ALBANY (Source: Jimmy Vielkind Times Union, Albany, N.Y. (MCT) — A few words tucked into the state budget will mean at least $5 million in tax savings for BlackRock, the world’s largest investment manager.
The Manhattan-based firm has spent several hundred thousand dollars lobbying for the change over the past several years, and argues that a few stray words in Part R of the budget will rightly allow it to be taxed as a regular corporation rather than as a bank, bringing it in line with its competitors.
The full implications of the change remain unclear. Spokespeople for the state Division of the Budget and Department of Taxation and Finance did not say how many companies might take advantage of the change, or what impact it would have on state coffers. An estimate should be included in a report due later this month.
A New York City spokesman also declined to comment on the change, but a city official said the impact to its budget was estimated between $5 million and $10 million starting next year.
Brian Beades, a BlackRock spokesman, said there would be no change to the company’s state tax bill and “ensures that the company continues to be taxed in the manner it should be.”
“The certainty it provides allows BlackRock to continue to grow jobs in New York,” he said in an email, “and we’re gratified that the governor and Legislature — on a bipartisan basis — recognized that this was the right thing to do for New York state.”
BlackRock will report its quarterly profit this week. It earned $2.3 billion on revenue of $9.1 billion in 2011. It manages over $3.5 trillion in assets and employs 1,900 people in New York.
Others characterized the change as a loophole for a prosperous corporation that smarts particularly in comparison to cuts imposed on other areas of the state budget.
“I think this could be a significant revenue item,” said Frank Mauro, a budget analyst for the labor-backed Fiscal Policy Institute. “There are others who could benefit from this. It’s interesting that this was done now and in a context where, supposedly, we’re exercising some restraint in spending.”
Michael Kink, executive director of a progressive, labor-backed coalition called A Strong Economy for All, said the change “confirms the most cynical perspectives about Albany and state government — that it works great for the 1 percent who have lobbyists, special connections and inside relationships, and not so great for the majority of the people.”
Kink’s organization and its affiliates spent hundreds of thousands of dollars lobbying for other changes in the corporate tax code that it hopes will yield more tax revenue to fund social programs. None were adopted.
BlackRock’s lobbyists argue the firm’s history put it in a special kind of tax purgatory. It was founded in 1988 as part of the private equity giant Blackstone. It changed its name in 1992 and in 1995 merged with PNC Bank, which became a majority shareholder.
Because of its origins, it had been treated as a bank for tax purposes, even after going public in 1999. PNC remained a majority shareholder then, but now its ownership is more diverse.
After the federal government passed laws allowing banks, investment banks and pure brokerage houses to intermingle, BlackRock was still treated as a bank although its business was in financial management.
While there’s no difference in the marginal tax rate applied to banks and other corporations — it’s 7.1 percent for both, Mauro said — there are differences in how they must apportion their profits between states. In a global business climate, some locations charge much lower corporate taxes.
Senate Republicans pushed for two years to include the relevant provisions in their budget proposal, and were successful this year. There have also been stand-alone bills that would have changed the law.
They present a quandary for Democratic lawmakers from New York City like Sen. Liz Krueger: Should they help a business in their district, or perhaps listen to more liberal voters that make up their base?
“We never did what we should have done with the modernization of our corporate and banking tax policy, so when BlackRock and anybody else shows up and says they ought to be X and not Y, they have a reasonable argument,” Krueger said.
Still, “I’m not a fan of doing cut-out deals for anybody. … I would prefer transparent decisions about tax policy, not things slid into budget language,” she said.
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