New York Advisory Opinion TSB-A-86 (18)I: Are pensions paid to employees of the Manhattan and Bronx Surface Transit Operating Authority (MaBSTOA) exempt from New York personal income tax as pensions of a state or municipal employee?

Plain-English summary

The Transport Workers Union of Greater New York asked whether pensions paid to employees of the Manhattan and Bronx Surface Transit Operating Authority (MaBSTOA) - a public benefit corporation and subsidiary of the Metropolitan Transportation Authority - qualify for New York's constitutional and statutory exemption for public-employee pensions. MaBSTOA employees are public officers or employees under Public Authorities Law § 1265, but their pensions are paid not from any state or municipal retirement system, but under a labor agreement between the union and MaBSTOA, administered by a joint pension board that generally follows civil-service guidelines - with New York State providing no funding for the plan.

The Department explained that the constitutional pension exemption (N.Y. Const. art. XVI, § 5, reinforced by the contractual-relationship protection in art. V, § 7) is codified in Tax Law § 612(c)(3), which exempts "[p]ensions of officers and employees of this state, its subdivisions and agencies." Regulation 20 NYCRR 116.3(c) breaks this into two independent conditions: the pension must (1) be received by a former officer or employee of the state or one of its subdivisions/agencies, AND (2) be payable from a state or municipal retirement system. MaBSTOA pensions satisfied only the first condition - its employees are public officers/employees - but failed the second, because MaBSTOA never elected to become a "participating employer" in the New York State Employees Retirement System (an option Public Authorities Law § 1265.9(b) made available to it), and instead continued its own separate labor-agreement pension plan, which the Department found is not a "New York State or municipal retirement system" within the regulation's meaning - citing its own prior 1981 opinion in Matter of Edward Yule, Jr. for the same conclusion about a similarly non-participating subsidiary. Because both conditions must be met and only one was, MaBSTOA pensions did not qualify for the section 612(c)(3) exemption and remained taxable.

The Department did offer a partial silver lining: even though the general public-employee pension exemption didn't apply, MaBSTOA pensions could still qualify for the separate section 612(c)(3-a) exclusion - up to $20,000 of pension/annuity income for an individual 59½ or older, attributable to personal services performed before retirement and arising from an employer-employee relationship or a federally-deductible retirement plan - if its own conditions were independently satisfied.

What this means for you

MaBSTOA (or similar public-authority-subsidiary) retirees

Don't assume that being a "public officer or employee" of a state-related entity automatically makes your pension tax-exempt in New York. This opinion shows the exemption requires BOTH that status AND that your pension actually be paid from a genuine state or municipal retirement system - a purely internal labor-agreement pension plan, even one modeled on civil-service guidelines, does not satisfy the second requirement.

Employees of MTA subsidiaries or similar public benefit corporations

If your employer is a public benefit corporation that has NOT elected to participate in the New York State Employees Retirement System (an option available under Public Authorities Law § 1265.9(b)), your pension is likely taxable in New York even though your salary while working may have received public-employee treatment in other respects.

Retirees who lose the general public-employee pension exemption but are near or over 59½

Check the separate section 612(c)(3-a) exclusion before assuming your pension is fully taxable - it can independently shield up to $20,000 of pension/annuity income if you're 59½ or older and the payment is attributable to personal services performed before retirement, arising from an employer-employee relationship or a federally-deductible plan.

Common questions

Q: Are MaBSTOA employee pensions exempt from New York personal income tax as public-employee pensions?
A: No. The Department found MaBSTOA employees satisfy only one of the two conditions required under 20 NYCRR 116.3(c) - being a public officer/employee - but not the second, because the pension isn't payable from a state or municipal retirement system (MaBSTOA never elected to join the New York State Employees Retirement System).

Q: What would it take for a public-authority-subsidiary employee's pension to qualify for the section 612(c)(3) exemption?
A: The employer would need to actually participate in a genuine state or municipal retirement system - for example, by electing under Public Authorities Law § 1265.9(b) to become a "participating employer" in the New York State Employees Retirement System - rather than maintaining its own separate, privately-negotiated pension plan.

Q: If my MaBSTOA pension doesn't qualify for the general exemption, is there any other tax break available?
A: Possibly. The Department noted that MaBSTOA pensions can still qualify for the separate $20,000 age-59½ pension/annuity exclusion under section 612(c)(3-a), provided its own conditions (age, attribution to pre-retirement services, and either an employer-employee relationship or a federally-deductible plan) are met.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_1986.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/a86_18i.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-86 (18) I
Income Tax
December 9, 1986

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. I860730B

On July 30, 1986, a Petition for Advisory Opinion was received from the Transport Workers
Union of Greater New York, 80 West End Avenue, New York, New York 10023.
The issue raised is the taxability for purposes of the personal income tax imposed under
Article 22 of the Tax Law of pensions paid to employees of the Manhattan and Bronx Surface
Transit Operating Authority.
The Manhattan and Bronx Surface Transit Operating Authority (MaBSTOA) is a public
benefit corporation and subsidiary of the Metropolitan Transportation Authority. Employees of
MaBSTOA are public officers or public employees pursuant to the provisions of section 1265 of the
Public Authorities Law.
Pensions paid to MaBSTOA's employees are not payable from any of the state or municipal
retirement systems. Rather, pensions are paid pursuant to a labor agreement between Petitioner and
MaBSTOA. Under the terms of this agreement, a pension board (made up of two members of
Petitioner and three managerial representatives of the MTA) regulates this pension plan and
generally follows civil service guidelines for pensions. However, New York State does not fund this
pension plan.
Article XVI, § 5 of the Constitution of the State of New York provides as follows:
All salaries, wages and other compensation, except pensions, paid to officers and employees
of the state and its subdivisions and agencies shall be subject to taxation.
Article V, § 7 of the Constitution of the State of New York provides as follows:
After July first, nineteen hundred forty, membership in any pension or retirement system of
the state or of a civil division thereof shall be a contractual relationship, the benefits of which shall
not be diminished or impaired.
These constitutional provisions are embodied in section 612(c)(3) of the Tax Law which
exempts from the personal income tax imposed under Article 22 of the Tax Law "[p]ensions of
officers and employees of this state, its subdivisions and agencies .... "
Section 116.3(c) of the regulations of the State Tax Commission further explains this
exemption as follows:

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

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TSB-A-86 (18) I
Income Tax
December 9, 1986

The following items are to be subtracted from Federal adjusted gross income in
computing the New York adjusted gross income of a resident individual:

(c) Pensions and other benefits...paid by a New York State or municipal retirement
system to an officer or employee of New York State, its political subdivisions or
agencies, or to the beneficiary of a deceased officer or employee, shall be subtracted
in computing New York adjusted gross income. 20 NYCRR 116.3.
It follows from the foregoing that two conditions must be met in order for a pension payment
to qualify for this exemption. First, it must be received by a former officer or employee of New York
State or of one of its subdivisions or agencies. Second, the benefit must be payable from a state or
municipal retirement system.
In the present instance, only the first of the two criteria is met. Accordingly, the pension
payments paid by MaBSTOA do not qualify for exemption and are, therefore, subject to tax, except
as discussed below.
It should be noted that section 1265.9(b) of the Public Authorities Law provides that a public
benefit subsidiary corporation of the Metropolitan Transportation Authority may be a "participating
employer" in the New York State Employees Retirement System with respect to one or more classes
of officers and employees of such public benefit subsidiary corporation. MaBSTOA has not chosen
to so act to bring its employees within the coverage of the Employees Retirement System. Rather,
it has continued the MaBSTOA pension plan which is not a "New York State or municipal
retirement system" within the meaning of regulation section 116.3(c). Edward Yule, Jr., Advisory
Opinion of the State Tax Commission, March 18, 1981, TSB-H-81-(15)-I.
However, it should be noted that the pensions paid by MaBSTOA would qualify for the
exemption provided by section 612(c)(3-a) of the Tax Law which exempts "[p]ensions and annuities
received by an individual who has attained the age of fifty-nine and one-half, not otherwise excluded
pursuant to paragraph three of this subsection, to the extent includible in gross income for federal
income tax purposes, but not in excess of twenty thousand dollars, which are periodic payments

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TSB-A-86 (18) I
Income Tax
December 9, 1986

attributable to personal services performed by such individual prior to his retirement from
employment, which arise (i) from an employer-employee relationship or (ii) from contributions to
a retirement plan which are deductible for federal income tax purposes."

DATED: December 9, 1986

s/FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.