State Tax and Budget Update

California Tax on Services.   Introduced on February 23, AB 1963 would lower the state sales and use tax on retailers and tangible personal property from 6.25% to 4% and extend the tax to most services, including securities. The bill will be eligible for committee consideration on March 25.  A two-thirds vote of both houses would be necessary for bill passage.

Introduced on February 24 and amended on March 7, AB 2540 would allow small business owners to exclude 20% of their business income, up to $10,000, from personal income, for tax purposes. The tax relief would be funded by broadly expanding the list of taxable services.  High net-worth estate planning is one of the new items that would be taxed. The bill is eligible for committee consideration on March 27. A two-thirds vote of both houses would be necessary for bill passage.

California Single Sales Factor Legislation.   Assembly Speaker John Perez has introduced AB 1500.  The legislation would end elective single-sales factor apportionment in order to fund significant fee reductions for middle class college students. The bill is similar to SB 116, which Senator De Leon pushed last year but which failed to get the two-thirds vote necessary to pass the Senate.

California Registration Fees.   Currently, California is the only state in the country that does not charge registered representatives an annual renewal fee.  The Department of Corporations is in need of additional funding and has floated a fee proposal with SIFMA.  We are working with the Department to see if an agreement can be reached on a reasonable fee amount.

California Tax Payment Disclosure.   AB 2439 would require publicly traded corporations to disclose to the Controller how much tax it pays to the state; the Controller would then publish this information on its website.  The bill is eligible for committee consideration on or after March 27. 

Kansas.   HB 2763, sponsored by the Committee on Taxation and introduced on February 21, would replace the existing income and sales taxes with a 5.7% consumption tax on the sale of goods and services.

Michigan.    In order to assist in implementation of Michigan’s new retirement account tax withholding law, SIFMA submitted questions to Michigan Treasury and received back helpful guidance.

New York.   S.3753-B would extend the Gramm-Leach-Bliley Act (“GLBA”) tax transition rules for corporate or article 9-A taxpayers in New York for another year.  At this time the transition rules are set to expire on January 1, 2013; this bill would extend them to January 1, 2014.  SIFMA supports final passage of this legislation or incorporation of this measure into the final budget.

S.6470 would impose new fees and taxes on certain financial transactions involving any “debt evading foreign state” (“DEFS”).  A DEFS is defined as a foreign sovereign that has had judgments rendered against it in New York, if the judgments total $100 million or more and any of the judgments have been outstanding for at least two years.

529 Plans

Arizona.   The Arizona statute which permits 529 plan contributions to be deducted from gross income for tax purposes is scheduled to sunset on December 31, 2012.  SB 1196, which has passed both the full Senate and the House Education Committee, would make the deduction permanent.   HB 2388, which has passed the House and is awaiting Senate Committee consideration, would extend the statute for an additional five years.  SIFMA supports both bills.

Missouri.   On March 1, State Treasurer Clint Zweifel announced that MOST has established a new privately funded program that will provide qualified applicants making less than $75,000 a year a dollar for dollar match on contributions.  The match has a household cap of $500 per year and $2500 lifetime.  This program gives MOST a competitive advantage over other 529 plans and undercuts the value of the state’s up front state tax deduction for contributions to all qualified 529 plans.

State and Local Business Relationships

Arizona.   SB 1115 would prohibit the Public Safety Personnel Retirement System from making investments in Iran or Sudan or from investing in anything which facilitates illegal immigration.  The bill passed the Senate on January 26 and was unanimously reported out of the House Employment and Regulatory Affairs Committee on February 21.

HB 2088 passed the House on February 20 and passed out of Senate Committee on March 1.  The legislation, among other things, would require that no more than 80% of Arizona State Retirement System assets could be invested in equities and no more than 40% of ASRS assets could be invested in non-United States public investments.

Connecticut Divestment Bill.   The State Treasurer is currently required by statute to divest its investment in any company doing business in Northern Ireland that has not adopted the MacBride principles.  SB 285, which was introduced on February 29, would still require the Treasurer to encourage companies to adopt the principles but would give the Treasurer greater discretion in dealing with companies that fail to do so.

Connecticut Bond Moratorium.   SIFMA is monitoring HB 5046, which was introduced in mid-February.  This legislation would create a two year moratorium on the issuance of general obligation bonds to fund earmark projects.

Florida.    HB 959, which deals with state investments in companies doing business in Cuba or Syria, has passed the House. The original 37-page bill was the subject of a “strike-all” committee amendment that reduced it to a more limited 2-page measure. 

Georgia.    SB 402 would amend the “Public Retirement Systems Investment Authority Law" by defining terms, including “alternative investments.”  Further, the bill would provide that public retirement systems other than the Teachers Retirement System of Georgia could invest retirement system assets in the eligible alternative investments, private placements, and other private investments outlined in the bill.  The bill has passed the Senate.

Missouri.   HB 1773 would specify that the underwriter and rating agency for any bond issued by a municipal or local governing body has the professional duty to investigate the financial status and material business claims of any company or project for which the bond is issued and will benefit. A hearing was held on February 27.

New Jersey.   A2146/S1304 would prohibit state and local public contracts with persons or entities engaging in certain investment activities in energy, finance, or construction sectors of Iran.   New Jersey already has divesture statutes dealing with Iran, which were passed in 2007. 

New Mexico.   The legislature has adjourned for the year.  Prior to adjournment, several resolutions expressing opposition to the United States Supreme Court ruling in Citizens United v. Federal Election Commission and requesting Congress to propose an amendment to the United States Constitution were adopted.  They are: HM 4 and SM 3.  Hawaii has similar bills (HCR 49 and HR 30) that urge Congress to pass and send to the states a constitutional amendment repealing Citizens United.

New York.   S.6372-A would establish a 3-Year Electronic Bond Sale Pilot Program; the bill is pending in the Senate Local Government Committee.

Securities Update

Florida.  Legislation (SB 1290/HB 777) which would increase the offense severity ranking for the sale of unregistered securities and for sales by unregistered persons has passed the House and Senate, and will be sent to Governor Scott in several weeks.  Specifically, this legislation would increase the Offense Severity Rankings for all crimes, which range from 1 (least severe) to 10 (most severe) and are part of the scoring a judge would use to determine an offender’s sentence.  In addition, it would move securities registration violations from Level 2 to Level 4, and newly specify that dealer registration violations are Level 4.

The Florida Office of Financial Regulation (OFR) announced the creation of the Commissioner’s Advisory Council (Council) to significantly enhance OFR’s ability to discover fraud early and to take action. The Council will report directly to the OFR Commissioner.  According to OFR Commissioner Tom Grady, “This Council will be instrumental in reaching our goal of building trust through vigilant enforcement action by serving as our eyes and ears throughout the state.” Council members include: Michael Alford, Wes Holston, Brian Elias, David Weintraub, Drew Clayton, David McGee, Joseph Coates, Geddes Anderson, Teresa Rooney, Kerry Zinn, Steve Greenbaum and Rick Martens.

OFR Commissioner Tom Grady has been elected interim president of the Board of Governors of the Citizens Property Insurance Corporation. Grady, selected by the Board on Monday, starts his new role on March 12.  The Board will conduct a national search for a permanent replacement.  Grady is a financial affairs lawyer and was a state representative from Naples. He was appointed to the OFR position by his former neighbor, Gov. Rick Scott. 

HB 401/SB 1146 would provide that a designation made by or on behalf of a decedent providing for payment or transfer on death of interest in assets to or for the benefit of a decedent's former spouse becomes void if the marriage is dissolved or was declared invalid before decedent's death.  This measure has passed the Senate and is pending in the House.

Maryland.   HB 364/SB 433 would mandate that a prospective employee not be required to disclose passwords to any social media sites they may participate in as a condition of employment.  SB 433 has passed the Senate with an amendment that allows an employer, based on the receipt of certain information regarding the use of certain web sites or certain web-based accounts, to conduct an investigation.    

New Hampshire.   SB 188, as initially drafted, would have given the state Attorney General overall authority over securities and banking departments as well as coextensive jurisdiction over unfair or deceptive trade practices involving securities transactions.  The bill was amended to form an eight person panel to study whether the state should establish an Office of the Inspector General.  The amended bill passed the Senate on January 18 and a hearing was held in the House Executive Departments and Administration Committee on March 6.

Tennessee.   SB 2702 would allow securities or investment accounts held by bank trust departments to have payable on death designated beneficiaries.  SB 2702 quickly passed both legislative bodies and was sent to the governor for signature on March 1.

State Run Retirement Plans for Private Sector Workers

California.   Senator Kevin De Leon and Senate President Darrell Steinberg have introduced legislation that would create a state run defined benefit plan for private sector workers.  SB 1234 would require employers with five or more employees to automatically enroll those employees into either an employer-sponsored retirement savings plan or a new state-run defined benefit plan.  Employees who did not want to participate would have to affirmatively opt out of the plan.  Employers who do not provide a retirement savings option would pay a $1000 per employee penalty to the State Treasury.  The bill is eligible for committee consideration on or after March 25.

Connecticut.   A 5313 would create a task force to study the desirability and viability of creating a state-run defined benefit plan for private sector employees. The eleven person task force would submit a final report to designated legislative committees by February 1, 2013.  The bill was heard in Joint Committee on March 8.

Illinois.   SB 1844 and HB 4497 would institute an Illinois Auto IRA program to provide state-run retirement options to private-sector employees. The bills have been under active committee consideration in the past week.

Massachusetts.   H 3754, legislation which would create a state-run defined contribution retirement savings option for not-for-profit employers, has passed the legislature. The final version was amended to narrow the bill’s applicability to not-for-profit employers with 20 or fewer employees.  While this is a substantial improvement over earlier iterations, it is still much broader than SIFMA would like.  We are encouraging the Administration to request that the bill’s scope be further narrowed.

Arbitration

California.   In 1998, the California Supreme Court decision in Birbrower v. Superior Court precluded out-of-state attorneys from representing parties in California arbitration proceedings and from preparing for such arbitrations while residing outside the state.  The California legislature quickly corrected the decision, enacting legislation which permitted such representation so long as the attorneys served upon the arbitrator, the parties, the State Bar of California, and counsel a certificate containing specified information within a reasonable period of time. The statute, which has been extended several times, is scheduled to sunset on January 1, 2013.  SIFMA strongly supports AB 1631 which would delete the sunset provision, thereby making the provisions operative indefinitely.    

Florida.    HB 963/SB 1458 proposes major and comprehensive changes to the Florida Arbitration Code intended to conform Florida law to NCCUSL’s Revised Uniform Arbitration Act of 2000, which has been adopted in 14 states and the District of Columbia.   HB 963 has been placed on the House calendar.

Labor & Employment Issues

Colorado.   Legislation (SB 3) has passed the Senate that would preclude employers from using credit history in the employment context and would allow employees and prospective employees to bring civil actions for violations. While earlier versions of the bill excluded the financial services industry, the legislation was narrowed on the Senate floor to only permit credit checks to be performed when required by a defense or security contract. Substantial opposition to the legislation makes ultimate passage unlikely. 

New Jersey.   The Assembly Women and Children Committee will hear four employment related bills that would impose additional requirements on employers, which in some cases are duplicative.  The bills to be heard include:  A2647, which would require employers to post notice of workers’ rights under certain State and Federal Laws; A2648, which would require disclosure of certain employment information; A2649, which would require public contractors to report certain employment information; and A2650, which mirrors the “Lily Ledbetter Fair Pay Act of 2009, and would “restart” the applicable statute of limitations governing discriminatory compensation claims under the “Law Against Discrimination.” 

Tennessee.   Legislation (HB 3251/SB 2996) has been introduced that would prohibit both public and private employers from inquiring into a prospective employee’s criminal background on initial application for employment.  Employers would be able to check criminal backgrounds only after a conditional offer of employment has been extended.  HB 3251 was to be heard in subcommittee on February 29 but was pulled from subcommittee consideration. There has been no activity to date on SB 2996.

Vermont.   Legislation (HB 717) has been introduced that would prohibit employers from inquiring into a prospective employee’s criminal background on his or her initial application for employment.  There has been no activity to date on the bill.

Wisconsin.   AB 578, which was introduced in mid-February, would prohibit an employer from using credit history in the employment context.  While there are some exceptions for certain financial entities, there currently is no expressed exemption for broker-dealers. SIFMA will need to seek an amendment if and when this legislation starts to move.

Unclaimed Property

Alabama.   HB 438 would: allow banks to treat all deposits equally; allow state payment instruments to be remitted to unclaimed property for the benefit of the payee at expiration; require a holder to electronically report, clarify the delivery and receipt of property from another state; allow a surviving parent to claim abandoned property from a child who died interstate; clarify property received by early reporting; and provide protection to consumers who claim their property through a third-party source.

Louisiana.   HB 537 would permit the location of the person appearing to be the owner of the unclaimed property to be a general location. Additionally, in a parish where the number of reported owners of abandoned property exceeds 5,000 in a year, the administrator would be able to elect to publish the notice on the internet web site or portal of the designated newspaper, and would be able to authorize the list to be provided electronically.

South Dakota.   HB 1270 reduces the time period for which unclaimed property is presumed abandoned from five years to three years and revises certain provisions related to the publication notice of unclaimed property.  This bill was signed by the Governor on March 2, 2012.

Upcoming Events

SIFMA’s 2012 Annual Albany Day Event
SIFMA’s Annual Lobby Day in Albany, New York is scheduled for March 13. As in years past, we will have a full day of member meetings with key legislators, legislative leadership, and administration officials.

SIFMA 2012 Annual Jefferson City Lobby Day

SIFMA will be hosting its Second Annual Lobby Day in Jefferson City, Missouri on Tuesday, April 10th. 

State Regulation & Legislation Committee meets via conference call the first Thursday of the month and in person the third Thursday of the month.

State Tax Committee meets the first Thursday of the month.

State & Local Business Relationships Committee meets the second Thursday of the month.

SIFMA's Compliance & Legal Society Annual Seminar

SIFMA's Compliance & Legal Society Annual Seminar on March 18-21, 2012 is the premier event that features more than 60 dynamic and informative panels! Don't miss your opportunity to engage with leading industry experts, discuss the latest regulatory developments and industry trends.

SIFMA's 3rd Annual Private Client Conference

On April 18th, 2012 in Boston, this exceptional program will address tactical ways to enhance client service, advice, and, perhaps most crucially, trust, to consistently deliver results.  Speakers and panelists from a wide variety of global, regional, and small firms will discuss innovative and tactical ideas across market segments, including: 1) intergenerational financial advice and service, 2) providing FAs with the power to adapt to changing client demographics, 3) international effects on North American clients, 4) the need for succession planning, 5) marketing & communication strategies tailored to client acquisition, 6) best practices for developing and vetting investment products at small firms, 7) the dynamics of dual registration for small firms.

Municipal Bond School 2012

In conjunction with SIFMA, The Municipal Bond Club is sponsoring Municipal Bond School. This annual course of instruction is designed to provide a comprehensive introduction to all phases of the business, with emphasis on the mastery of basic skills and knowledge. The classes include sessions on fundamental terminology, regulation, underwriting, trading, analysis, derivatives, public finance, portfolio management, and market strategy.

State Legislatures in Session

SIFMA News

Letter to the Editor: New Bank Regulations
In a letter to the Editor of the New York Times, SIFMA President & CEO Tim Ryan responded to the February 27 editorial "Not What Paul Volcker Had in Mind."  Advising that the editorial had disregarded the damaging effects the proposed Volcker Rule could have on markets, he stated that the current proposal relies on “backward reasoning.”  “[It] is based on a presumption that any possible risk-taking activity conducted by a financial institution in service to clients is prohibited proprietary trading until the institution can prove otherwise.”

Sign Up for SIFMA’s New Blog, Pennsylvania + Wall
SIFMA stands at the intersection of financial markets and public policy. Our new blog will feature commentary by SIFMA staff and leading industry experts that aims to inform the dialogue on how public policy, regulatory rulemaking and legislative action impacts the functioning of financial markets and the industry, as well as the broader economy. Check it out now and sign up for e-mail updates.

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