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Richard Rider

NYC “cash cow” financial firms fleeing to low tax states — Sacramento, hello — anyone listening?

New York City has its own municipal income tax. Combined with the NY state tax, it’s the second highest tax rate in the nation.

NYC is the only U.S. jurisdiction that comes close to challenging California’s place at the top of the income tax (dung) heap.  The top NY state income tax rate is 8.82%, while the top NYC income tax is an additional 3.876% (ya gotta wonder why they calculate the tax to a THOUSANTH of a percent).  And BTW that top city income tax kicks in at only $50,000 of income.

Thus the top combined NYC tax is 12.696% — challenging (unsuccessfully) California’s top rate of 13.3%.  Moreover, NYC has a COL that is even higher than the average CA COL.  The theory of NYC politicians is that taxes don’t matter — some businesses HAVE to be in NYC — notably financial businesses.

Wrong!  This is the electronic age.  More and more, businesses are learning that location DOESN’T matter — at least when the cost differential gets too great.  Such is the case with more and more NYC financial firms.

In the WALL ST JOURNAL there’s a story of a top money manager firm that is leaving NYC and moving to Nashville, Tennessee — a state with a tiny and soon disappearing state income tax.  And of course, the TN COL is FAR lower than NYC.  The firm will keep a satellite office in NYC, but most of its operations including the CEO are heading off to Dixie.

And the departing firm is not alone.  Excerpts from the story:

One of the oldest names on Wall Street is moving to one of the fastest-growing cities in the South, reinforcing a recent shift in finance jobs to cheaper parts of the U.S.

AllianceBernstein Holding LP plans to relocate its headquarters, chief executive and most of its New York staff to Nashville, Tenn., in an attempt to cut costs, according to people familiar with the matter. That largely ends a 51-year presence in the nation’s traditional finance capital.

. . .

In a memo to employees, AllianceBernstein cited lower state, city and property taxes compared with the New York metropolitan area among the reasons for the relocation. Nashville’s affordable cost of living, shorter commutes and ability to draw talent were other factors.

Other money managers have also relocated staff to smaller, lower-wage cities that are emerging as unlikely hives of finance. Pacific Investment Management Co. plans to open a new office in Austin, Texas, later this year as part of a push to hire more tech-savvy workers, The Wall Street Journal reported last month. Denver, meanwhile, has been host to a growing number of Charles Schwab Corp. and Fidelity Investments employees.

Wall Street’s migration began after the last financial crisis as banks and money managers looked to trim expenses or take advantage of lower tax rates. Hiring in lower-cost regions can mean millions of dollars in annual savings.

A new tax plan passed last year by Congress also reduced tax breaks that many in the New York region heavily lean on, such as the deductibility of mortgage interest and state and local tax deductions.

. . .

Logically speaking, similar decisions will be made by more and more moveable CA businesses. The change in the federal tax law on the deductibility of state taxes on federal income tax returns is huge — an effective SIXTY PERCENT increase in a state’s NET income tax for high income earners — commencing January of this year (2018).  Our brilliant Golden State politicians are vaguely aware of this problem, but brush it off because “we have great weather.”

Unfortunately great weather does NOT help a firm’s bottom line, while CA high taxes, COL and anti-business climate do great damage to a company’s profit level.

Indeed, it’s my opinion that if a public company that can be moved (a non-retail company) remains in CA, their board of directors is guilty of fiduciary malfeasance.  And I suspect more and more board directors will reluctantly reach the same conclusion.

We gotta come up with a new nickname for our “Golden State.”  Our current moniker is just too embarrassing to keep.