Jersey City Mayor Steven Fulop is calling on the state legislature to amend a payroll tax loophole that allows businesses to evade payment since there is currently no local enforcement mechanism.
The mayor is recommending that the state collect the payroll taxes directly since the information necessary for enforcement is available to Trenton, as opposed to at the local level.
Most of the applicable information is regularly obtained by the State of New Jersey through quarterly reports, such as business identification data critical for enforcement, but is not shared with the city for privacy protection reasons.
“The current Payroll Tax from Trenton lacks any real teeth, and so we’re forced to deploy our resources on the local level to try and enforce something that is essentially unenforceable,” Fulop said in a statement.
“Without critical information from the state, the city is unable to place liens as the number of employees working at any establishment is opaque. The inability to place a lien on a business that doesn’t pay means that the city can’t move forward with tax lien sales, as we would with property taxes, because nobody would ever purchase a lien to which they don’t know the value. This can be cleared up by the State easily and increase collections by more than 33 percent overall for next year, which would mean tens of millions of dollars more to our schools.”
Fulop first made mention of this topic at a May 4th joint meeting between the city council and board of education.
“For all intents and purposes, the city payroll tax is an optional tax for people to pay because there’s no mechanism for the city or for the board of education to audit and do an accounting of how many employees actually work at an individual business, which is a major problem … You’re accepting basically a voluntary statement from an employer if they choose to pay,” he said at the time.
School Board President Mussab Ali has also weighed in on this subject previously.
“Homeowners, if we don’t pay our taxes there is a lien on our property. As individuals, if we don’t pay our taxes to IRS, we could go to jail and so why is it that a business should not pay taxes, and nothing happened?,” he told The Jersey Journal in March.
“In general however, I support the idea that the State needs to provide more tools for accountability with regards to the payroll tax.”
The Jersey City BOE adopted an $814 million budget on May 10th, where it was noted that only $60 million had been certified from the payroll tax despite initial estimates projecting $85 million.
Jersey City adopted their payroll tax ordinance in November 2018, which mandates that all local businesses are subject to a one percent tax on their gross payroll.
Since then, nearly 3,300 businesses have registered with the city. The ordinance also requires every employer to register even if they are not subject to the tax, however, the tools to hold businesses accountable aren’t in place.
“What’s the point of enabling a municipal payroll tax to fund our schools if it isn’t coupled with the tools to enforce and collect?” questioned Assemblyman Raj Mukherji (D-33).
“Moving the collection function to the state is only logical so that employers are actually held accountable for their payroll tax obligations.”
The city’s audit team has increased efforts to collect taxes and penalties owed by making direct contact with businesses citywide by sending out deficiency letters, site visits, and phone calls to each individual business owner.
“If any homeowner defaulted on their taxes, they’d quickly be slapped with a lien, and the value of the lien would be clear to everyone as the city and the property know what the unpaid dollar amount is,” Fulop added.
“Businesses face little to no repercussions if they evade payment on the payroll tax because the city wasn’t provided the tools to enforce the tax with transparency. It needs to be fixed and can be fixed easily by Trenton.”