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Towns, county sue state over MTA payroll tax

Assembly members on both sides of the aisle fight for repeal of tax

Long Islanders benefit from the Long Island Rail Road but elected officials argue city businesses really benefit from MTA services. File photo
September 21, 2011 | 04:26 PM
Two years after New York Democrats passed the Metropolitan Transportation Authority payroll tax, Assembly Republicans are still attempting to repeal what they call the "job-killer" tax.

"It is a tax that is so harmful to the Long Island economy," Sen. Ken LaValle (R-Port Jefferson) said. "We hear this wherever we go."

The tax was put in place in 2009 as a means to help bail out the MTA, including buses, subways and the Long Island Rail Road. The tax called for businesses in the MTA's 12-county service region to pay 34 cents for every $100 of payroll.

In June, a bill to repeal the tax was passed in the state Senate. If it were to pass in the Assembly the tax would be phased out over the course of three years. A three-year systematic reduction of the tax would start Jan. 1, 2012, when small businesses with 25 employees or fewer, as well as both public and nonpublic schools, would be exempted from the tax. Additionally, businesses in all districts excluding the five boroughs would see tax rates reduced to .23 percent of payroll.

By 2013, rates would be .12 percent before finally being eliminated Jan. 1, 2014. New York City's five boroughs would see the tax reduced to .28 percent beginning in 2013, and decreased to .21 percent starting in 2014, where it will remain, since employees of city businesses make greater use of the MTA's services.

Meanwhile, several businesses and municipalities throughout New York have filed lawsuits against the state for what they believe is an unjust tax.

"We're saying it's unconstitutional," said Yvonne Lieffrig, Smithtown town attorney, adding Smithtown, along with Suffolk, Nassau and Westchester counties, as well as other municipalities including the villages of Valley Stream, Mineola and New Hyde Park, are challenging the legality of the tax. The counties and towns requested the hearing venue be in Nassau County, and a judge ruled in their favor. The state has since filed an appeal asking for the venue to be set in Albany, which would cost Long Island municipalities time and money.

According to the New York State Department of Taxation and Finance, as quoted on the Suffolk County website, county hamlets have paid more than $163 million in payroll tax as of February 2011. Topping out the list of most impacted hamlets was Melville, which paid nearly $22 million, followed by Hauppauge with roughly $17 million. Huntington Station paid just more than $5 million, while Smithtown has paid more than $4.5 million.

"The MTA tax is an example of the state having Long Island pay for New York City services that we rarely use," Suffolk County Executive Steve Levy said in an email. "The state is already taxing us in three ways for the MTA: through a portion of sales tax, a portion of phone tax and now through the MTA payroll tax."

The Town of Huntington, which has paid more than $5 million in taxes to the MTA, has also filed suit against the state, according to Philip Ingerman, director of intergovernmental relations for the town. Unlike Smithtown, Huntington's hearing will be held in Albany rather than Nassau or Suffolk.

Ingerman said the Town of Huntington is suing because it does not reap the same benefits as New York City, even though the tax is the same amount for residents of both. "There is no connection between the amount of the fee and the services rendered," Ingerman said. "Although we [benefit] from being in the MTA service area, we don't get the same benefits as people in New York City." He said although Long Island does have its railroad system, it lacks a subway system and large-scale bus system the five boroughs have.

The Town of Brookhaven has also filed a suit against the state, but spokesman Jack Krieger, citing town policy, wouldn't comment on ongoing litigation.

Many school district leaders have said while they agree the tax is unfair, they are not suing the state and actually receive most, if not all, of the tax back the following year.

The future of the bill is now in the hands of the Assembly, which according to Assemblyman Mike Fitzpatrick (R-St. James), is being stalled because Assembly members from New York City are holding it up.

"There's obviously strong support from the Long Island delegation who want it repealed but the city will never let it happen," Fitzpatrick said. "That's why allowing this to be implemented was so problematic."

Like Fitzpatrick, Assemblyman Andy Raia (R-East Northport) said it will be difficult to repeal the bill in the Assembly, where 80 of the 150 members are from the five boroughs. "It's not fair. It's never been fair," Raia said. "It's another example of New York City not paying it's fair share." He said the Assembly denied tolling the bridges and tunnels, and left the suburban counties to pick up the tab.

Assemblyman Dan Losquadro (R-Shoreham) is more optimistic than Fitzpatrick about the future of the repeal passing in the Assembly, but said it will still be an uphill battle. "I'm optimistic that this year we can at least get it on the Assembly floor for a vote," he said. Losquadro said he and other Republicans are reaching across the aisle to create a bipartisan coalition to fight the bill.

The antitax sentiment has crossed party lines, as Assemblyman Steve Englebright (D-Setauket) said he was against the tax since its inception. "The imposition of the tax on suburban communities was unfair and disproportionate," Englebright said.

Although he hasn't seen the details of the tax repeal, he said he'd likely be in favor of it.

The Republican plan right now is to continue telling citizens of the problems they feel are being caused by the tax, and apply pressure to the Assembly to overturn the tax.

"I think the most important thing is certainly we need to have our Long Island community behind us, and I believe they are," LaValle said. "We need to have as many alternatives on how we deal with funding the MTA. This is not the right way."

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    Repair shop
    September 23, 2011 | 08:36 AM

    Why should the "mom and pop" businesses, who are trying to keep our heads above water, have to pay this ridiculous MTA tax!? When it first appeared we were taken aback ! We have enough to deal with here on Long Island
    Serious employment, state and local taxes are killing our lives and businesses! Now we have to pay for this MTA tax! Where will it end? I suppose when we all run dry and cannot pay these astronomical taxes, then and only then, will they see how much our businesses DO help the future of Long Island!!!! But until then, we are DROWNING in high taxes... Some one needs to step in and help us for a change!

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