The New York Supreme Court, Appellate Division, has upheld the constitutionality of the Metropolitan Commuter Transportation Mobility Tax (MCTMT; also known as the MTA Payroll Tax). Mangano v. Silver, 2013 NY Slip Op 04783 (N.Y. App. Div. 2nd Dept., 6-26-13). Therefore, the tax remains effective and employers subject to it should continue to pay it and file required returns. However, the ruling is likely to be appealed, so employers are also advised to continue to file protective refund claims in case the MCTMT is ultimately declared unconstitutional by the New York Court of Appeals, the highest court in the state.
The New York State Department of Taxation and Finance (DTF) administers the MCTMT and distributes the proceeds to the Metropolitan Transportation Authority (MTA). The tax is paid by certain employers engaged in business within the Metropolitan Commuter Transportation District. Employers are subject to the MCTMT if they are required to deduct and withhold New York state income tax from wages paid to employees and they have payroll expenses exceeding $312,500 in any calendar quarter.
In August 2012, a lower court ruled that the MCTMT was unconstitutional due to omissions made by the state legislature when the tax was enacted. The State of New York and the MTA appealed. The Appellate Division reversed the lower court ruling, determining that an exception for special laws that serve a "substantial state concern" applied. Specifically, the court said that the MCTMT "provides a funding source for the preservation, operation and improvement of essential services in the Metropolitan Commuter Transportation District" and "is of sufficient importance affecting the whole" state so as to warrant application of the exception.
Protective Refund Claims
In October 2012, the DTF advised employers that they had the right to file protective refund claims by November 2, 2012, to prevent potential refunds from being time-barred by the statute of limitations should the tax be determined unconstitutional. Employers that did not file a protective refund claim by the November 2 deadline could still file a claim after that date. However, the protective claim would only apply for filing periods still within the statute of limitations. That period is generally within three years from the date the employer filed the return, or within two years from the date the tax was paid, whichever is later.
Once filed, a protective claim applies to all prior filing periods that are within the statute of limitations when the claim is filed and any future filing periods. For example, a protective claim filed by an employer by November 2, 2012, applies to all prior and future filings of the tax.