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Transportation Funding & Financing

Local Income/Payroll/Employer Taxes

Upwards of 20 states including the District of Columbia authorize local income or payroll taxes for general revenue purposes, but only a few specify the taxes for transportation-related expenditures. Local income taxes are applied across a particular municipality and can create differences in neighboring income tax rates that discourage residents from settling there. Payroll taxes (often referred to as commuter taxes), on the other hand, are based on the total of all salaries paid out by employers, effectively taxing a place of employment rather than a place of residence. These taxes are applicable to, for example, supporting transit service into a city, although commuters outside the municipality imposing the tax have no representation over its implementation. However, it can provide an incentive for businesses to relocate outside the zone of taxation. Unlike un-indexed fuel taxes, income and payroll taxes typically rise over time.

In one example, the Oregon Department of Revenue administers payroll tax programs for the Tri-Met Transit District in the Portland area and the Lane Transit District in the Eugene area. Tax rates of approximately two-thirds of 1 percent are paid by nearly every employer who pays wages in the two districts.

Oregon Department of Revenue: Mass Transit District Payroll Tax

As a second example, New York City levied an earned income tax of 0.45 percent from 1966 through 1998 to support City services until it was repealed by the State Legislature in 1999. Recently, there has been discussion of reinstating some form of a commuter tax in New York. In December 2008, a report made to the Governor of New York on the financing of the Metropolitan Transportation Authority (MTA) recommended ways in which to fund future capital and operating expenses in the face of a growing budget gap. One part of the proposed solution included instituting a regional Mobility Tax, an excise tax equal to one-third of 1 percent of wages paid, imposed upon all employers within the region served by the MTA. It would fund new borrowing and direct expenses associated with new capital improvements and existing debt service.

Commission on Metropolitan Transportation Authority Financing: Report to Governor David A. Paterson
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