New York Local Income Tax for Transit Ruled Unconstitutional

August 23, 2012

New York City residents and employers pay hefty taxes. In addition to various state taxes, city residents pay a local income tax and their employers pay a 0.34% tax on their payroll. This last tax is imposed on a 12-county area surrounding New York City to support the region's Metropolitan Transportation Authority (MTA), the operator of the subway system, buses, and several tunnels and bridges.

Yesterday, a New York state judge ruled that this tax is unconstitutional for failing to get a two-thirds legislative majority when it was enacted:

By limiting the tax to Nassau County, New York City, and the ring of suburban counties that lie north of the city, including Dutchess County, the legislature signaled that it was not "a substantial state concern" but instead a special law, Judge Bruce Cozzens, a state Supreme Court judge in Nassau County, said in his ruling.

The legislature was required to enact the law with a home-rule message or with a message of necessity, which requires two-thirds of the Senate and Assembly to approve the measure, Cozzens said. By failing to meet either condition, the legislature enacted the law unconstitutionally, he concluded.

Sure sounds like the tax needed two-thirds to pass, as a local issue.

The tax was expected to raise $1.26 billion this year, a significant part of the MTA's $12 billion annual operating budget. The MTA says it will appeal the decision, noting it has won four previous challenges to the payroll tax.

More about local income taxes here.

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A tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities.

A payroll tax is a tax paid on the wages and salaries of employees to finance social insurance programs like Social Security, Medicare, and unemployment insurance. Payroll taxes are social insurance taxes that comprise 24.8 percent of combined federal, state, and local government revenue, the second largest source of that combined tax revenue.