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MTA Payroll Tax Protective Refund Claims Due: UPDATE

October 30, 2012

Employers who have employees who work in, and self-employed individuals who have earnings allocable to, the greater New York City metropolitan area have until November 2, 2012 to file protective claims for refunds of New York’s Metropolitan Commuter Transportation Mobility Tax (the “MTA Payroll Tax”). For taxpayers directly affected by Hurricane Sandy, the deadline has been extended to November 14, 2012.

The MTA Payroll Tax was enacted in 2009 by the New York State Legislature to help fund the Metropolitan Transportation Authority.  Commencing in November 2009, employers became liable for the MTA Payroll Tax if they were required to withhold New York state income tax from the wages paid to employees and the services rendered by the employees were allocated to the twelve counties that comprise the New York metropolitan commuter transportation district.  The tax also applies to certain individuals who have net earnings from self-employment and who are engaged in business within the district.  The reporting and tax thresholds generally impose liability only if an employer has a quarterly payroll expense that exceeds $312,500, or a self-employed individual has earnings that exceed $50,000 allocable to the district.

In Mangano v. Silver, a decision rendered on August 22, 2012, a New York Supreme Court ruled that the MTA Payroll Tax was adopted in violation of the Home Rule provisions of the New York State Constitution.  Although the decision is on appeal, the New York Department of Taxation and Finance (the “Department”) has established a procedure whereby taxpayers can file a protective claim for refund now.  Since the limitations period for the first MTA Payroll Tax returns filed in 2009 is due to expire on November 2, 2012, the protective claim for refund should be filed by that date (or November 14, 2012 for taxpayers directly affected by Hurricane Sandy).  However, since the appeal from the New York Supreme Court decision is pending, taxpayers are urged to continue to pay the MTA Payroll Tax until the issue is finally resolved by the courts.  According to guidance published by the Department, a protective claim for refund based upon the unconstitutionality of the MTA Payroll Tax will be effective for all prior tax periods that remain open and any future filing periods.  A protective claim for refund filed after November 2, 2012 will be effective for prior filing periods for which the refund limitations period has not expired and for future filing periods.

A taxpayer should file a protective claim electronically through one of the following methods:  (1) by login to the employer’s Online Service account; (2) by completing an electronic form online at https://www8.tax.ny.gov/; or (3) by calling the automated telephone application line at 518-485-2392.

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