Jersey City payroll tax is constitutional, but will head back to court over ‘commerce clause’

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The Superior Court of New Jersey Appellate Division ruled that the one percent payroll tax implemented in Jersey City is constitutional, but will still head back to court to address if the “commerce clause” was violated.

A photo from the November 20th, 2018 Jersey City Council meeting where the governing body approved a one percent payroll tax.

By John Heinis/Hudson County View

“We agree with plaintiffs that the purpose of the Ordinance, enabled by Chapter 68, was to supplement the City’s revenue available for school purposes,” Appellate Judges Carmen Messano, Richard Hoffman, and Karen Suter ruled in a 51-page opinion today.

“However, plaintiffs leap from the ineluctable conclusion that payroll tax revenues under the Ordinance supplemented municipal, not State, revenues to a wholly unsupportable result, i.e., that the Ordinance and Chapter 68 violate the Education Clause.”

A group of nearly two dozen plaintiffs, led by developers Mack-Cali and Lefrak, appealed Hudson County Superior Court Assignment Judge Peter Bariso’s March 2019 decision that said having city businesses pay a one percent payroll tax that goes towards the public schools is legal.

The tax, implemented shortly after a city council vote on November 20th, 2018, still faces questions in relation to the constitutionality “common clause,” in other words, how to ensure that two taxing entities don’t both impose a payroll tax on the same employee.

“The lack of a complete record in this case is obvious. We have no idea whether plaintiff-businesses and other Jersey City employers actually face double taxation. We also do not know whether the State or the City, faced with the prospect of our holding, would fashion another remedy, including, possibly striking the supervisor provisions entirely,” the appellate court said.

“To be clear, the supervisor provisions of the Local Tax Authorization Act and the Ordinance, left as enacted without limitations, violate the second prong of the Complete Auto test, and, therefore, violate the dormant Commerce Clause of the United States Constitution.”

As a result, this aspect of the case is being remanded for further proceedings, with a judgement stay being issued for 45 days for to permit all parties to seek further review.

City spokeswoman Kimberly Wallace-Scalcione said the ruling as a whole was very favorable to the city and that the portion of the case that must still be decided merits consideration of “an extremely small class of employees.”

“The City is very pleased with this result as it upholds the obvious conclusion that Jersey City and Newark’s payroll taxes are fairly implemented, and that the Plaintiffs’ efforts to dodge paying their fair share to the schools in Jersey City have completely failed and will continue to fail,” she said.

“The Appellate Division’s very limited remand addresses an extremely small class of employees who are employed and supervised by private employers based in Jersey City but are assigned outside of the City.”

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