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MTA payroll tax: Case heads to court next week; agency to argue its need for $1.8 billion in annual revenue

People disembark from a Metro-North train at Grand

People disembark from a Metro-North train at Grand Central Terminal in Manhattan. (March 20, 2013) Photo Credit: Craig Ruttle

The MTA will try to convince a panel of appeals court judges next week that a business tax enacted while the state was coming out of the throes of recession is essential to keeping the New York metropolitan region's "economic engine" humming along.

At stake is a $1.8 billion annual revenue stream for the perpetually cash-strapped MTA, created by the state Legislature in 2009 as a way to stave off massive fare hikes of 30 percent or more.

Without it, MTA officials say, they'd be forced to enact "nightmarish" fare hikes and service cuts on Metro-North and the rest of MTA's subway, bus and rail systems.

"The MTA is the largest mass transportation system in the United States," the agency's lawyers wrote in court papers Newsday obtained. "Its service area -- the New York metropolitan area -- has been aptly described as the state's economic engine and this economic engine depends on the area's exceptional transportation infrastructure."

The tax imposes a 34 cent tax for every $100 of payroll laid out by businesses in the MTA's region.

Some 16 counties, towns and villages from Long Island and the Hudson Valley, including Westchester County, decided to pursue a legal challenge of the tax which one lawmaker has dubbed a "job killer."

Last summer a Nassau County judge declared the so-called Payroll Mobility Tax unconstitutional, citing home rule laws that prevent the state from enacting legislation that impact some, but not all, municipalities.

The agency has been allowed to keep collecting the payroll tax while it pursues its appeal.

The showdown heads to a Brooklyn courtroom Tuesday where lawyers for both sides will argue their case before a panel of Appellate Division lawyers.

The MTA lawyers contend that local government officials are trying to use the courts to override the will of state lawmakers.

"Respondents do not like the Payroll Mobility Tax and believe that the Legislature should have acted differently," MTA lawyers wrote in court papers. "This challenge belongs in the political arena, not in the courts."

In his August 2012 ruling, Nassau County Supreme Court Judge Bruce Cozzens said that if there truly was a substantial state concern "then the legislature could have reasonably taxed every county in the state under a general tax law to meet the MTA deficit."

Lawyers for Westchester County agree. In court papers, they accuse the MTA of shifting the cost of closing its budget gap onto employers.

"In an attempt to mitigate fare increases for users of the system the state sought to shift a portion of the burden to employers," wrote Justin Adin, an assistant county attorney.

Westchester claims that the tax has a direct impact on the county's tax base because it could force businesses to move.

The payroll tax idea was conceived in 2008 after Gov. David Paterson created a commission to come up with ways to bail out the MTA.

In addition to the tax, Albany lawmakers proposed 7.5 revenue hikes for each MTA agency every two years rather than the more dramatic hikes of 30 percent or more which were on the table. The most recent round of fare increases took effect last month.

At the time the recurring hikes and the payroll tax was introduced, the MTA was facing a $1.2 billion budget gap caused when a severe downturn in a recession-wracked real estate market had a negative impact on a mortgage recording tax that benefits the agency.

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