United States

New York: Filing of Corporate Franchise Tax Return Does Not Start the Statute of Limitations for MTA Surcharge Purposes

Aug 01, 2016
From KPMG TaxWatch

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Recently, the New York Division of Tax Appeals addressed whether a portion of an assessment related to the Metropolitan Transportation Business Tax Surcharge (MTA Surcharge) should be cancelled due to the statute of limitations.  Under New York law, companies doing business, employing capital, owning or leasing property, or maintaining an office in the Metropolitan Commuter Transportation District or MCTD are required to pay the MTA surcharge. The MCTD includes the counties of New York, Bronx, Queens, Kings, Richmond, Dutchess, Nassau, Orange, Putnam, Rockland, Suffolk and Westchester. The taxpayer at issue was engaged in business in Orange County, which is in the MCTD.  However, it failed to file the MTA surcharge return or pay the surcharge for the 2005 through 2012 tax years, despite being audited and assessed the surcharge for the 2002 tax year.  In 2014, the Division of Taxation and Finance assessed the taxpayer additional tax, penalties, and interest for the audit period. The taxpayer paid the portion of the assessment related to 2009-2012, but argued that the Division was barred under the statute of limitations for assessing the surcharge for the 2005 through 2008 tax years.

Under New York law, the Division may issue an assessment within three years of the time a return was filed. If no return was filed, the Division may assess at any time. On appeal, the taxpayer argued that the filing of its general corporate franchise tax returns began the statute of limitations for the MTA Surcharge. Specifically, the taxpayer asserted that because its corporate return contained its address in the MCTD, the Division was required to recognize that it had not filed the MTA Surcharge return and assess in a timely manner. The ALJ for the Division of Tax Appeals rejected the taxpayer’s position. Notably, the instructions for the surcharge return indicated it was an additional return with a specific filing date, which, in the ALJ’s view, underscored its independent identity separate and apart from the general corporate return. Furthermore, under the plain language of the law, the Division can assess at any time when no return is filed. The ALJ observed that the taxpayer, even after an audit, repeatedly failed to file the MTA Surcharge return and then tried to use “strained logic” to assert the assessment was barred by the statute of limitations. Please contact Russ Levitt at 212-872-6717 with questions on Matter of Arrow Park, Inc.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.