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February 23, 2021

New Jersey court says changes are needed to local payroll taxes to prevent double taxation

The Superior Court of New Jersey Appellate Division vacated a case pleading that the Jersey City payroll tax is unconstitutional. The case was remanded to the lower court because New Jersey employers could be subject to both the Jersey City and Newark payroll tax for the same employees, violating the Commerce Clause of the US Constitution that protects from double taxation.

The court stated that these New Jersey payroll taxes could operate constitutionally if both provided a procedure and remedy for an aggrieved taxpayer to demonstrate it was being taxed twice for the same employee. (Mack-Cali Realty Corp., et al. v. State of New Jersey, et al., N.J. Super. Ct., App. Div., Dkt. No. A-3907-18, 02/16/2021, partially reversing N.J. Super. Ct., Dkt. No. L-4903-18, 03/15/2019.)

A resolution to the constitutional issue is expected within 45 days of its referral back to the lower court.


AB 4163, enacted by the New Jersey state legislature in mid-2018, allows municipalities with populations exceeding 200,000 to establish an employer payroll tax of up to 1%. Newark already had a payroll tax in place before AB 4163 was enacted.

In November 2018 the Jersey City Council unanimously approved the establishment of a 1% payroll tax paid by employers. 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.) The adoption of the Jersey City payroll tax was first challenged in 2018 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. 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 constitutions. (See EY Tax Alert 2019-0570; 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.)


Contact Information
For additional information concerning this Alert, please contact:
Workforce Tax Services - Employment Tax Advisory Services
   • Debera Salam (
   • Kristie Lowery (
   • Kenneth Hausser (


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