On May 6, the New York Senate passed Senate bill S5451 intended to improve the financial stability and accountability of the Metropolitan Transportation Authority (MTA). The bill will generate an estimated $2.9 billion in revenue over two-years to close the MTA’s more than $2 billion operating deficit and cover some capital costs. The bill also includes operational and accounting changes that should enhance the efficiency and accountability of the MTA.

“First and foremost, our goal was to close a more than $2 billion budget gap, keep fare increases to a minimum, services intact and prevent layoffs,” said Senator Dilan, Chair of the Senate Transportation Committee and sponsor of bill S5451. “Secondly, we saw this as an opportunity to restructure an organization wrought with poor-practices, worse management and little accountability.”

The key revenue generator in the bill is the Metropolitan Commuter Transportation Mobility Tax (MCTMT) applied as a payroll tax of $0.34 cents per $100 of income imposed on payrolls of more than $2,500 and on self-employed earnings of more than $10,000. Retroactive to March 1, 2009, the MCTMT is expected to yield additional income to the MTA of $1.021 Billion in 2009 and $1.54 Billion in 2010.

The revenue from the MCTMT will fund roughly $400 million in debt service that will allow the MTA to issue $6.8 billion in bonds for new capital expenditures on improvements, as well as covering operating losses resulting from the weak economic conditions.

Furthermore, the new revenues will enable the MTA to limit a fare increase to 10 percent for 2009 with the basic fare remaining at $2.25, substantially below the original projections of a 25 – 30 percent increase. The fare increase alone is expected to raise about $500 million per year in incremental revenues.

In addition to the MCTMT, other new revenue sources only for the Metropolitan Commuter Transportation District include:

• A $1 Flat fee on all license classes (estimated to contribute $27 Million) with “D” Licenses paying $78.50 for an eight-year renewal.

• A $25 per year increase on registration/re-registration of motor vehicles (estimated to contribute $47 Million in 2009 and $141 Million in 2010).

• A $0.50 cent per trip surcharge on all medallion Taxicabs in New York City (estimated to contribute $85 million per year).

• A 5 percent fee on all rentals of passenger vehicles within the MCTD (estimated to contribute $18 Million in 2009 and $35 Million in 2010).

MCTMT Mechanics

Of interest to accountants and CPAs whose clients are in the Metropolitan Commuter Transportation District (MCTD), the New York State Department of Taxation and Finance issued a memorandum summarizing the implementation of the MCTMT. The MTCD includes five boroughs of New York City and Nassau, Suffolk, Westchester, Orange, Dutchess, Putnam, and Rockland counties.

All employers with payroll expenses in the MCTD will be required to pay 0.34 percent of their payroll effective March 1, 2009. For school districts, the effective date is September 1, 2009.

The MCTMT concerns employers already required to withhold New York State income tax from their employee’s wages and whose payroll expense exceeds $2,500 in any calendar quarter. Payroll expense includes all wages and compensation, as defined in §3121 and §3231 of the Internal Revenue Code of 1986, paid to all covered employees. The entire payroll expense of an employee is subject to the MCTMT because employers cannot split payroll expenses for employees who work both in and out of the MCTD.

The MCTMT also applies to self-employed individuals, including partners and LLC members treated as partners, if they earn $10,000 or more per year.

A “covered employee” is any employee whose services are performed within the MCTD. This determination is made through a series of tests set by the state, including: localization, base of operations, place of direction and control, and residence. Firms should consult with their accountants and CPAs to conduct a proper assessment of their status.

Covered Employee Tests

Localization: Services are considered “localized” within the MCTD if they are performed entirely or substantially within the MCTD.

Base of Operations: If an employee’s “base of operations” (i.e. the place from which the employee usually begins to perform their functions in or out of the MCTD) is within the MCTD, then all their services are considered to be within the MCTD, even if the services are not “localized.”

Place of Direction and Control: If neither the “localization” nor “base of operations” tests determines where the services were performed, then the “direction and control” test (i.e. the location from which the employee’s actions tasks managed) is applied. Therefore, if the direction and control of the employee’s services originates only from within the MCTD and some of services originate within the MCTD, then all services are considered to be performed within the MCTD.

Residence: If a determination cannot be made under the other tests, then the employee’s services are performed within the MCTD if the employee resides in the MCTD and performs some services in the MCTD.

Self-employed Individuals

In addition to covered employees, the MCTMT will apply to individuals, including partners in partnerships and members of limited liability companies (LLCs) that are treated as partnerships, who have net earnings from self-employment $10,000 or more per year performed within the MCTD, effective January 1, 2009. The $10,000 limit applies irregardless of the taxpayer’s filing status.

Those with self-employment activities both within and outside the MCTD should allocate their earnings using the same rules applicable to business income within and outside New York State. The self-employment earnings are defined as an individual’s net earnings from self-employment as defined under Internal Revenue Code Section 1402(a).

Taxpayers for whom the self-employed rules apply and who will have MCTMT liability, must make estimated tax payments separate from estimated New York State personal income tax payments. These individuals must also file a “reconciliation return” for their MCTMT estimated tax payments. CPA firms and internal accountants in the MCTD and surrounding areas should have information on the mechanics of the estimated payments and relevant due dates.

Partnerships and LLCs

The earnings of every partner in a partnership (or an LLC treated as a partnership) doing business within the MCTD will be subject to the MCTMT, if their share of the partnership’s net earnings is $10,000 or more. Of importance to accountants and CPA firms is that the partnership is required to provide either the actual amount of net earnings or the percentage allocation to each partner so the partners can determine their MCTMT liability. Quarterly estimated payments of the partners’ MCTMT liabilities must also be made.

Partnerships may file a single, group reconciliation return on behalf of its partners who participate in the group return and must make group estimated tax payments for the partners included in the group.

Additional Information

No deductions, exemptions or credits of any kind can be applied against MCTMT liabilities, including federal deductions. Furthermore, employers cannot deduct the MCTMT from their employees’ wages or other compensation and standard penalties under the New York State personal income tax also cover the MCTMT. All reports and payments related to the MCTMT must be filed and paid electronically.

Further details and clarification should be sought from accounting and tax professionals.

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