March 18, 2019 Jersey City, New Jersey payroll tax survives legal challenge As we previously reported, AB 4163, enacted by the New Jersey state legislature in mid-2018, allows municipalities with a population of over 200,000 to establish an employer payroll tax of up to 1%. (EY Payroll Alert 2018-1316). In November 2018 the Jersey City, New Jersey city council unanimously approved the establishment of a 1% payroll tax paid by employers. The mayor swiftly approved the ordinance. The payroll tax, supported by both the City Council and the state, remedies a $150-million cut in state aid to the public school district over the next five years. (Ordinance 18-133; EY Payroll Newsflash 2018-2355). Jersey City payroll tax legal challenge The adoption of the Jersey City payroll tax was legally challenged by a group of businesses as being "special legislation" barred by the state's constitution, arguing that the tax targets out-of-towners who happen to work in the city. (Mack-Cali Realty Corp. et al. v. State of New Jersey et al., case no. HUD-L-004903-18, in the Superior Court of New Jersey, Hudson County.) On March 15, 2019, Superior Court Judge Peter F. Bariso Jr. dismissed the case, ruling that the payroll tax ordinance is not special legislation prohibited under the state and federal constitution. "The Legislature's decision to cut funding to school districts is not the sole basis that supports the constitutionality of the Local Tax Authorization Act (LTAA); its basis also lies in the characteristics of cities of the first class, being distinct and unique because of their size, that allows the Legislature to address Jersey City separately from other municipalities," Judge Bariso wrote, adding that Newark and Jersey City are home to the state's largest populations of residents and biggest school districts. Per the ruling, "there is no other similarly situated city being excluded because there is no other city that meets the population requirement." Judge Bariso also pointed out that the compliant was materially detrimental to Newark, which also imposes the payroll tax and yet was not named as a defendant in the suit. According to the ruling, "by failing to name Newark as a defendant, plaintiffs have prevented the city with the longest history of a payroll tax from protecting its interest in the LTAA. Also, the court was denied the opportunity to hear Newark's arguments on the constitutional challenges threatening its tax revenues." Employers must pay the Jersey City payroll starting first quarter 2019 According to information posted by the Jersey City Office of Tax Collector to its website, employers must register for the new payroll tax here. This tax is paid by employers and is not withheld from wages paid to employees. All private for-profit employers located within Jersey City with a quarterly gross payroll of $2,500 or more are subject to the tax on the wages of non-Jersey City residents. According to the tax office, employers with zip codes 07302, 07304, 07305, 07306, 07307, 07310, 07311, and 07312 are covered by the ordinance. Employees living within these same zip codes are considered Jersey City residents for the purpose of exclusion. Services by employees are covered if either:
The employer may be required to provide the tax office with written evidence and documentation of the relevant Jersey City residents to be excluded from the payroll tax calculation. Beginning first quarter 2019, employers are required to file and pay the new tax on a quarterly basis, with the first return and payment due by April 30, 2019. According to the Jersey City tax office, the payment must be received by the due date — payments postmarked on the due date are not considered to be filed timely. A payroll tax booklet including quarterly returns and payment forms will be posted to the website in the near future. ———————————————
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