New York provides guidance regarding Composite Filings Under the Metropolitan Commuter Transportation Mobility Tax (MCTMT)
Private equity, hedge fund, mutual fund tax development
In May 2009, Governor Paterson signed into law the Metropolitan Commuter Transportation Mobility Tax (MCTMT). The MCTMT is a new 0.34 percent tax imposed on the payroll expense of employers and the net earnings of self-employed individuals engaging in business within the Metropolitan Commuter Transportation District (MCTD). The MCTD includes the counties of New York (Manhattan), Bronx, Kings (Brooklyn), Queens, Richmond (Staten Island), Rockland, Nassau, Suffolk, Orange, Putnam, Dutchess and Westchester. The New York State Department of Taxation and Finance (the Department) administers the tax.
For employers, the MCTMT applies retroactively from March 1, 2009. For self-employed individuals for years beginning on or after January 1, 2009, the tax applies to self-employment income allocated to the MCTD earned during the taxable year that that exceeds $10,000 per year. For 2009, 10/12 of the allocated self-employment income is subject to tax. The MCTMT is not deductible in determining entire net income for purpose of the New York State and City corporate income taxes, the New York City unincorporated business tax, or the New York State and New York City personal income taxes.
In some cases, this new tax will impose an administrative burden on operating partnerships, notably because the due dates for payments of estimated tax do not coincide with other common filing deadlines. Similarly, the period for calculating such estimated taxes does not correspond to the periods used for calculating estimated personal income taxes. Of significance, partnerships seeking to file a group MCTMT return on behalf of their partners must request permission from the state no later than September 15, 2009.
Mechanics of the tax, due dates and estimated taxes
Self-employed individuals & partners
Individuals, including partners in partnerships and members of limited liability companies (LLC) treated as partnerships, are subject to the MCTMT if they have self-employment income allocated to the MCTD that exceeds $10,000 annually. The amount of tax is 0.34 percent of total net earnings from self-employment allocated to the MCTD for the tax year. Net earnings from self-employment are defined by reference to Internal Revenue Code (IRC) section 1402(a), without regard to the annual limitation on self-employment income subject to social security taxes under IRC section 1402(b)(1). Individuals allocate their self-employment income to the MCTD, using the same rules for allocation of income under the New York personal income tax rules. Generally speaking, this means partners of a hedge or private equity management entity are subject to the MCTMT, but not partners of the general partner. Limited partners and LLC members that actively provide services to the partnership should consult their tax advisors regarding the applicability of the MCTMT to their distributive share of partnership earnings.
Individuals must make quarterly MCTMT estimated payments on the last day of the month following the end of the previous quarter (April 30, July 31, October 31 and January 31). They may file through the Online Tax Center and pay directly from their bank accounts, which requires registering to use the Online Tax Center and Web File. Alternatively, an individual may file Form MTA-5, Estimated Metropolitan Commuter Transportation Mobility Tax Payment Voucher, and pay by check or money order for estimated MCTMT payments. Finally, an individual may join a group filing, as discussed below, and make estimated payments in that way.
For 2009, an individual’s MCTMT liability for the 2009 tax year will be computed using 10/12 of the total net earnings from self-employment allocated to the MCTD. A partner in a partnership that operates on a fiscal year basis is expected to include in the 10/12 computation net earnings allocated to the MCTD for the partnership’s entire fiscal year that ends in the 2009 tax year. The initial estimated tax payment is due by November 2, 2009. The initial estimated MCTMT payment is 10/12 of the estimated net earnings from self-employment multiplied by 75 percent multiplied by the tax rate, 0.34 percent.
An individual with net-earnings from self-employment must file a reconciliation return, Form MTA-6, Metropolitan Commuter Transportation Mobility Return, to reconcile his or her MCTMT estimated tax payments. This return is due on or before the 30th day of the fourth monthly following the close of the tax year (for calendar-year taxpayers this would be April 30). Individuals can request a six-month extension if they cannot file the return by the due date but must fully pay any MCTMT due with the request.
Non-resident partners & group filing guidance for partnerships
If a partnership or an LLC is doing business within the MCTD, each partner will be subject to the MCTMT based on his or her share of the partnership’s net earnings from self-employment allocated to the MCTD if his or her respective earnings are greater than $10,000.
Partnerships that do business within the MCTD must make estimated MCTMT payments on behalf of nonresident partners on Form MTA-405, Report of Estimated Metropolitan Commuter Transportation Mobility Tax for New York Non-Resident Individual Partners, unless: (1) the estimated MCTMT of the partner is less than $300, (2) the partner is included in a group filing or (3) the nonresident submits Form MTA-405-E, Certificate of Exemption from Partnership Estimated Metropolitan Commuter Transportation Mobility Tax Paid on Behalf of Nonresident Individual Partners to the partnership.
Partnerships that meet certain conditions are permitted to file one group reconciliation return, Form MTA-505, Metropolitan Commuter Transportation Mobility Tax Group Return for Partners, on behalf of its partners, both resident and nonresident, who elect to participate in a group return. To participate in a group return, a partner must be a qualified partner, must notify the group agent by April 30 following the close of the tax year, and must execute a valid power of attorney or other approved authorization. A partnership that chooses to file a group reconciliation return will make group estimated tax payments on behalf of the electing partners.
A partnership is eligible to file a group return if it: (1) has two or more qualified partners who elect to file as a group and all the partners in the group have the same filing period and (2) appoints one partner as a group agent. A partner cannot be included in the group if the partner has made individual estimated MCTMT payments for the year or is a partner in another partnership but chose not to be included in group MCTMT filings for that partnership.
A qualified partner is a resident or nonresident partner who: (1) does not have self-employment income allocated to the MCTD other than (a) from the partnership or (b) from another partnership in which the partner is included in that partnership’s MCTMT group filing and (2) agrees to waive the $10,000 net earnings from self-employment income threshold for imposition of the MCTMT (given the 0.34 percent tax rate, the cost of waiving the threshold is $34 for each partner).
A group agent is a partner designated by the partnership to act as an agent in matters relating to the group estimated MCTMT payments and group MCTMT return for all partners participating in the group return.
Eligible partnerships must apply to file group returns by first filing Form MTA-599, Application for Permission to Make Metropolitan Commuter Transportation Mobility Tax Group Estimated Tax Payments and File a Group Return, by September 15, 2009. For years after 2009, Form MTA-599 must be filed on or before March 15 of the tax year.
If approved, the group will be issued a special MCTMT identification number that will be used on all MCTMT group filings. The Department’s approval to file group return remains in effect until a formal revocation is received.
An approved group files Form MTA-505 annually on April 30 for calendar-year taxpayers and on or before the 30th day of the fourth month following the close of the tax year for fiscal year filers. A sixth month extension to file the return is available.
Estimated MCTMT payments are made by the group on Form MTA-5, Estimated Metropolitan Commuter Transportation Mobility Tax Payment Voucher. For 2009, the first estimated payment is due November 2, 2009 (covering the period January 1, 2009 through September 30, 2009). The next estimated payment will be due February 2, 2009 (covering the period October 1, 2009 through December 31, 2009). Thereafter, estimated payments are to be filed quarterly (April 30, July 31, October 31 and January 31).
The MCTMT is applied to an employer’s payroll expense for all covered employees for each calendar quarter where the employer withholds New York State income tax from wages paid to covered employees and that has a payroll expense in excess of $2,500 in any calendar quarter. Payroll expense means the total wages and compensation of a covered employee as defined in IRC section 3121, without regard to IRC section 3121(a)(1) (so the portion of employee compensation that is excess of the Social Security contributions and benefits base remains subject to the MCTMT). For covered employees subject to the railroad retirement tax, total wages and compensation are as defined in IRC section 3231, without regard to section 3231(e)(2)(A)(i) — so compensation not subject to federal taxation remains in the MCTMT tax base. A covered employee means an employee who is employed within the MCTD and has his or her services allocated to the MCTD. The New York State Tax Department has stated that it will use the state unemployment insurance rules to determine when an employee’s services are allocated to the MCTD. Whether an employee is a “covered employee” is determined by applying four successive tests: (1) Localization, (2) Base of Operations, (3) Place of Direction and Control and (4) Residence. If an employee meets any of these tests, the individual is a covered employee for purposes of the MCTMT.
In general, employers must pay the MCTMT on a quarterly basis on the last day of the month following the end of the previous quarter (April 30, July 31, October 31 and January 31). For 2009, the first return will be due November 2, 2009 and must include the MCTMT due for the period March 1, 2009 through September 30, 2009. Employers should file Form MTA-305, Employer’s Quarterly Metropolitan Commuter Transportation Mobility Tax Return, or online through the Tax Center. PromptTax filers (those required to enroll in the electronic filing program for withholding tax purposes) must pay MCTMT on the same day as the withholding tax payments are made under the PromptTax program. MCTMT payments due for the period March 1, 2009 through September 30, 2009 are due on November 2, 2009.
Please contact Ted Dougherty, partner, Deloitte Tax LLP or Jay Rosen, director, Deloitte Tax LLP for further information.