New York's Metropolitan Transportation Authority said it would appeal a state Supreme Court ruling that negated its payroll mobility tax.
The tax, 34 cents on every $100 on payroll costs for employers in metro New York, raises an estimated $1.3 billion annually. It affects municipalities in seven counties stretching from eastern Long Island to upstate Dutchess County.
On Wednesday, Judge R. Bruce Cozzens Jr. in Nassau County called the tax unconstitutional. Nassau and Suffolk counties, and several of their Long Island communities, challenged the law in court.
"We will vigorously appeal today's ruling. We believe this opinion will be overturned, since four prior challenges to the constitutionality of the law making the same argument have been dismissed," the MTA said in a statement, citing separate challenges from Huntington, Brookhaven, Southold and Southampton, all on Long Island.
"The MTA payroll tax is a special law, which does not serve a substantial state interest," Cozzens said in his ruling. "If this matter really is a substantial state concern, then the Legislature could have reasonably taxed every county within the state under a general tax law to meet the MTA deficit. Instead, it chose only to tax those counties within the [region]."
Suffolk County Executive Steven Bellone hailed the ruling, while acknowledging that an appeal is likely.
"This initial ruling is a big victory for Suffolk County taxpayers, many of whom get little to no service from the MTA," he said in a statement. "If [still] found unconstitutional, this ruling would save Suffolk County taxpayers approximately $3.5 million per year."
Since 2009, he said, Suffolk has paid an estimated $12.5 million as a result of the MTA payroll tax and local businesses have paid tens of millions more.
Cozzens said the measure should have been passed with a home-rule message or by message of necessity, with a two-thirds vote in each chamber of the New York State Legislature.
"This did not occur, therefore this law was passed unconstitutionally," he said.
The Legislature passed the measure in 2009 to help plug what was then a $1.8 billion shortfall. Then-Gov. David Paterson, now an MTA board member, signed the law.
State lawmakers last year rolled it back partially, in a move designed to benefit small businesses.
Moody's Investors Service said in December that the rollback could strain the MTA's finances amid increased borrowing plans. Major authority projects include East Side access for Long Island Rail Road trains and the Second Avenue subway line.Moody's rates the agency Aa2, while Standard & Poor's and Fitch Ratings assign an equivalent AA.
The MTA, which last month introduced its $13 billion preliminary budget for fiscal 2013, operates New York City's subways and buses, Metro-North Railroad, the LIRR, seven bridges and two tunnels in the city.