New York State MTA Tax Upheld

July 01, 2013

Waxman_EvanOn June 26, 2013, a New York Appellate Court upheld the constitutionality of the New York State Metropolitan Commuter Transportation Mobility Tax (“MCTMT”), also known as the Mobility Tax (Mangano v. Silver, Appellate Division of the Supreme Court of New York, Second Dept. Nos 2012-09463 and 2012-09991 (6/26/13) (2013 NY Slip Op. 04783).

The MCTMT was originally ruled unconstitutional by the lower court in August 2012 after four unsuccessful challenges on the grounds that the MCTMT violated the state constitution by virtue of the fact that the law changed the tax policies of specific municipalities and did not serve a substantial state interest.  The Appellate Court overturned this decision on Wednesday in favor of the New York State Legislature holding that the MCTMT is a special law of importance to the entire state; therefore the law did not require meeting the provisionary home rule powers of local government.

Enacted in 2009 under Article 23 of the Tax Law, the purpose of the MCTMT is to provide a stable and reliable funding source to aid in the preservation, development, and operation of the State’s transportation system.  The MTA currently serves all five boroughs of New York City, as well as Dutchess, Nassau, Orange, Putnam, Rockland, Suffolk, and Westchester counties.  According to MTA spokesman Aaron Donovan, the annual tax revenue is approximately $1.2 billion. On a quarterly basis, employers and self-employed taxpayers are required to remit their share of the MCTMT based on a tax rate ranging from of 0.11% to 0.34%, subject to certain wage and income thresholds.

Following the release of the New York Supreme Court decision in August 2012, Mangano v. Silver, No. 14444/10 (N.Y. App. Div. 8/22/12), supporters of the tax, including public-transportation-advocacy groups, feared negative effects of the state economy and called on the Governor’s Office to cover any shortfall if the decision was not reversed.

The State contended that the court’s decision would be overturned and advised taxpayers who had been paying this tax to continue to pay the tax and file the required returns until the State’s appeal was heard.  Taxpayers were advised to file protective refund claims pending the resolution of this case for purposes of extending the window of time to claim refunds under the statutory time frame (generally three years from the time of filing).

For all taxpayers who have filed protective claims with New York State, the claims will remain in effect pending any further litigation in the matter.  Despite an uphill battle to eliminate the tax, the county executives are expected to try to appeal the Appellate Division’s ruling to the New York State Court of Appeals.

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