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August 28, 2012

Nassau County Judge Declares MTA Payroll Mobility Tax Unconstitutional

The Metropolitan Transit Authority Payroll Mobility Tax, which was passed in 2009 to help avert an MTA budget shortfall, currently charges employers in the metro region 34 cents for every $100 dollars of payroll. Several municipalities challenged the constitutionality of the tax through a lawsuit filed against New York State and various state officials. Finding that the MTA’s budgetary crisis was not a matter of statewide concern, Justice R. Bruce Cozzens, Jr., a Justice of New York’s Supreme Court, Nassau County, declared that the MTA payroll tax violated the New York State Constitution.

Justice Cozzens determined that the tax was a “special law” insofar as it affected only New York counties within the Metropolitan Commuter Transportation District (“MCTD”), but not the entire state.  Justice Cozzens further held that the tax was unconstitutional because it was not enacted in compliance with constitutionally-mandated procedures required for passage of a special law, including a two-thirds majority vote of each house of the legislature.  Finally, Justice Cozzens determined that the State had not demonstrated that it was entitled to an exception from these procedural requirements, as the tax did not address a “substantial state concern.”

Justice Cozzens rejected the State’s claim that the MTA’s fiscal difficulties were a matter of statewide concern, stating that if this were so, the legislature could have reasonably taxed every county in the state.  Instead it chose to tax only New York City, Long Island and five mid-Hudson area counties.  Justice Cozzens conceded that these counties would be affected by a reduction of MTA services, but expressed skepticism about the effect on upstate counties not served by the MTA and determined that the limited geographic scope of the tax was in effect an admission that the tax was an issue of concern only to the MCTD.

The MTA quickly responded that it will “vigorously” appeal the decision which puts approximately 12% of the MTA’s budget, some $1.5 billion annually, at risk. The court’s ruling should not have any immediate effect on the MTA Payroll Mobility Tax because the court did not order or direct employers to stop remitting the tax. The next stop for the case is the Supreme Court’s Appellate Division, Second Department, which includes judges from all of the counties affected by the tax, except Manhattan and the Bronx.  From the Appellate Division, the case could be appealed to the Court of Appeals, New York’s highest court.

Pending the outcome of the appeals process, we recommend that employers continue to remit the tax to New York State.

Please feel free to contact us with any questions about this decision.