September 4, 2012
MTA Payroll Mobility Tax Found Unconstitutional by New York State Supreme Court
Steps to Take If You Are Subject to This Tax
On August 22, 2012, a New York State Supreme Court ruled that the Metropolitan Commuter Transportation Mobility Tax ("MCTMT") is unconstitutional. The tax, which was enacted in 2009, is paid by employers located within a designated downstate area served by the MTA, called the Metropolitan Commuter Transportation District. Businesses, self-employed individuals and partners in a partnership engaged in business that fall within that area are required to pay the tax, which can be as high as 34 cents per $100 of salaries.
The Court specified that the MCTMT did not serve a substantial state interest, and that the tax appropriated state funds for a local project. In order to be constitutional in New York, the law would have needed to be passed with either a "home rule" message or a "message of necessity" requiring a two-thirds vote in both the NYS Assembly and Senate which it did not.
The Metropolitan Transportation Authority ("MTA") warned that losing the tax could cost the agency $1.8 billion and would result in devastating service cuts and severe fare hikes. The MTA plans on appealing the ruling and noted that the four previous lawsuits challenging the constitutionality of the payroll tax have been dismissed. The New York State Supreme Court is the lowest level court of the three levels in the State.
Because the MTA is appealing the ruling, we recommend businesses and individuals subject to the MTA tax continue paying and remitting the tax. If the ruling stands, taxpayers should be able to claim refunds from the State. It could take considerable time for a final resolution.
The tax was enacted in 2009. If you have been subject to the tax since then, you may want to consider filing protective refund claims prior to the expiration of the statute of limitations for the earlier periods in order to protect any potential refunds you may be eligible for should the ruling stand. Claims for refund of an overpayment of tax generally must be filed within three years of the date in which a return is filed. Since the MCTMT was enacted in 2009, most taxpayers subject to the tax made their initial payment by November 2, 2009. Protective claims for many of these initial tax returns need to be filed by November 1, 2012.
Please contact Anne Patracuolla or Phil London for additional information.