New Yorkers Should Act Now to File Protective Refund Claims for MTA Tax

Time is running out for taxpayers who paid New York’s metropolitan commuter transportation mobility tax (MCTMT or MTA tax) when it was first imposed in 2009 to file protective refund claims in the wake of the tax’s being declared unconstitutional.

On Aug. 22, 2012, the New York Supreme Court held that the MCTMT “was unconstitutionally passed by the New York State Legislature” (Mangano v. Silver, No. 14444/10 (N.Y. App. Div. 8/22/12)). 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 5–6).

Despite this decision, 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.

Due to 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, or MCTMT, on May 6, 2009.

The MTA tax, which took effect retroactively on March 1, 2009, 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 several New York counties such as Nassau, Suffolk, and Westchester. The tax was imposed in the amount of 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 Sept. 30, 2009 (this quarterly return was due Nov. 2, 2009). These refund claims need to be filed by Nov. 2, 2012.

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, the New York State Department of Taxation and Finance has stated it is developing a process to allow taxpayers to file these refund claims and not to file amended returns claiming a refund of the MTA tax.

Update: On Oct. 17, the Department of Taxation and Finance posted procedures to allow taxpayers to file protective MTA tax refund claims without filing amended returns. Taxpayers can file online or call 518-485-2392. The Department 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.

Editor Notes

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