Do not reduce the tax on transfers

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New York State faces a $ 9 billion budget gap for the current year and forecasts a $ 17 billion gap next year, based on the state’s most recent financial plan . To help fill these gaps, some policymakers have advocated the reinstatement of the stock transfer tax that had been dormant for nearly 40 years. Although the tax is still in effect, most transactions are only recorded without any money actually being paid to the state.

If the tax was reinstated, New York would become the only state to impose such a tax. This presents two risks: the tax is unlikely to increase as much as claimed as it would be easy enough to avoid, or it may lead to the exit of a vital industry from the state. Advocates claim that reinstating the tax could bring in up to $ 13 billion a year, but recent data from the state’s tax department shows potential revenues to be around $ 4 billion; collections may be even smaller if companies deploy new technology or relocate part of their activities outside of New York. The securities industry accounts for 17% of state tax collections and 6% of New York City tax collections, but there is evidence that New York is losing its dominance in the sector; encouraging further leakage from this industry would have serious negative consequences for the maintenance of vital public services.

New York should leave taxation dormant and rely on alternative strategies to fill budget gaps, such as shifting capital spending from cash to debt financing, using funds for rainy days, the temporary suspension of tax exemptions, the postponement of planned income tax cuts, better targeting of educational assistance, and the sale of unnecessary assets.

Basics of share transfer tax

The New York Stock Transfer Tax came into effect in 1905 and was eliminated with a 100% refund effective October 1, 1981. Today, notional liability is managed electronically and recorded by an entity. third party for record keeping, but no money goes into state coffers to be refunded later.

Tax payable is calculated based on the value of the stock, with a minimum tax of 1.25 cents on stocks costing less than $ 5 and a maximum tax of 5 cents on stocks costing more than $ 20. Less valuable stocks pay more; a $ 1 stock is subject to a 1.25% tax on each sale, while a $ 20 stock is subject to a 0.3% tax. A share traded at $ 1,000 per share would be subject to a tax of only 0.005%, up to a maximum tax of $ 350 per day on the same share. Once this maximum is reached, the cost per transaction decreases proportionally. Currently, only the federal government charges a fee of 0.00221% or $ 22.10 per million dollars of transactions.

Unlike other types of transaction-based taxes, New York Stock Transfer Tax is imposed based on where the transaction is performed, not the domicile or business location of the company. buyer or seller. The stockbroker, mutual fund manager or the person making the transfer is liable for the tax, but the buyer and seller also share the responsibility of ensuring that the tax is paid and can be held liable. if it’s not the case. The cost of the tax will likely be passed on to the buyer through a higher charge.

The re-imposition of the tax can lead to the relocation of wealth management companies, stock brokers, hedge funds and other companies in the securities industry and lead to disappointing revenues.

When the share transfer tax was first introduced in 1905, stock transactions required a physical presence on a stock exchange. Since there were only a few exchanges, the tax did not impose a competitive disadvantage on New York. However, technology now makes it possible to initiate transactions anywhere. Lawyers’ estimates of potential revenue are based on the assumption that any transaction going through a New York-based stock exchange (NYSE and NASDAQ) would be subject to tax; however, the vast majority of transactions are conducted electronically and processed through servers located in New Jersey. For the purposes of determining liability, the location of digital transactions and whether they are taxable in New York has not been established by law, regulation or litigation. For example, if a non-resident of New York State called their broker in New York to complete a transaction and that transaction was conducted on the NYSE floor, it would be taxable. However, if she logs into her IRA account online and sets up a transaction that is done electronically on servers in New Jersey, that transaction is likely not taxable under current rules. For this reason, the tax is unlikely to generate as much as claimed.

In recent weeks, the New York Stock Exchange and NASDAQ have both discussed moving their data centers out of New Jersey in response to reports that New Jersey may impose a tax on share transfers. Technology has made it easier to process trades outside of physical New York trading floors, and the tax may encourage moving transfers of shares from one exchange to another. Countries like Sweden and Germany have experienced corporate relocations and declining levels of trade after enacting a tax on stock transfers, leading them to repeal their taxes afterwards.

Even if the tax is passed on to consumers through higher fees, a tax implemented only in New York will impact location decisions, as these fees will make New York-based businesses less competitive.

Three bills to restore the tax have been introduced in the Legislative Assembly. Two of those bills – introduced by State Senator Zellnor Myrie and one introduced by Assembly Member Erik Dilan – would reduce the rebates to 60% and 80%, respectively. Since these proposals maintain the current definition of a transfer, any transaction processed out of state would likely avoid taxation. As a result, traders would be incentivized to move trade processing out of New York City, which would reduce potential income; but companies would not have a strong incentive to physically leave the state if transactions processed outside New York by New York-based companies are not taxable.

Another bill, sponsored by State Senator James Sanders Jr. and Assembly Member Phil Steck, would completely repeal the rebate and broaden the tax base to include transactions where any trade-related action. occurs in the state or if a party involved in the transaction works or lives in New York. The application of the tax, which places New York businesses and investors at a significant competitive disadvantage compared to merchants located outside New York. Unlike the other proposals, expanding the definition of a taxable transaction would encourage companies to physically move their business operations out of New York. This proposal may generate considerably more revenue than others in the short term, but once businesses decide to eliminate their taxes payable, collections will go down and jobs could be lost.

New York’s fiscal discrepancies are real, but the projected income from the stock transfer tax stimulus is not a real solution. New York’s leaders should reject the proposals and instead make other tough choices to balance New York’s budget.

The Citizens Budget Commission has identified more than $ 8 billion in options to close the current year gap and not hurt New York’s competitiveness. They include using state funds for rainy days, selling assets like golf courses, cutting back aid to wealthy school districts, and funding critical capital investments like the maintenance of roads and bridges with debt instead of tax revenue. Capital projects are an appropriate use of debt because the assets created will be used by future generations. Additional gap-closing measures will need to be adopted in the years to come, but New York’s severe fiscal crisis must not be addressed with policies that would hurt future economic growth.

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