November 2, 2012 Deadline for New York Employers to File Protective Refund Claims for a New York Payroll Tax
Background and Due Dates
Certain employers in New York (NY) have until November 2, 2012 (and self-employed individuals until April 30, 2013), to file a protective claim of refund for a NY payroll tax. On August 22, 2012, NY Supreme Court ruled (in Mangano v. Silver, No. 14444/10 (N.Y. App. Div. 8/22/12)) that the New York’s Metropolitan Commuter Transportation Mobility Tax (MCTMT or MTA tax) was unconstitutional because the tax was in violation of the NY Constitution as it is a special law that does not serve a substantial state interest and was not passed as required with either the Home Rule message or by message of necessity with two-thirds vote in each house. Therefore, taxpayers who paid NY’s MTA tax when it was first imposed starting March 1, 2009, should file protective refund claims – and may need to file by November 2, 2012.
The MTA tax is applicable to self-employed individuals and businesses doing business in the Metropolitan Commuter Transportation District (including NY City, and 12 counties, including Nassau, Suffolk, and Westchester). The tax is imposed in the amount of 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.
Protective Refund Claims
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 three-year statute of limitation expires for MTA tax paid by employers for the quarter ending Sept. 30, 2009 (this quarterly return was due Nov. 2, 2009). These business refund claims need to be filed by Nov. 2, 2012. The first annual return for self-employed individuals who file on a calendar-year basis was due on April 30, 2010, so self-employed individuals should file amended returns for the first tax period before April 30, 2013. In anticipation of a flood of protective refund claims, on October 17, 2012, the New York State Department of Taxation and Finance (NYSDTF) provided the following procedures/three options taxpayers can use to file a protective claim:
- Through the Online Service account, login and file through the services menu,
- Complete an electronic form, or
- Call an automated telephone application (518-485-2392).
There is no paper refund claim option. Taxpayers should not file a protective claim for refund by amending an MTA tax return(s). An amended return is not a valid protective claim for refund, if one was already submitted, the taxpayer needs to re-file using one of the above options.
If the taxpayer does not file a protective claim for refund of the MTA tax by the November 2, 2012 (businesses) and April 30, 2012 (individuals), they may still file a protective claim for a refund after these dates. However, the protective claim will only apply for the filing periods that are still within the statute of limitations. That period is generally within three years from the date the return was filed or within two years from the date the tax was paid, whichever is later.
Taxpayers do not need to file similar protective refund claims for each subsequent period that the MTA tax was paid. Taxpayers do not need to file a protective claim with regards to the unconstitutionality of the MTA tax for each filing period for which the tax was paid or will be paid. Once filed, that 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 on or before November 2, 2012, will apply to all prior and future filings of the MTA tax.
Protective Claims for Individuals who Filed as Part of a Group/Partnership Return
Partnerships may file one protective claim on behalf of all the qualified partners previously included on the partnership's group MTA tax return(s) (Form MTA-505). The partnership may file the claim using either the electronic form or automated telephone application options. The partnership should select individual, enter the group name and use the special MTA tax identification number assigned to the partnership for group filings.
Continuing Requirement to Pay the Tax – Case on Appeal
We note that this case is being appealed by the Metropolitan Transportation Authority, and litigation is expected to last for months. It is possible that the decision may be overturned. The MTA tax itself remains in effect, so according to the NYSDTF website, taxpayers who have been paying this tax should continue to pay and file returns. If this requirement changes, the department will notify taxpayers.
Note that any deduction permitted for federal income tax purposes for the MTA tax must be added back when computing the corporation franchise tax, unincorporated business tax, personal income tax, bank franchise tax and insurance franchise tax. Therefore, taxpayers should continue to add back this amount for purposes of these other taxes. Similarly, any refund of the MTA tax must be subtracted from income.
For more information, see: