My nonprofit runs a licensed special-education school as one part of a larger chapter that also does other developmental-disability work. Is the whole chapter exempt from MCTMT, or just the school employees?

Plain-English summary

A not-for-profit corporation operates local "chapters" across several MCTD counties (including New York City, Dutchess, Nassau, Orange, Putnam, Rockland, Suffolk, and Westchester). Some chapters run schools for children with disabilities, licensed under Article 89 of the Education Law (both school-age programs under § 4401 and preschool programs under § 4410), while every chapter also performs other functions serving individuals with developmental disabilities more broadly. Each chapter operates under a single Employer Identification Number and files its own MCTMT return. Education-related wages ranged from under 10% to almost 32% of a given chapter's total payroll. The corporation asked whether operating a licensed Article 89 school makes the whole chapter exempt from MCTMT as an "eligible educational institution."

Tax Law § 800(b)(4), effective for quarters beginning April 1, 2012, exempts "eligible educational institutions" from MCTMT — defined to include, among others, a school approved under Article 85 or 89 of the Education Law to serve students with disabilities of school age. The Department read this narrowly: Article 89 covers a range of special-education services from birth to age 21, but the MCTMT exemption specifically requires the school to serve students of school age.

Because the payroll for the school portion of each chapter was, per the corporation's own Consolidated Fiscal Report data, only a minority of each chapter's total payroll, the Department held that the exemption travels with the school's employees, not the whole legal entity. Employees who work for the school division of a chapter (teachers, teacher aides, therapy staff, the principal, and other school-direct-charged administrators) are excluded from MCTMT "covered employee" status. But the remaining employees of that same chapter — those working in the chapter's other, non-school developmental-disability programs — are still covered employees whose wages count toward the chapter's MCTMT payroll expense. Any chapter that doesn't operate a qualifying Article 89 school at all remains fully liable for MCTMT across the board.

What this means for you

Nonprofits with mixed educational and non-educational operations

Don't assume that operating one exempt program (like a licensed special-education school) shields your whole organization or even a whole operating division from MCTMT. The Department applies the exemption at the individual-employee level based on which program each employee actually works for — track school-direct-charged staff separately from other program staff.

Multi-service developmental-disability providers

If your Consolidated Fiscal Report or similar cost-allocation records already direct-charge staff to specific programs, that same allocation is likely what the Department will look to in confirming which employees' wages can be excluded from MCTMT payroll expense.

Common questions

Q: Does running a licensed special-education school exempt my whole nonprofit from MCTMT?
A: No. Only the wages of employees actually working for the school (or other qualifying educational institution) are excluded — other employees of the same entity or chapter remain covered.

Q: Does an Article 89 preschool program count the same as a school-age program for this exemption?
A: Not necessarily. The § 800(b)(4) exemption specifically covers a school approved to serve students with disabilities of school age — the ruling's facts and conclusion focus on the school-age programs.

Q: What if a chapter doesn't operate any school at all?
A: That chapter is fully subject to MCTMT for all of its covered employees; the exemption never comes into play.

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

Citations and references

Statutes:

• Tax Law § 800(b)(4) ("eligible educational institution" definition, effective April 1, 2012)
• Tax Law § 800(d) ("covered employee" definition)
• Tax Law § 801 (MCTMT imposition on employer payroll expense)
• Education Law Article 89, § 4401 (school-age special education programs)
• Education Law Article 89, § 4410 (preschool special education programs)

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/a13_1mctmt.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Counsel
Advisory Opinion Unit

TSB-A-13(1)MCTMT
Metropolitan Commuter
Transportation Mobility Tax
April 11, 2013

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M120508A

The Department of Taxation and Finance received a Petition for Advisory Opinion from
name and address redacted. Petitioner asks whether a not-for-profit corporation, which operates
a school licensed under Article 89 of the Education Law, and which also provides other services
to individuals with developmental disabilities, is exempt from the Metropolitan Commuter
Transportation Mobility Tax (MCTMT) pursuant to the “eligible educational institution”
exception. We conclude that divisions of Petitioner are exempt from the MCTMT only with
regard to the employees of the eligible educational institutions operated by those divisions.
Facts
Petitioner is a not-for-profit corporation with operating divisions called “chapters”
throughout the State of New York, including New York City and the following counties:
Dutchess, Nassau, Orange, Putnam, Rockland, Suffolk, New York, and Westchester, all of which
are part of the Metropolitan Commuter Transportation District (MCTD). The chapters of
Petitioner serve several functions, which include the operation of preschools licensed under
Article 89, Section 4410 of New York Education Law and school-age programs licensed under
Article 89, Section 4401 of New York Education Law. The following chapters in the MCTD
operate schools licensed under Article 89 of the Education Law for school age children: Suffolk,
New York City, Rockland and Orange. Each chapter school has teachers, teacher aids, therapy
staff, a principal and other program administrators that are all direct-charged to the school in the
chapter’s Consolidated Fiscal Report filed with New York State. Petitioner estimates that in
2011 education wages as a percentage of total wages for the chapters operating schools ranged
from less than 10% to almost 32%. Each chapter that operates a school holds only one Employer
Identification Number. Each chapter files its own MCTMT return.
Analysis
Section 801 of the Tax Law imposes a tax on employers who engage in business within
the Metropolitan Commuter Transportation District, based on the payroll expense of all of their
covered employees. Covered employees are those employees employed within the MCTD. Tax
Law §800(d)
Effective for the calendar quarter beginning on April 1, 2012, employers that meet the
definition of “eligible educational institutions” are no longer subject to the MCTMT. Tax Law
section 800(b)(4) defines an “eligible educational institution” as any public school district, a
board of cooperative educational services, a public elementary or secondary school, a school

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TSB-A-13(1)MCTMT
Metropolitan Commuter
Transportation Mobility Tax
April 11, 2013

approved pursuant to article eighty-five or eighty-nine of the education law to serve students
with disabilities of school age, or a nonpublic elementary or secondary school that provides
instruction in grade one or above.
Article 89 of the Education Law provides for a variety of special education services and
programs for children from age birth to twenty-one with special needs. However, section 800 of
the Tax Law specifies that an eligible Article 89 educational institution for the purposes of the
MCTMT is a school approved to serve students with disabilities of school age. Tax Law
§800(b)(4).
Each chapter in the MCTD is an employer engaged in business in MCTD subject to the
MCTMT. The chapters that operate schools that qualify as eligible educational institutions also
have other operations. In fact, based on the Consolidated Fiscal Report statistics, the payroll
associated with the school is only a minority percentage of the total payroll of each chapter.
Consequently, the entire chapter is not excluded from the definition of employer for the
MCTMT; only the portion of the chapter’s operations as an eligible educational institution will
be excluded. Therefore, within a chapter that operates a school, none of the employees of that
school will be covered employees for purposes of the MCTMT. However, the remaining
employees of the chapter are covered employees and their wages are included in the calculation
of the chapter’s payroll expense subject to the MCTMT. Any chapter within the MCTD that
does not operate an eligible educational institution as described above is liable for MCTMT for
all of its covered employees.

DATED: April 11, 2013

NOTE:

/S/
DEBORAH R. LIEBMAN
Deputy 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. The information provided in this
document does not cover every situation and is not intended to replace the law or
change its meaning.