Taxpayers should act now to protect refund claims based
on the New York Supreme Court's recent determination that the
MTA Payroll Tax is unconstitutional.
On August 22, the New York State Supreme Court held that the New
York State Metropolitan Commuter Transportation Mobility Tax (MTA
Payroll Tax or MCTMT) violated the New York State
Constitution.1 Although the decision will be
appealed, taxpayers should take action immediately (filing
protective refund claims for 2009 by the due date of November 1,
2012) in order to protect their ability to claim refunds of the MTA
Payroll Tax. Guidelines explaining these refunds will soon be
released by the New York State Department of Taxation and Finance.
Some large employers and many employees in New York City and
surrounding counties may be entitled to hundreds of thousands, or
even millions, of dollars in refunds.
Overview of MTA Payroll Tax
The MTA Payroll Tax is a 0.34% tax that was enacted in 2009 in
response to the Metropolitan Transportation Authority's
(MTA's) budget shortfall. (Slightly lower tax rates have
applied to small employers since April 1, 2012.) The tax is imposed
on employers (excepting only certain governmental agencies) that
have paid wages subject to either Federal Insurance Contributions
Act (FICA) taxes or railroad retirement taxes of more than $312,500
per quarter to employees working primarily in, directed from, or
residing within the Metropolitan Commuter Transportation District
(MCTD). The MTA Payroll Tax also applies to all self-employed
individuals, including partners of partnerships and members of
limited liability companies that are treated as partnerships, with
net earnings from self-employment of more than $50,000 per year
that is allocated to the MCTD. The MCTD includes New York City and
Rockland, Nassau, Suffolk, Orange, Putnam, Dutchess, and
MTA Payroll Tax Unconstitutional
Various local governments within the MCTD challenged the MTA
Payroll Tax as unconstitutional under the New York State
Constitution. In Mangano, the Tenth District of the New
York Supreme Court held that the MTA Payroll Tax violated the New
York State Constitution because it was not passed by the New York
State Legislature with a home rule message or by a message of
necessity with a two-thirds vote of each house of the Legislature.
As such, the court granted the plaintiffs' motion for summary
Potential Refund Claims
On August 28, the MTA issued an official statement that it will
be appealing the ruling in Mangano.2 Prior to
Mangano, four constitutional challenges to the MTA Payroll
Tax had been unsuccessful. The New York State Department of
Taxation and Finance also has provided that taxpayers should
continue to report and remit the tax. We do not
recommend that any taxpayers refrain from reporting and remitting
the MTA Payroll Tax because substantial penalties and interest
would be applied to taxpayers if the MTA Payroll Tax is upheld on
Protective refund claims may be filed, however, in order to keep
the statute of limitations open in the event that the MTA Payroll
Tax is finally determined to be unconstitutional. The initial MCTMT
returns and payments were due on October 31, 2009 (although returns
and payments dated until November 2 were timely since October 31
fell on a Saturday), except for PrompTax filers, which were
required to make payments on the same dates as their withholding
Under the statute of limitations, refund claims must be filed
within three years from the date the original return was filed or
within two years from the date the tax was paid, whichever is later
(returns filed early are considered to be filed on the due date).
As such, taxpayers must act now in order to file protective refund
1. SeeMangano v. Silver, Index No.
14444/10 (N.Y. Sup. Ct. Aug. 22, 2012), availablehere.
The Internal Revenue Service has recently published an IRS Large Business & International Directive, which updates an earlier directive to field agents addressing the examination of capitalization and repair costs issues.