New York State Metropolitan Transportation Authority tax declared unconstitutional.

• Author: D'Amico, Jeffrey R.

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 governors 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...