 13-2026, October 2025), the New York-Newark metropolitan area attracted $28.5 billion of venture capital across 2,195 deals in 2024, representing 13.3% of the national total. The broader ecosystem generates $291 billion in economic output and $3.63 billion in direct fiscal revenue for the city and state.
$28.5B
VC Investment 2024
2nd nationally
2,195
VC Deals 2024
13.3% of US total
$174.5B
Exit Value (6yr)
Q3 2018 to Q2 2024
1,150
Exits (6yr)
IPOs + M&A
203,819
Tech Jobs (narrow)
Up 26% from 2019
809,000
Ecosystem Jobs
Direct + indirect
$291B
Economic Output
28% of city GDP
$3.63B
Fiscal Revenue
City + state
2,000+
AI Startups
NYC metro
35
Unicorns
$1B+ valuations
41%
Net Job Growth
Tech share since 2019
12,853
Tech Job Postings
March 2025, #1 in US
543
Seed/Series A Cos
Manhattan, est. (Carta)
$16M
Median Seed Pre$
Record high, Q4 2024 (Carta)
$78.7M
Median Series A
Post-money (Carta)
$120B
Funded on Carta
All startups, 2025
Source: NY State Comptroller Report 13-2026, PitchBook-NVCA
$10M
NYA Investment 2024
Into ~40 companies
~$500K
Typical Syndicate
Exactly the QSBS-relevant layer
$7.3M
Northeast Focus
73% deployed regionally
Section 1202 lets founders, angels, and early employees exclude gains on qualifying startup stock from tax. It targets the earliest, riskiest capital.
Revenue Reconciliation Act of 1993 creates Section 1202 with a 50% exclusion for gains on qualifying small business stock held for 5+ years.
Jobs and Growth Tax Relief Reconciliation Act reduces the AMT preference item for QSBS gains from 42% to 28% of the excluded gain.
American Recovery and Reinvestment Act temporarily increases exclusion to 75% for QSBS acquired after Feb 17, 2009 and before Jan 1, 2011.
Small Business Jobs Act provides 100% exclusion for QSBS acquired after Sept 27, 2010 and before Jan 1, 2012. Also eliminates AMT preference for 100% excluded gains.
Jumpstart Our Business Startups Act creates Regulation Crowdfunding, permits general solicitation under Rule 506(c), establishes Emerging Growth Company IPO on-ramp, and broadens Regulation A+. Does NOT create or modify the QSBS exclusion.
American Taxpayer Relief Act of 2012 extends the 100% exclusion for QSBS acquired through 2013.
Tax Increase Prevention Act of 2014 extends the 100% exclusion for QSBS acquired in 2014.
Protecting Americans from Tax Hikes (PATH) Act makes the 100% exclusion permanent for all qualifying QSBS, regardless of acquisition date.
One Big Beautiful Bill Act (signed July 4, 2025) introduces tiered holding period (50% at 3 years, 75% at 4 years, 100% at 5+ years), raises per-issuer cap from $10M to $15M (indexed), and increases gross asset threshold from $50M to $75M (indexed). Applies to stock acquired after enactment.
NY Senate Bill S8921/S8921A would require NY taxpayers to add back any federal Section 1202 exclusion, effectively eliminating the state-level QSBS benefit. Retroactive to January 1, 2025.
Senate Bill S8921/S8921A, sponsored by Senator Andrew Gounardes and included in the State Senate's FY 2026-2027 budget proposal, would add back any federal Section 1202 exclusion on New York state returns. Retroactive to January 1, 2025.
This means a NYC-resident founder who sold qualifying startup stock in 2025 expecting the gain to be excluded at both the federal and state level would face a retroactive state and city tax bill of up to 14.776% on gains that are $0 at the federal level. The same founder in Florida, Texas, or most other states would owe nothing in state tax.
14.776%
Tax on federally excluded gains
Combined NY State + NYC
$1.48M
New tax on $10M QSBS gain
For a NYC resident founder
Jan 1, 2025
Retroactive effective date
For gains already realized
Where would NY stand among competitor states?
| State | Treatment | Detail |
|---|---|---|
| California | Full non-conformity | Does not recognize any QSBS exclusion. Full state taxation on excluded gains. |
| Pennsylvania | Full non-conformity | No QSBS exclusion recognized at state level. |
| Mississippi | Full non-conformity | No QSBS exclusion recognized at state level. |
| Alabama | Full non-conformity | No QSBS exclusion recognized at state level. |
| New Jersey | Recently conformed | Enacted conformity legislation effective Jan 1, 2026 (A4455/S4503). |
| New York (proposed) | Proposed full non-conformity | S8921/S8921A would decouple retroactive to Jan 1, 2025. |
| Florida | No state income tax | No state income tax. QSBS conformity is moot. |
| Texas | No state income tax | No state income tax. QSBS conformity is moot. |
| Washington | No broad income tax | No broad income tax. Limited 7% capital gains tax enacted 2022 (over $270K threshold). |
Major exits where QSBS may plausibly have mattered. No public data proves qualification; it depends on private facts.
$3.5B (market cap at IPO)
Founded 2005, IPO 2015. Founders/early holders who held C-corp stock for 5+ years from original issuance may plausibly have had QSBS-eligible shares, subject to qualification requirements.
$1.9B (IPO valuation)
Founded 2007, IPO 2017. Stock acquired at original issuance in a qualifying C-corp and held for 5+ years could plausibly have qualified for QSBS treatment.
$7.8B (IPO valuation)
Founded 2010, IPO 2019. Founders/early investors who received stock at original issuance and held for 5+ years may plausibly have qualified, depending on C-corp status and asset thresholds at time of issuance.
$8.1B (IPO valuation)
Founded 2012, IPO 2019. Early stockholders with 5+ year holding from original C-corp issuance may plausibly have had QSBS-eligible shares.
$6.8B (reference price)
Founded 2003, listed 2021. Long holding period supports QSBS eligibility for earliest stockholders, subject to C-corp status and asset thresholds at issuance.
$6.0B (reference price)
Founded 2010, listed 2021. Founders/early investors who held qualifying stock for 5+ years may plausibly have qualified.
$7.9B (IPO valuation)
Founded 2012, IPO 2021. Early C-corp stockholders who met the 5-year holding requirement may plausibly have had QSBS-eligible gains. Important caveat: insurance companies may be excluded from QSBS eligibility under IRC Section 1202(e)(3), which excludes financial services and insurance businesses. Whether Oscar's technology-driven model would be classified primarily as 'insurance' (excluded) or 'technology' (qualifying) is a nuanced question that adds significant uncertainty.
$8.0B (IPO valuation)
Founded 2012, IPO 2021. Important caveat: Compass operates as a real estate brokerage. Under IRC Section 1202(e)(3), businesses involving real property brokerage are among the excluded categories. This creates substantial uncertainty about QSBS eligibility despite meeting C-corp, holding period, and asset size requirements.
$5.5B (IPO valuation)
Founded 2011, IPO 2021. 10-year gap easily satisfies 5-year holding. Founders/early investors may plausibly have had QSBS-eligible shares.
$5.2B (IPO valuation)
Founded 2009, IPO 2021. 12-year holding period for founders easily exceeds 5-year requirement. May plausibly have qualified depending on C-corp status at issuance.
$1.7B (IPO valuation)
Founded 2009, IPO 2021. Early stockholders with 5+ year holding may plausibly have had QSBS-eligible shares.
$5.0B (IPO valuation)
Founded 2011, IPO 2021. Founders/early investors who held qualifying C-corp stock for 5+ years may plausibly have qualified.
$1.9B
Founded 2012, acquired 2018. Only 6 years from founding to exit. Founders who held from original issuance may have satisfied the 5-year requirement if stock was issued early enough.
$1.1B
Founded 2007, acquired 2013. The 100% exclusion applied to stock acquired after Sept 27, 2010, so pre-2010 shares would have had a lower exclusion rate (50% or 75%). QSBS relevance depends on when specific shares were issued.
$32B (all-cash, largest cybersecurity acquisition ever)
Founded 2020, acquired 2025-2026. Borderline 5-year holding period. Complicated by Israeli origins and rapid asset growth. Wiz raised massive rounds quickly ($100M in 2021, $300M in 2022, $1B in 2024), so aggregate gross assets likely exceeded $50M early on, limiting which share issuances qualify. Only the earliest shares may plausibly have been QSBS-eligible, if issued from a domestic C-corp when assets were under $50M.
$8.1B (IPO valuation)
Founded 2012 but Delaware C-corp incorporated March 2015. IPO was September 2019, only ~4.5 years after incorporation. Shares from the Delaware C-corp may NOT have met the 5-year holding requirement at IPO. Founders who continued holding beyond March 2020 could have met the requirement on later sales.
The honest answer: nobody knows precisely. There is no public registry of QSBS issuances (Treasury OTA WP-127 confirms this). Any estimate must be scenario-based.
We start with an annualized NYC exit base of ~$29.1 billion (from $174.5B over ~6 years). Only a fraction represents gains that are both QSBS-eligible and realized by NY residents. Most exit value goes to institutional investors (VCs, PE) who don't benefit from Section 1202, to employees who held stock too briefly, or to out-of-state holders. ITEP estimates $152.1M in 2026, growing to $261.7M by 2031. Our scenarios bracket a wider range.
Low (5% QSBS share)
$215M/yr
Combined state + city
State only: $159M/yr
Gain base: $1.455B on $29.1B exit base
Base (10% QSBS share)
$430M/yr
Combined state + city
State only: $317M/yr
Gain base: $2.91B on $29.1B exit base
High (15% QSBS share)
$645M/yr
Combined state + city
State only: $476M/yr
Gain base: $4.365B on $29.1B exit base
Drag the sliders below to model how different levels of capital flight, founder relocation, and angel pullback would cascade through NYC's startup ecosystem over five years.
All three inputs are interconnected. When founders leave, fewer startups get built, which means less demand for VC. When angel investors pull back, the seed pipeline shrinks, which reduces the flow of companies into Series A and beyond. The chart and impact cards below update in real time as you adjust each input.
How much less institutional VC flows into NYC startups each year. Even 5% of $28.5B is $1.4 billion.
Share of pre-exit founders and early investors who relocate to tax-free states before liquidity events. Each founder who leaves takes their next startup with them.
Reduction in NYC angel capital. Angels are QSBS's core beneficiaries. Less angel money means fewer seed rounds and a thinner pipeline into venture.
Combined Ecosystem Drag
8.9%
The three inputs compound: 5% direct VC pullback + 2.4% from founder flight (fewer startups built) + 1.5% from angel reduction (thinner seed pipeline).
-$2.5B
VC Investment Lost
8.9% of $28.5B annually
-$50M
Angel Capital Lost
10% of ~$500M NYC angel market
-18,140
Direct Tech Jobs Lost
8.9% of 203,819 positions
-21,768
Indirect Jobs Lost
1.2x multiplier (HR&A study)
~450
Founders Relocating
3% of ~15K NYC founders/yr
-11
Startups Not Formed
Companies that never get built in NY
-$1.6B
Future Exit Value Lost
Pipeline that moves elsewhere
-$323M
Fiscal Revenue at Risk
8.9% of $3,630M
QSBS Tax Gained
+$430M/yr
Base-case estimate from decoupling
Ecosystem Revenue Lost
-$323M/yr
From reduced tech sector activity
Net Fiscal Result
+$107M/yr
Net positive (but at what cost?)
Green line: baseline assuming 5% annual growth. Red line: projected trajectory with a combined 8.9% annual ecosystem drag from VC pullback (5%), founder flight (3%), and angel reduction (10%).
The gap widens each year because the effects compound. Fewer founders means fewer startups means less VC demand means fewer exits means less reinvestment.
At current slider settings, here is what happens each year:
Even in this scenario where the direct tax revenue is positive, the jobs lost, the founders who leave, and the startups that don't get built represent a much larger long-term cost that is harder to measure.
IRS Statistics of Income data shows New York has been losing substantial adjusted gross income to interstate migration for years. The question is whether QSBS decoupling accelerates this trend for the specific people who matter most to the startup ecosystem.
The academic evidence is nuanced. Cristobal Young's landmark Stanford research shows aggregate millionaire migration is modest. But the relevant population here is not millionaires in general. It is founders and early investors who are planning liquidity events, have high geographic flexibility, and can calculate exactly how much they save by moving to a zero-income-tax state before a sale. For them, the math is specific and the incentive is large.
$111B
AGI Lost to Migration
Past decade (IRS SOI)
262,000
People Left in 2020
$24.5B in AGI
60,000+
Moved to Florida
From NY, 2021-2022 est.
0.5%
Millionaire Migration Rate
Per tax increase (Young)
New York is not talking about some abstract tax preference. It is talking about changing the after-tax economics for founders, angels, and early employees in one of the largest startup ecosystems in the country.
The federal government just expanded QSBS benefits. New Jersey just adopted conformity. New York is proposing to move in the opposite direction, retroactively.
A state that captures a larger share of current gains while reducing the incentive to generate future gains may find itself with less of both over time.