The MTA Payroll Tax Ruling: What’s Next?

Saying that the “budgetary crisis of the MTA is not a substantial state concern,” a state Supreme Court judge ruled yesterday that the MTA Payroll Mobility Tax is unconstitutional. Although taxes will continue to be collected as the MTA appeals the case to a higher court, yesterday’s decision puts $1.5 billion, or approximately 12 percent of the MTA’s annual budget, at risk.

Judge R. Bruce Cozzens, Jr. Source: ##http://www.brucecozzens.com/##BruceCozzens.com##

By comparison, sweeping service cuts enacted in 2010 saved the MTA $93 million. The amount affected by yesterday’s decision is 16 times larger.

The MTA serves a region that provides the bulk of the state’s tax revenue, and its finances are a perennial point of conflict in Albany. However, Judge R. Bruce Cozzens, Jr., a Conservative Party member who was re-elected to the court in 2011, brushed off the importance of the MTA to the state.

“It is hard to see,” he wrote, “how the residents in Buffalo or other upstate areas… would be affected. If this matter really is a substantial state concern, then the legislature could have reasonably taxed every county within the state,” instead of just those served by the MTA. Judge Cozzens ruled that the state should have obtained home rule messages from the affected counties before enacting the law.

The court decision strikes not just the Payroll Mobility Tax, but all other taxes created to address the MTA funding gap in 2009. The PMT, a 34-cent tax on every $100 of payroll paid by public and private employers in the 12-county MTA region, generates $1.2 billion annually. Additional taxes affected by yesterday’s court ruling – a 50-cent taxi ride surcharge, a rental car tax, motor vehicle registration fees and driver’s license fees – raise $300 million.

Cozzens’ decision does not affect taxes created before 2009 to fund the MTA, including the mortgage recording tax and the petroleum business tax.

Nassau County Executive Edward Mangano, later joined by Westchester, Putnam, and Suffolk Counties, as well as other suburban jurisdictions, brought the case nearly two years ago and celebrated yesterday’s decision. “This success sends a strong message to job creators,” Mangano told Newsday. “This is a historic victory for tax relief and tax reform.”

The county will seek to have mobility tax payments it made returned, though it may not be able to do the same on behalf of private employers who have paid the tax. When Mangano launched the suit in 2010, he told reporters, “We want our money back.”

To reach that point, the decision would first have to survive an appeal by the MTA, which said in a statement that it “strongly believes that yesterday’s ruling from Nassau Supreme Court is erroneous.” Noting that four other Supreme Court challenges to the Payroll Mobility Task brought by Long Island towns were dismissed, the agency expressed confidence that it would prevail in court. “The Payroll Mobility Tax remains in effect for now,” the MTA said, “and we expect that it will survive this legal challenge.”

One-third of dedicated taxes that fund the MTA are now at risk. Source: ##http://www.mta.info/mta/budget/feb2012/Master.pdf##MTA 2012 Adopted Budget##

If the tax were ultimately overturned in the courts, it would devastate the MTA’s finances. Dedicated taxes make up 35 percent of the agency’s 2012 budget. One in three dollars in that pot is affected by the court’s ruling. With such a major cut to the MTA budget, train and bus riders would face major service cuts and fare hikes unless politicians come up with another source of revenue.

Governor Cuomo, who trimmed the Payroll Mobility Tax last year, said this morning that he “believe[s] this ruling is wrong and will be reversed.” Advocacy groups are already putting forth potential funding alternatives in the event that the ruling stands. “New revenues must be found,” said Tri-State Transportation Campaign Executive Director Veronica Vanterpool, either “through congestion pricing, tolling, or other means.”

The next likely step for the case is the Supreme Court Appellate Division’s Second Department, which includes judges from all of the counties affected by the payroll tax, excluding Manhattan and the Bronx. From there, the case could go to the Court of Appeals, New York’s highest court.

  • Larry Littlefield

    “To reach that point, the decision would first have to survive an appeal by the MTA.”

    The MTA shouldn’t appeal. The state should appeal.  The MTA should shut down the commuter railroads.  The other MTA taxes collected outside NYC would be used for their share of debts and retirement benefits, not transportation.

    Why does the MTA keep covering their rears?  Given they appoint the majority of the board, if Cuomo and Bloomberg wanted to, they could use this to really push through a change — while getting none of the blame.

  • JamesR

    What’s infuriating is that the suburban pols pushing for the payroll tax repeal fail to recognize – or do recognize and cynically do not care – that without the MTA, the road network of the NYC suburbs would grind to a halt. MTA takes a tremendous number of cars off the road through MNRR and LIRR. Without a functioning commuter rail system, what you get is bumper to bumper traffic, every day, on every inch of the Saw Mill, the Sprain, the Hutch, the Northern State, and every other auto-only road leading into the city, not to mention the already-congested interstates.

    This metro area is nearly as densely populated as China and these pols are fools for attempting to hamstring this critical infrastructure in this way. 

  • Mark Walker

    That’s some judge: The MTA, a state agency, is “not a state concern.” It is “hard to see” how upstate residents, who leech off downstate residents by getting more aid than they pay in taxes, “would be affected” by the well-being of the downstate transportation system, and thus its economy, which can’t function without transportation. I agree with some commenters who say this is a good time to bring up congestion pricing, bridge tolls, and the commuter tax once again. However, in the current atmosphere, I wouldn’t bet the rent on any of those solutions unless the MTA picks up a really big stick. The MTA should publicly issue some numbers correlating the payroll-tax revenue loss from Nassau and Suffolk with fare hikes and service cuts on the LIRR. NYC may have to face a future in which it entirely funds its own transit system. If that’s the case, it should sever its transit-fiscal links to the suburbs, which can then fund 100 percent of their own systems, should they want to continue having transit service. As an NYC resident, I’m tired of pampering subsidized suburban leeches. I want a divorce.

  • Streetsman

    I agree Larry. In the previous round of service cuts, the pain was distributed across the system. I would argue that NYC outer-borough bus riders were the hardest hit, but the railroads lost some service as well. With the regional payroll tax being cut it would seem logical that those regions given the tax break should bear the brunt of the service cuts. Of course that’s not how the MTA works – the board wouldn’t approve that, which is infuriating.

    Also particularly infuriating is the judges citing of a failure to obtain “home rule” messages before enacting the law, whereas when NYC actually proposed congestion pricing to FUND the MTA, home rule messaging existed but was ignored as the proposal was shelved without a vote. I am so sick of the political shell game in Albany starving the transit system of the largest city in the nation. We already run a system that is about 20 years behind some of our world competitors and it gets worse every day. I hope the mythical “job creators” in the regional counties are happy when people start moving away because they can’t get to work. How can anyone being taken seriously who stands up and announces de-funding transit and reducing regional mobility as an economic development policy?

  • Cancel 2/3 of all westbound revenue service for the next three weeks, I say.  Or only run during rush hour.  Remind that judge’s golf buddies’ friends whose house they live in.

  • Larry Littlefield

    The bottom line is the MTA did not pass the payroll tax.  The state legislature did.  It wasn’t used to pay for transportation.  It was used to pay for the debts the state legislature decided to run up, and the pension enhancements it decided to pass, for workers who live in the suburbs and then move to Florida. And yet here is the MTA taking it on the chin, and filing the appeal, instead of meting out the consequences.

    I’ll say it again.  Break the buses off from the MTA.  Eliminate state funding for bus systems — use it for the MRA (metropolitan rail authority capital plan).  Allow NYC and the counties to pass a payroll tax for their own bus systems.  And then, make the LIRR and MetroNorth cover the same share of their costs as the subway.  Or shut them down until they agree to provide service on that basis.

    With regard to the LIRR, East Side Access is seven years away.  So shut it down for seven years, if that’s what Mangano wants.  As long as those in younger generations know enough not to buy any of his constituents’ houses.  Unless they get it very, very cheap.

  • Larry Littlefield

    The bottom line is the MTA did not pass the payroll tax.  The state legislature did.  It wasn’t used to pay for transportation.  It was used to pay for the debts the state legislature decided to run up, and the pension enhancements it decided to pass, for workers who live in the suburbs and then move to Florida. And yet here is the MTA taking it on the chin, and filing the appeal, instead of meting out the consequences.

    I’ll say it again.  Break the buses off from the MTA.  Eliminate state funding for bus systems — use it for the MRA (metropolitan rail authority capital plan).  Allow NYC and the counties to pass a payroll tax for their own bus systems.  And then, make the LIRR and MetroNorth cover the same share of their costs as the subway.  Or shut them down until they agree to provide service on that basis.

    With regard to the LIRR, East Side Access is seven years away.  So shut it down for seven years, if that’s what Mangano wants.  As long as those in younger generations know enough not to buy any of his constituents’ houses.  Unless they get it very, very cheap.

  • Daphna

    I like Larry Littlefield’s solutions:
    “Break the buses off from the MTA.  Eliminate state funding for bus systems – use it for the MRA (metropolitan rail authority capital plan).  Allow NYC and the counties to pass a payroll tax for their own bus systems.  And then, make the LIRR and MetroNorth cover the same share of their costs as the subway.  Or shut them down until they agree….
    With regard to the LIRR, East Side Access is seven years away. So shut it down for seven years, if that’s what Mangano wants.  As long as those in younger generations know enough not to buy any of his constituents’ houses.”

    Edward Mangano and Judge Bruce Cozzens Jr. are out of touch and short sighted.  JamesR and Mark Walker make very good points and Mangano and Cozzens should read their comments.

  • MFS

    This is the Tea Party’s transit platform realized.  Enjoy!

  • Payless21

    so we still have to pay?

  • Nycmartina

    Am not paying until its a local law…right now its all in the air so until judgement why give them more money i doubt it if it doesnt get appeal i would receive a retro active pay for it.

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    –MTA Payroll
    tax Ruling. Liable parties pay just a
    portion of their debt and are able to hang on to both personal and
    business assets maybe…

  • Danny Franklin

    My colleagues were looking for SC DoR C-245 a few days ago and located a web service that hosts a searchable database . If people require SC DoR C-245 too , here’s http://goo.gl/c2q4Bn

  • Julian Herring

    Timely writing . Just to add my thoughts ,http://goo.gl/9eZMis if anyone needs a IRS 1120 , my husband used a template form here

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