MCTMT Clarification for MTA-305

As discussed in our post on August 29, 2023, the tax rate increased for the metropolitan commuter transportation mobility tax (MCTMT) on payroll in the five boroughs of New York City (referred to as Zone 1), effective on July 1, 2024.

The rate of tax on payroll in the other counties subject to the MCTMT remains unchanged. These counties include Dutchess, Nassau, Orange, Putnam, Rockland, Suffolk and Westchester (referred to as Zone 2).

The revised instructions for Form MTA-305, Employer’s Quarterly Metropolitan Commuter Transportation Mobility Tax Return, that came out in July 2023 update the tests used to determine if an employee works in the Metropolitan Commuter Transportation District. Those instructions indicate that employers should substitute the words “Zone 1” or “Zone 2” in place of “Metropolitan Commuter Transportation District” in the instructions for guidance in allocating employee compensation to either zone. Unfortunately, since the instructions only address the allocation to zones 1 and 2 indirectly, this makes the guidance vague and difficult to apply.

As was the case in the past, the allocation rules include tests regarding where the services are performed, the base of operations of the employee, etc. As a result, determining which zone applies is not solely based on where the employer’s office is located, but it also considers the other factors listed in the instructions.

The instructions indicate that employers cannot allocate payroll expense for covered employees who work inside and outside the Metropolitan Commuter Transportation District. Rather, all the employee compensation must be treated as applicable to the Metropolitan Commuter Transportation District.

As a result, it appears that employers cannot partially allocate compensation for the same employee between Zones 1 and 2. Rather, it appears that the main zone where the employee’s work occurs must be used for all the employee’s compensation.