New York's securities industry is driving the economic boom downstate and generating much of the tax revenues swelling Albany's surplus. But the industry is creating more jobs in other states, and New York risks losing even more growth in this industry unless a key tax reform is enacted, a new report concludes.
To regain its share of job growth in this industry, New York could use the address of the customer, not the address of the securities firm, in allocating corporate taxes on the firm, according to Putting Stock in New York State, a report released today by The Public Policy Institute of New York State. The Institute is the research affiliate of The Business Council of New York State, Inc.
New York uses three factors to calculate corporate income taxes on all employers that do business here. Those factors are the proportion of overall payroll, property, and sales that take place within the state. The state's tax formula counts the sales factor twice. The goal of this policy is to reduce taxes on New York firms with many jobs in state and many sales out of state-and thus to effectively encourage firms to locate jobs here, the report said.
However, New York uses the location of the securities firm and its employees to determine where a transaction occurs, so transactions with out-of-state customers are still subject to New York taxes. Other states have begun assigning receipts based on the location of the customer. This lowers those other states' taxes on securities firms, the report explained.
New York could follow other states and base taxes on customers' addresses, the report said. New York already does this in other industries. Manufacturers that make products here but sell them in other states don't pay New York taxes on out-of-state sales; and publishers base state taxes on advertising receipts only on copies of their magazines sold within New York.
"The idea is that magazines sold in, say, California or Florida should not increase the publisher's New York State tax," the report said. "After all, we want to encourage companies with national or international scope to locate their jobs in the Empire State.
"That's even more true of the financial services sector, given its huge role in our state's economy. But, under current law, securities firms face a different tax regime-they will pay more tax for every new customer they acquire, even if the customer is in another state."
The time for this tax reform is now because New York has been losing ground to other states in creating jobs in this industry, the report noted.
"New York lost 33,000 jobs in this sector from 1987 to 1991," the report said. "By 1997, securities employment was back to where it had been 10 years earlier. But during that same decade, the industry's employment in the other 49 states grew by 55 percent."
Regaining securities-industry job-growth share in New York is especially important given the industry's vital role in the economy, Putting Stock noted. In 1998, nearly half of U.S. households own publicly traded stocks directly or through accounts such as retirement funds or mutual funds, up from 37 percent just six years earlier. Most days, a billion or more shares of stock are traded on the New York Stock Exchange alone.
This growth has been good for New York, the traditional home of the global securities industry, the study noted. This industry employs more than 190,000 persons statewide, and it is estimated that each of these jobs spins off another two support jobs. Average salaries statewide are a staggering $162,000 a year, and the total New York payroll in this industry in 1997 was $23.7 billion, the report said.
This economic juggernaut fills public coffers at all levels. "The Securities Industry Association estimates that the industry generates 25 percent of the state's personal income tax revenues, some $6 billion in the coming year," the report noted.
Click here to view the full report.
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