New York State Metropolitan Transportation Authority Tax Declared Unconstitutional

By Jeffrey R. D’Amico, J.D., LL.M., assistant professor, Department of Accounting, Taxation & Business Law, SUNY College at Old Westbury, Old Westbury, N.Y.

Court Decision

In a case of first impression, on Aug. 22, 2012, the New York Supreme Court in Mangano v. Silver, No. 14444/10 (N.Y. App. Div. 8/22/12), ruled that New York’s metropolitan commuter transportation mobility tax (MCTMT or MTA tax) “was unconstitutionally passed by the New York State Legislature.” The court held that the “tax is a special law, which does not serve a substantial state interest. This law should have been, according to [Article IX of] the [New York] Constitution, passed with either a Home Rule message [from the locality affected by the law] or by message of necessity [from the governor] with two-thirds vote in each house. This did not occur, therefore, [the tax] was passed unconstitutionally” (slip op. at 5).

Despite this ruling, the MCTMT itself remains in effect. The Metropolitan Transportation Authority has announced it will appeal the decision, but the appeal is not anticipated to be heard for months.

Because of a projected budget shortfall of approximately $1.8 billion by the Metropolitan Transportation Authority, the New York State Legislature passed the Metropolitan Transportation Authority (MTA) payroll tax on May 6, 2009, and it took effect retroactively on March 1, 2009.

The MTA tax is applicable to self-employed individuals and businesses doing business in the Metropolitan Commuter Transportation District (MCTD), which is a region including, but not limited to, New York City and numerous New York counties such as Nassau, Suffolk, and Westchester. The tax imposed was 34 cents per every $100 of a self-employed individual’s net earnings; and 34 cents per every $100 of a business’s payroll expense.

While the case is on appeal, practitioners should consider filing protective refund claims to protect the potential refund of MTA taxes paid by employers before the three-year statute of limitation expires for MCTMT paid by employers for the quarter ending Dec. 31, 2009 (this quarterly return was due Feb. 1, 2010). These refund claims need to be filed by Feb. 1, 2013.

For self-employed taxpayers, the original 2009 MCTMT return was an annual filing due April 15, 2010. Therefore, the statute of limitation is still open to file a protective refund claim for these taxpayers. Taxpayers should consider filing similar protective refund claims for each subsequent period MTA tax was paid.

In anticipation of a flood of protective refund claims being paid, the New York State Department of Taxation and Finance has developed a process to allow taxpayers to file these refund claims and not to file amended returns claiming a refund of the MTA tax. Taxpayers can file online or call 518-485-2392. The procedures are outlined on the Department's website. The Department of Taxation and Finance states on that site that taxpayers do not have to file a new protective refund claim for each filing period for which they paid the tax. Once filed, a claim covers all periods still open under the statute of limitation and all future periods. The site also says, “[W]e’re confident that the MCTMT is constitutional and the decision will be overturned.”

 

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