• Market Crumbs

Financial Services Firms Continue To Flee To Tax-Friendly States

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The New York Stock Exchange was founded on May 17, 1792. Pretty much ever since then, New York City and the surrounding areas have been the heart of the global financial system. However, over the last few years, more financial services firms are packing their bags and it can mostly be attributed to one reason - taxes.

According to the Tax Foundation, the nation’s leading independent tax policy research organization, New York, New Jersey and Connecticut are three of the four worst overall states in the U.S. in terms of business tax climate.

JPMorgan Chase & Co., which is the largest bank in the U.S., has had a presence in New York City for centuries. With profits the top priority, none of that history matters, so JPMorgan is the latest company looking for ways to reduce its presence in the city. In preparation for an economic downturn, the company is reportedly looking to move thousands of employees to cheaper locations such as Texas, Ohio and Delaware.

JPMorgan, which has 25,000 employees in Texas, currently has more job openings in the state than New York, New Jersey and Connecticut combined. CEO Jamie Dimon even said last year "There are more JPMorgan Chase employees in Texas than any other state outside of New York. I’m sure it will be No. 1 soon."

JPMorgan joins a long list of companies that have fled New York City over the last few years. Goldman Sachs has expanded operations in Salt Lake City, which is now the company's fourth-largest location. AllianceBernstein moved its headquarters to Nashville from New York City last year, bringing more than 1,000 jobs with them. Jacksonville has turned into Deustche Bank's second-largest location following New York City.

It's not just large financial services companies packing their bags. Top hedge fund managers have been flocking to Florida, almost certainly driven by the state's lack of income taxes. David Tepper moved Appaloosa Management to Miami. Paul Tudor Jones, while maintaining Tudor Investment's headquarters in Connecticut, opened an office and took residency in Florida. Carl Icahn is set to move Icahn Enterprises to Miami early next year, whether his employees like it or not.

According to Kelly Smallridge, president and CEO of Palm Beach County’s Business Development Board, more than 70 financial services companies have moved to the county in the last three years with more currently discussing moving. "I cannot keep up with the number of companies coming in," Smallridge said. "Some are headquarters, some of them are regional operations. Many of them, once they get here, within short order establish [Palm Beach] as their home base."

While New York City is still the finance capital of the world, the headlines of financial services companies leaving the city for lower tax areas is becoming increasingly common. With so many jobs likely to be replaced by robots, such as equity traders, and the cost of doing business there continuously increasing this trend is most likely to continue.

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