New York FTT: Express Your Opposition
As states across the nation face 2021 budget gaps due to the COVID-19 pandemic, legislation had been introduced in the New York State Senate that would amend its state's tax laws to include a tax on financial transactions.
Senate Bill S3980 is the most extensive and complex bill of its kind, as measured by the types of transactions that are covered, the entities responsible to pay and the number of rates.
While S3980 remains in the Committee on Budget and Revenue and has not been voted upon, it represents a serious threat to the financial services industry, one that would most likely lead to an exodus of firms from New York.
S3980 is very broad in its application and would tax transactions of equities, bonds and other financial instruments, specifically defining covered securities subject to its tax as:
(1) any share of stock in a corporation;
(2) any partnership or beneficial ownership interest in a partnership or trust;
(3) any note, bond, debenture, or other evidence of indebtedness, other than a state or local bond the interest of which is excluded from gross income under section 103(a) of the internal revenue code;
(4) any evidence of an interest in, or a derivative financial instrument with respect to, any security or securities described in subparagraph one, two, or three of this paragraph;
(5) any derivative financial instrument with respect to any currency or commodity including notional principal contracts;
(6) any other derivative financial instrument and payment with respect to which is calculated by reference to any specified index.
In addition, S3980 covers transactions that are "cleared on a qualified board or exchange located in the state, or is executed by a broker in the state."
While harmful enough if only New York enacts an FTT, it would be particularly damaging to investors if more than one state implements a similar FTT. For example, if a broker dealer located in New York routes an order to an exchange located in another state that has a similar FTT, then the trade would be taxed twice. Taking this two steps further and assuming all states adopt a similar FTT, one transaction could be subject to four taxes: an investor places a trade in one state, executes through a broker dealer in another state, who then routes the order to an exchange in a third state, and the trade is cleared by an entity in a fourth state.
At the federal level, Rep. Patrick McHenry and Rep. Bill Huizenga have introduced new legislation that would prohibit states from imposing a tax on trades by citizens outside of their own borders by taxing the intermediaries those interstate citizens rely upon. The Bill titled, Protecting Retirement Savers and Everyday Investors Act does not prohibit states and localities from imposing FTTs on their own citizens.
STA opposes FTTs because we believe they are ultimately paid by the end investor in that the costs will be directly passed on to them. They also result in higher trading costs due to wider spreads, which lowers performance on their investment vehicles. We believe there are flaws inherent to any FTT, regardless of how they are structured.
If you share these beliefs and you reside in the state of New York, please express your opposition to your state representative. We have provided a template letter and the proper links for you to do so at the end of this article.
Download Senate Bill S3980 PDF here.
