State taking refund claims for MTA payroll tax
State officials ended a frustrating wait for business owners and tax consultants with a recent directive on protective claims for tax refunds that employers can file while a state appeals court weighs the legality of the 3-year-old Metropolitan Transportation Authority payroll tax.
A state Supreme Court judge on Long Island in late August ruled the law creating the tax is unconstitutional. Justice R. Bruce Cozzens Jr. in his decision said the tax ”“ 34 cents per $100 of payroll for employers in the MTA”™s 12-county commuter transportation district ”“ was created by a special law that affected some but not all counties in the state. It therefore required a home-rule message from affected local governments requesting the state Legislature to enact the tax law, Cozzens said.
State officials have filed an appeal with the state”™s highest court, the Court of Appeals. MTA officials called the Long Island judge”™s ruling “erroneous” and said they expect it to be overturned, since four prior court challenges to the tax and its constitutionality were dismissed. The case has not yet been added to the Court of Appeals calendar.
Michele Babcock, a partner at Jacobowitz and Gubits L.L.P., the Walden firm representing the Orange County Chamber of Commerce and three Hudson Valley municipalities in the lawsuit filed two years ago in Nassau County, said the Court of Appeals must first decide whether it has authority to review the case on strictly constitutional ground. Plaintiffs in the original case, which include Westchester County, claim the highest court does not have jurisdiction, Babcock said. “It really comes down to whether it”™s a constitutional issue,” she said.
The court has been silent on the issue of refunds for payroll taxpayers if the law is declared unconstitutional and thrown out.
Business owners and accountants waited several weeks for the state Department of Taxation and Finance to issue guidelines for employers in the MTA district who could be eligible for refunds on taxes paid in 2009. Those employers have a Nov. 2 deadline to claim refund for taxes paid before Nov. 2, 2009.
State tax officials had said the department would publish protective claim forms and guidance for employers by the first week of October. In the meantime, they advised employers to continue paying payroll taxes and filing returns.
The department”™s awaited guidelines were not released until Oct. 17. Though private accountants and state tax officials advised against it, business owners had begun filing amended tax returns so as not to lose out on any future refunds before the state issued more easily processed claim forms.
“It has been an extremely frustrating experience,” said accountant Barry Weisman, a tax partner at Anchin Block & Anchin L.L.P. in Manhattan. The long delay in Albany “has really eroded practitioners”™ confidence in the state.”
Sandy Weinberg, tax principal at O”™Connor Davies L.L.P. in Stamford, Conn., said Paychex and other payroll services have been offering to file protective refund claims on behalf of their clients. The state taxation department “has been slow in offering something similar to taxpayers doing it themselves.”
“While we”™re confident that the (MTA payroll tax) is constitutional and the decision will be overturned, you have the right to file a protective claim,” state officials said in their Oct. 17 directive. Refund claims based on the unconstitutionality of the tax will be processed when the appeals process is completed, they said.
Self-employed individuals have until April 30, 2013 to file a refund claim before the three-year statute of limitations expires. Partnerships may file one claim on behalf of all qualified partners included in the partnership”™s previous group payroll tax returns.
Weinberg said he could not predict the final verdict of the courts on the controversial payroll tax. “I can say this, there are taxpayers who are thinking this might be a mini-lottery,” he said.