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Aug 24, 2012 7:37 AMPublication: The East Hampton Press

Judge Tosses Out MTA Payroll Tax As Unconstitutional

Aug 28, 2012 6:07 PM

A State Supreme Court judge last week ruled that the Metropolitan Transportation Authority’s taxation of all payrolls within its service area to help cover its budget is unconstitutional.

The MTA introduced the new tax in 2009—it brings in $1.2 billion a year for the mammoth commuter service provider, which operates the Long Island Rail Road as part of its transportation system—and it almost immediately faced several legal challenges, including one by Southampton Town. The case that led to Wednesday’s ruling was filed by Nassau County in 2010 and later joined by Suffolk County. Like the other lawsuits, it challenged the right of the MTA to impose taxes on municipalities in light of their right to home rule.

State Supreme Court Justice R. Bruce Cozzens ruled that the tax did not serve a critical state purpose and therefore could not supersede home rule laws.

The MTA has already begun preparing its appeal of the ruling, and its attorneys have said they expect the ruling will be overruled by a higher court—and even Governor Andrew Cuomo allowed that it was likely to happen.

Southampton Town and Southold Town joined to file a lawsuit in 2010, but it was thrown out by a judge in 2011. Later that year, the State Legislature and Governor Cuomo adopted sweeping amendments to the state tax code that included freeing businesses with payrolls of less than $1.25 million from the MTA tax, and exempting private and charter schools. Public schools pay the tax but are reimbursed by the state. But local municipal governments are still required to pay the tax. Southampton Town has paid a little more than $110,000 a year in payroll tax since it was implemented; East Hampton Town pays about $30,000.

Local officials applauded this week’s ruling and said they hope it will hold up in court.

“It’s an unfair and burdensome tax on our businesses and our taxpayers,” said Southampton Town Councilman Chris Nuzzi, a vocal critic of the MTA and the tax since it was imposed. “Even though they modified it, every taxpayer in Southampton still pays. It’s been four years, so you’re talking about close to a half million dollars that the taxpayers of the Town of Southampton have to pay for no reason. Some will argue on a more general point that service hasn’t increased since the tax was imposed ... it’s gone down.”

East End lawmakers and businesses were especially incensed by the tax, which collects 34 cents for every $1,000 of payroll, because the MTA provides only minimal services to the region.

State Assemblyman Fred W. Thiele said that he and other state legislators are working to get the tax removed from the tax code entirely at the state level. “The next step is to permanently repeal MTA payroll tax,” he said. “We can no longer place this burden on our counties, towns, villages and businesses. Eliminating the MTA payroll tax will put Long Island back on the path to economic prosperity.”

Suffolk County Legislator Jay Schneiderman noted that Suffolk County residents pay some $97 million a year in payroll tax, added to the more than $250 million they already paid each year in MTA taxes—a grand total disproportionate to the services they receive.

“This tax has been unfair and should have never have been implemented,” he said. “The East End is desperately underserved by the MTA, and the Long Island Rail Road in particular. Our business owners, non-profits and local governments should not have shouldered the burden of a system that primarily serves New York City.”

Mr. Nuzzi pointed out that the MTA has long struggled to remain solvent, giving rise to the payroll tax in the first place, and has continued to fall short of its operating expenses despite the new revenue.

“When is enough, enough?” he said. “They impose these additional taxes, and they still end up running in the red and seem to need more to make their operation work—and that’s not something Southampton should have to subsidize.”

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"Eliminating the MTA payroll tax will put Long Island back on the path to economic prosperity.” Really?
By Toma Noku (616), uptown on Aug 24, 12 8:24 AM
1 member liked this comment
Businesses have paid in over $80 million/year on Long Island to the tax... that's a BIG trickle down
By Nature (2966), Hampton Bays on Aug 24, 12 9:15 AM
1 member liked this comment
Can we now sue for the illegal taxes we have already paid?
By dnice (2346), Hampton Bays on Aug 24, 12 8:49 AM
Sure -- after the MTA finishes suing to overturn Wednesday's NYS Supreme Court decision.
By Frank Wheeler (1826), Northampton on Aug 24, 12 9:54 AM
No Kidding! We need a follow up on this issue please SH Press. Class action for my $2500. Most painful check I've ever written, ridiculous!
By HarborDad (37), Sag Harbor on Aug 24, 12 10:00 AM
2 members liked this comment