Even for the world’s largest asset manager, every million counts.
Among the thousands of provisions up for inclusion in the budget deal being crafted this weekend by the Legislature and Gov. Andrew M. Cuomo are a few dozen words that could save BlackRock, the New York-based financial firm, millions of dollars in city taxes in the future.
The provision was proposed by Senate Republicans last week as an amendment to an otherwise routine extension of state tax law. It would allow BlackRock, which earned a record profit of more than $2 billion last year, to be taxed by the state as a general business corporation rather than as a bank, saving it at least $3.5 million — and possibly several times that much — in city taxes each year.
A spokeswoman for BlackRock declined to comment. Scott Reif, a spokesman for the Senate Republicans, said the amendment was intended to correct a running flaw in the state’s tax code that for years has effectively stranded BlackRock, one of the world’s largest financial companies, in the wrong section of the code.
“Our budget proposes a technical fix that will allow companies to avoid the unintended negative consequences of an otherwise good and necessary provision,” Mr. Reif said. Aides to Mr. Cuomo and the Assembly speaker, Sheldon Silver, said the matter was still under negotiation. It is unclear how many other companies it could affect, and thus how much tax revenue might be gained or lost as a result of the change.
The Senate push represents merely the latest wrinkle in a five-year saga for BlackRock. The firm was once wholly owned by PNC Bank, but is now a stand-alone asset-management business partly owned by PNC and other companies.
Normally, that would make BlackRock subject to New York’s corporate franchise tax. Under a quirk in New York law, BlackRock continued to be treated as a bank for tax purposes, potentially subjecting it to a higher rate.
Last year, State Senator Liz Krueger and Assemblyman Jonathan Bing, both Manhattan Democrats, introduced legislation that would have allowed BlackRock to switch tax categories. The bill did not advance in the Senate, Ms. Krueger said, in part because she could never get the company’s lobbyists to explain how much they would save, or what steps they would take to offset any lost revenue to the city and state. “They were always vague about how much it would save them or what jobs they would bring” from offices elsewhere, she said.
When the bill stalled, BlackRock turned to the State Department of Taxation and Finance. Last year, officials there cut the firm’s state tax bill through an administrative ruling on the tax code, saving BlackRock an unknown amount in state taxes. (BlackRock would not say how much it had saved, and state officials are not permitted to say.)
But urgency remains: Unless the change is enshrined in state law, officials said, BlackRock cannot take advantage of certain corporate tax cuts passed by New York City in recent years. One official, speaking on condition of anonymity, because he was not authorized to discuss the negotiations, said the city could expect to lose about $3.5 million in revenue next year, and several times that amount in the future.
BlackRock reported paying $971 million in local, state, federal and foreign taxes last year and calculated its effective tax rate at 33 percent.
According to BlackRock’s corporate filings with the Securities and Exchange Commission in 2009 and 2010, both the United Kingdom and New York City enacted legislation reducing corporate income taxes, which resulted in a combined tax saving of $75 million. The firm also reported, in 2009, $25 million in tax benefits primarily related to “a favorable tax ruling and the final resolution of outstanding tax matters,” though it was unclear where.
“Corporations want to minimize their tax bills,” Ms. Krueger said. “And BlackRock seems to be exceptionally aggressive in trying to do that.”
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