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New York State Metropolitan Commuter Transportation Mobility Tax Enacted

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July 10, 2009

By: Amy Scholl

New York State recently signed into law the Metropolitan Commuter Transportation Mobility Tax (MCTMT). The MCTMT will be administrated by the New York State Tax Department, and the proceeds from this tax will be distributed to the Metropolitan Transportation Authority.

The MCTMT is imposed on certain employers and self-employed individuals engaging in business within the Metropolitan Commuter Transportation District (MCTD). The MCTD includes New York City (the counties of New York (Manhattan), Bronx, Kings (Brooklyn), Queens, and Richmond (Staten Island)), and the counties of Rockland, Nassau, Suffolk, Orange, Putnam, Dutchess, and Westchester.

This new law applies to:

· Employers (other than public school districts) beginning on or after March 1, 2009

· Domestic employers beginning on or after March 1, 2009

· Employers that are public school districts within the metropolitan commuter transportation district beginning on or after September 1, 2009

· Individuals with net earnings from self-employment for tax years beginning on or after January 1, 2009

· Partners whose share of partnership net earnings is from self-employment for tax years beginning on or after January 1, 2009.

The following describes the impact of the new tax on the above groups in detail.

Employers:

Effective March 1, 2009, employers that have payroll expense in excess of $2,500 in any calendar quarter within the MCTD are subject to the MCTMT. Payroll expense means total wages and compensation as defined in section 3121 of the Internal Revenue Code, as paid to covered employees. However, unlike the annual limitation on the amount of wages and compensation paid to an employee subject to social security tax, no wage and compensation limitation applies when computing payroll expense for the MCTMT.

There are some employers who are not subject to the MCTMT. These are agencies or instrumentalities of the United States, the United Nations, or interstate agencies or public corporations created under an agreement or compact with another state or Canada.

Covered employees are those employees whose services are allocated to the MCTD. The Law provides the following tests to determine if an employee’s services are allocated to the MCTD:

1) Localization: Services are deemed localized within the MCTD if they are either performed entirely within the MCTD or are performed both in and out of the MCTD, but those performed outside the MCTD are incidental to the employee’s services performed within the MCTD (for example, the services are temporary or transitory in nature, or consist of isolated transactions.)

2) Base of operations: If an employee’s services are not localized in the MCTD, all services are allocated to the MCTD if the employee’s base of operations is in the MCTD (this test cannot be applied if the employee had either more than one base or no base of operations).

3) Place of direction and control: If neither of the two preceding tests results in a clear allocation of services, and (1) direction and control (the place from which the employer directs and controls the activities of the employees) emanates from only the MCTD, and (2) the employee performs some services within the MCTD, then all services are allocated to the MCTD.

4) Residence: If none of the preceding tests results in a clear allocation of services, all of the employee’s services are allocated to the MCTD if the employee resides in the MCTD and performs some services in the MCTD.

The tax is imposed at a rate of .34% (.0034) of an employer’s payroll expense for all covered employees, for each calendar quarter. An employer cannot allocate payroll expenses for covered employees who work both in and out of the MCTD for purposes of computing the MCTMT. That is, if an employee is considered a covered employee, all the payroll expense for that employee is subject to the tax. This tax is an employer tax. Accordingly, an employer is prohibited from deducting from the wages or compensation of an employee any amount that represents all or any portion of the MCTMT.

The MCTMT must be reported and paid for each calendar quarter by the last day of the month following the end of the quarter as follows (except for PrompTax filers):

Quarter Due date

January 1 to March 31 April 30

April 1 to June 30 July 31

July 1 to September 30 October 31

October 1 to December 31 January 31

When the due date falls on a Saturday, Sunday or legal holiday, the employer may report and pay on the next business day. There are no extensions of time allowed for employers to report or pay the MCTMT.

There is a special rule for filing for 2009. Since this law applies beginning on or after March 1, 2009 for employers, the initial MCTMT report and payment is due by November 2, 2009 (due to October 31, 2009 falling on a Saturday), and must include the MCTMT due for the period March 1, 2009 though September 30, 2009. There will be no penalty on amounts attributable to the tax for this period, provided the employer has made the initial payment by November 2, 2009.

PrompTax filers: Employers who are required to enroll in the PrompTax program for New York State withholding tax purposes are required to make payments of the MCTMT on the same dates the withholding tax payments are remitted under the PrompTax program. Employers who are not required to enroll in the PrompTax program for withholding tax purposes, but do so voluntarily, are not required to make MCTMT payments on the same date as they make their PrompTax payments. However, they may choose to do so.

Domestic employers:

The same rules for employers (above) apply to domestic employers.

Employers that are public school districts:

The same rules for employers (above) apply to employers that are public school districts, with the exception of the filing deadline for the initial MCTMT report and payment. Since the law applies to public school districts within the MCTMT beginning on or after September 1, 2009, the initial MCTMT report and payment must be for the period September 1, 2009 through September 30, 2009, and is due by November 2, 2009 (due to October 31, 2009 falling on a Saturday).

Currently, the New York State Department of Taxation and Finance has not determined how the reporting of the MCTMT for employers, domestic employers, and employers that are public school districts will be required to be filed. The options being discussed by New York State are either (1) an attachment to the Quarterly Combined Withholding, Wage Reporting, And Unemployment Insurance Return, Form NYS-45, or (2) a new reporting return to be designed.

Individuals with net earnings from self-employment:

Effective for tax years beginning on or after January 1, 2009, individuals (including partners in partnerships and members of limited liability companies (LLC’s) that are treated as partnerships) who have net earnings from self-employment allocated to the MCTD are subject to the MCTMT. However, if the individual’s net earnings from self-employment allocated to the MCTD are $10,000 or less for the tax year, no tax is due. The $10,000 threshold must be applied on an individual basis regardless of the taxpayer’s filing status.

Net earnings from self-employment means an individual’s net earnings from self-employment as defined under section 1402(a) of the Internal Revenue Code. However, unlike the annual limitation of net earnings from self-employment subject to social security tax, no limitation of net earnings from self-employment applies when computing the MCTMT.

Net earnings from self-employment allocated to the MCTD means an individual’s net earnings from self-employment that are attributable to a business carried on within the MCTD. Business activity is carried on within the MCTD if an individual has, maintains, operates, or occupies desk space, an office, a shop, a store, a warehouse, a factory, an agency, or other place located in the MCTD where his or her business matters are systematically and regularly carried on. Similarly, business activity is carried on outside of the MCTD if the individual has, maintains, operates, or occupies desk space, an office, a shop, a store, a warehouse, a factory, an agency, or other place located outside the MDTD where his or her business matters are systematically and regularly carried on.

If all of the individual’s business activity is carried on within the MCTD, all of the individual’s net earnings from self-employment are allocated to the MCTD. If the individual carries on business activities both in and out of the MCTD, only a portion of the individual’s net earnings from self-employment are allocated to the MCTD. The individual must allocate these net earnings for purposes of determining whether or not the $10,000 annual threshold has been met. For this purpose, net earnings are allocated using the same rules that apply for purposes of the allocation of business income earned in and out of New York State under the personal income tax rules.

The tax is imposed at a rate of .34% (.0034) of the total net earnings from self-employment allocated to the MCTD for the tax year.

Individuals who will owe any MCTMT for the tax year must make estimated tax payments, as there are no exceptions. These estimated tax payments are separate from your individual estimated income tax payments. The estimated MCTMT payments are due on April 30, July 31, and October 31 of the current year, and January 31 of the following calendar year. When the due date falls on a Saturday, Sunday or legal holiday, the individual may pay on the next business day. In order to avoid a penalty for underpayment of the MCTMT for the tax year, the individual’s total amount of MCTMT payment(s) must be:

· At least 90% of the amount of the MCTMT due for the current tax year; or

· 100% of the MCTMT reported for the prior tax year if the individuals net earnings from self-employment allocated to the MCTD for the prior tax year is less than $150,000; or

· 110% of the MCTMT reported for the prior tax year if the individuals net earnings from self-employment allocated to the MCTD for the prior tax year is more than $150,000.

Since 2009 is the first year of this tax, only the 90% rule listed above applies in 2009. Also for tax year 2009 New York State has limited the individual’s MCTMT liability to be only ten-twelfths of the total net earnings from self-employment allocated to the MCTD for the entire year.

If an individual is subject to the MCTMT for 2009, the initial estimated tax payment is due by November 2, 2009 (due to October 31, 2009 falling on a Saturday). To estimate the initial MCTMT payment, use the following formula:

Step 1: Estimate the individual’s 2009 net earnings from self-employment allocated to the MCTD

Step 2: Divide the amount from Step 1 by 12

Step 3: Multiply the result from Step 2 by 10

Step 4: Multiply the result from Step 3 by .34% (.0034)

Step 5: Multiply the result from Step 4 by 75% (.75). The result of this step is the amount of the

initial estimated tax payment due November 2, 2009.

There will be no penalty for the underpayment of estimated tax for periods prior to October 31, 2009, provided the individual includes the total estimated tax due for the period January 1, 2009 through September 30, 2009, in the November 2, 2009 payment.

An individual with net earnings from self-employment must file a reconciliation return to reconcile his or her MCTMT estimated tax payments. The MCTMT reconciliation return is due on or before the 30th day of the fourth month following the close of the tax year (April 30 for calendar-year tax payers). If an individual can not meet the deadline for the filing of the annual reconciliation, they can request an automatic extension of time to file the return. However, an extension of time to file the MCTMT reconciliation return does not extend the time to pay, as the full payment of any balance due must be made with the request for extension. As of today, the New York State Department of Taxation and Finance has not determined the length of the extension of time to file.

Partnerships and partners:

The same rules for individuals with net earnings from self-employment (above) apply to partnerships and partners.

If a partnership (including an LLC treated as a partnership) is doing business within the MCTD, each partner will be subject to the MCTMT, and estimated tax payments, based on his or her share of the partnership’s net earnings from self-employment allocated to the MCTD, if his or her net earnings from self-employment allocated to the MCTD is more than $10,000 for the tax year. The partnership must provide either the actual amount of net earnings from self-employment allocated to the MCTD or the allocation percentage to each partner so that the partner can determine the amount of the MCTMT due. To determine the amount of net earnings from self-employment allocated to the MCTD or allocation percentage, see the steps described above.

As an alternative to each partner making estimated MCTMT tax payments and filing separate reconciliation returns, a partnership that meets certain conditions may file one group reconciliation on behalf of its partners who elect to participate in the group return. A partnership that chooses to file a group reconciliation return must also make group estimated tax payments on behalf of the electing partners. The New York State Department of Taxation and Finance has advised that further information regarding this type of filing will be available as it is developed.

Partnerships that do business within the MCTD are required to make estimated MCTMT payments on behalf of individual partners who are nonresidents of New York State except in the following circumstances:

· Estimated tax payments are not required for any partner whose estimated MTCMT required to be paid for the tax year by the partnership is $300 or less.

· Estimated tax payments are not required for any partner if the partnership files a group return and the partner has elected to be included in the group return.

Additionally, estimated MCTMT payments are not required for any partner that certifies to the partnership that the partner will comply in his or her individual capacity with the department’s MCTMT estimated tax filing requirements.

Estimated MCTMT payments cannot be combined with any estimated New York State personal income tax payments the partnership may be required to make on behalf of nonresident partners.

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