My organization administers a union health and welfare benefit plan. A prior advisory opinion said the benefits we pay out are wages subject to MCTMT but that we don't have to pay the tax on them -- has that changed?

Plain-English summary

This is a Modified Advisory Opinion — the Department's own label — that explicitly replaces its earlier TSB-A-10(1)MCTMT (July 20, 2010) on the same union health and welfare benefit plan petition. The Plan provides health and welfare benefits to covered union members and retirees, funded by per-capita employer contributions negotiated in collective bargaining agreements with the City of New York and other quasi-public employers. The Plan had previously agreed to reimburse New York City's Office of Payroll Administration (OPA) for Social Security and Medicare tax on certain benefits (short-term disability payments and the value of legal services), and OPA argued that obligation meant the Plan also had to reimburse OPA for MCTMT on those benefits.

On the wages question, the modified opinion reaches the same conclusion as before: because the Plan's benefits (at least the short-term disability and legal-services categories) are treated as wages subject to federal Social Security tax under IRC § 3121, they're also "wages and compensation" for MCTMT payroll-expense purposes.

On the who-must-pay question, the modified opinion goes further than the original and reaches a different result. It applies the definition of "employer" used for federal income tax withholding (IRC § 3401(d), incorporated into New York's employer definition via 20 NYCRR § 171.2): normally the "employer" is whoever the individual performs services for, but if that person doesn't have legal control over payment of the wages, the term "employer" shifts to whoever does control the payment (Treasury Reg. § 31.3401(d)-1(f); a trust paying pension-type benefits is the classic example). Determining whether it's the City of New York or the Plan itself that controls the contributed funds is a factual dispute — the Department had received supporting material from both the Plan and the City for their respective positions — and an Advisory Opinion, which only applies the law to a "specified set of facts" (Tax Law § 171, twenty-fourth; 20 NYCRR § 2376.1(a)), cannot resolve a live factual disagreement like that. So the Department declined to conclude who is legally obligated to pay.

What this means for you

Union benefit plan administrators and municipal payroll offices

Confirming that benefit payments constitute MCTMT-taxable wages doesn't resolve who's on the hook to remit the tax — that depends on which party actually controls payment of the funds, under the IRC § 3401(d) control test. If your plan and a contributing municipality or employer disagree about who controls the money, expect this to be a fact-intensive dispute rather than something resolvable by advisory opinion.

Anyone relying on the original TSB-A-10(1)MCTMT

Use this modified opinion instead — it is the Department's later, controlling word on the same petition, and it specifically withdraws (rather than merely supplements) the original's conclusion about the administrator's payment obligation.

Common questions

Q: Are union health and welfare plan benefits subject to MCTMT?
A: Yes, to the extent they're treated as wages under IRC § 3121 (as demonstrated here by the Plan's own agreement to pay Social Security/Medicare tax on certain benefit categories).

Q: Who has to actually pay the MCTMT on those benefits -- the plan or the contributing employer?
A: It depends on who has legal control over payment of the wages under the IRC § 3401(d) test, which the Department found to be a genuinely disputed factual question here that an advisory opinion can't resolve.

Q: Why did the Department issue a "modified" opinion instead of just answering the original petition differently?
A: The petition and facts were identical to the earlier TSB-A-10(1)MCTMT; the Department's opinion text states this one explicitly "replaces" that one, so this modified version is the operative statement of the Department's position on both questions.

Q: Can I rely on this ruling for my own benefit plan or payroll situation?
A: No. This advisory opinion binds the Department only as to the petitioner and the specific facts described.

Citations and references

Statutes and regulations:

• Tax Law § 800(b) (MCTMT "employer" definition)
• Tax Law § 171, twenty-fourth (Advisory Opinions apply law to a specified set of facts)
• IRC § 3121 (wages and compensation subject to federal social security tax)
• IRC § 3401(d) (federal income tax withholding "employer" definition; shifts to whoever controls payment)
• 20 NYCRR § 171.2 (state "employer" definition tied to federal withholding-employer status)
• 20 NYCRR § 2376.1(a) (Advisory Opinion scope limited to specified facts)
• Treasury Regulation § 31.3401(d)-1(f) (control-of-payment employer test; trust example)

Authorities cited in the opinion:

• Otte v. United States, 419 U.S. 43, 42 L.Ed.2d 212 (1974)
• Rev. Rul. 70-51, 1970-1 C.B. 192

Related opinions

• TSB-A-10(1)MCTMT — the original, now-superseded opinion on the same petition, which had concluded the plan administrator had NO payment obligation (a conclusion this modified opinion withdraws in favor of leaving the control question open).

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/mctmt_ao.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/mctmt/a10_1_1mctmt.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Counsel
Advisory Opinion Unit

TSB-A-10(1.1) MCTMT
Metropolitan Commuter
Transportation Mobility Tax
April 8, 2011

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
MODIFIED ADVISORY OPINION

PETITION NO. M091116A

On November 16, 2009, a Petition for Advisory Opinion was received from name redacted
(Petitioner).
Petitioner asks whether benefits paid to members of a union health and welfare benefit plan are
subject to the New York State metropolitan commuter transportation mobility tax (MCTMT) and whether
Petitioner is required to pay the MCTMT on those benefits.
We conclude that the benefits are wages subject to the MCTMT. However, we cannot reach a
conclusion on the issue of whether the Petitioner has an obligation under the Tax Law to pay MCTMT on
plan benefits paid to its members.
Facts
Petitioner operates a union health and welfare benefit plan (the Plan). The Plan provides health
and welfare benefits for its covered union members and retirees. The Plan’s benefits are funded through
contributions from the City of New York and various other quasi-public employers and authorities. The
contributions are negotiated by the union and employers as part of the total compensation/benefit package
that the Plan’s members/retirees receive pursuant to those collective bargaining agreements. Pursuant to
such agreements, the Plan receives a set annual per capita contribution from various employers to fund
the health and welfare benefits it provides. All of the negotiated contributions noted above are used by
the Plan to provide agreed-upon health and welfare benefits for its members/retirees.
At the end of each year, the Plan provides the employer of the plan members, the City of
New York, through its Office of Payroll Administration (OPA), all information it needs to issue the
required W-2’s for its employees who have received payments from the Plan. Petitioner has agreed in the
past to pay Social Security and Medicare taxes due on the short term disability payments and on the value
of legal services for its active and retired members.
Analysis
Chapter 25 of the Laws of 2009 added Article 23 to the Tax Law, which establishes the
Metropolitan Commuter Transportation Mobility tax (MCTMT). The MCTMT is imposed on certain
employers and self-employed individuals engaging in business within the Metropolitan Commuter
Transportation District. The Metropolitan Commuter Transportation District (MCTD) is defined under
section 1262 of the Public Authorities Law. It includes New York City (the counties of New York
(Manhattan), Bronx, Kings (Brooklyn), Queens, and Richmond (Staten Island)), and the counties of
Rockland, Nassau, Suffolk, Orange, Putnam, Dutchess, and Westchester.

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TSB-A-10(1.1) MCTMT
Metropolitan Commuter
Transportation Mobility Tax
April 8, 2011

The MCTMT is imposed on the payroll expense of employers who engage in business within the
MCTD.
Payroll expense means wages and compensation as defined in section 3121 of the Internal
Revenue Code for all covered employees. Section 3121 defines wages and compensation subject to
federal social security taxes. The fact that the Plan reimburses OPA for the Social Security taxes due on
the short-term disability payments and the value of legal services for its members demonstrates that these
amounts constitute wages and compensation under IRC section 3121 and are therefore subject to the
MCTMT.
An employer for purposes of the MCTMT means any employer required by section 671 of the
Tax Law to deduct and withhold New York State income tax from wages paid to employees that has a
payroll expense in excess of $2,500 in any calendar quarter. However, the following employers are not
subject to the MCTMT: an agency or instrumentality of the United States, the United Nations, or an
interstate agency or public corporation created under an agreement or compact with another state or
Canada.
NYS Tax Regulations section 171.2 defines employer as “…any person or organization
qualifying as an employer for Federal income tax withholding purposes and maintaining an office or
transacting business within New York State, ...”. Therefore, for MCTMT purposes the definition of
employer is based on the federal definition of an employer for withholding income tax. As such, IRC
section 3401(d) applies when determining if the taxpayer is an employer subject to the MCTMT.
IRC section 3401(d) provides that, for purposes of federal income tax withholding, “the term
‘employer’ means the person for whom an individual performs or performed any service, of whatever
nature, as the employee of such person, except that(1)

if the person for whom the individual performs or performed the services does not have
control of the payment of the wages for such services, the term ‘employer’ (except for
purposes of subsection (a)) means the person having control of the payment of such
wages,
and

(2)

in the case of a person paying wages on behalf of a nonresident alien individual, foreign
partnership, or foreign corporation, not engaged in trade or business within the
United States, the term ‘employer’ (except for purposes of subsection (a)) means such
person.”

Further, Treasury Regulation section 31.3401(d)-1(f) provides that, if the person for whom the
services are or were performed does not have legal control of the payment of the wages for such services,
the term ‘employer’ means (except for the purpose of the definition of “wages”) the person having such
control. As an example, the regulation states that where wages, such as certain types of pensions or retired
pay, are paid by a trust and the person for whom the services were performed has no legal control over the
payment of such wages, the trust is the “employer.” The intent of this definition of employer in the
Internal Revenue Code is to place responsibility at the point of control. Otte v United States 619 US 43,
92 LE 2d 212(1974). The entity having control could be a fund established by collective bargaining unit
such as the Petitioner. See Rev. Rul.70-51, 1970-1C.B. 192.

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TSB-A-10(1.1) MCTMT
Metropolitan Commuter
Transportation Mobility Tax
April 8, 2011

Status as an IRC section 3401(d)(1) employer requires that the common law employer (in this
case, the City of New York) not have control of the payment of wages and that another party (in this case,
the Petitioner) have control over payments. This Office has received material from both Petitioner and
City of New York supporting a conclusion that the other entity is in control of the monies in the Plan.
Thus, whether or not the Petitioner has sufficient control over the contributions made by the City of New
York under the collective bargaining agreement to fund the Plan is a factual question that is not
susceptible of determination in an Advisory Opinion. An Advisory Opinion merely sets forth the
applicability of pertinent statutory and regulatory provisions to a “specified set of facts”. Tax Law 171
twenty-fourth; 20 NYCRR 2376.1(a).

DATED: April 8, 2011

NOTE:

/S/
DANIEL SMIRLOCK
Deputy Commissioner and Counsel

An Advisory Opinion is issued at the request of a person or entity. It is limited to the facts set
forth therein and is binding on the Department only with respect to the person or entity to
whom it is issued and only if the person or entity fully and accurately describes all relevant
facts. An Advisory Opinion is based on the law, regulations, and Department policies in
effect as of the date the Opinion is issued or for the specific time period at issue in the
Opinion.
This A.O. replaces the one issued on the 20th of July, 2010