Several Businesses Sue Jersey City Over Payroll Tax, Claim It’s Unconstitutional

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Newark Avenue Downtown Jersey City
Newark Avenue, Downtown Jersey City. Photo by Jared Kofsky/Jersey Digs.

A new tax to be paid by employers that would fund Jersey City’s schools is the subject of a new legal dispute, as several local businesses are looking to have the law thrown out as unconstitutional.

Late last month, Jersey City’s Council unanimously approved a new tax that will be levied on businesses and would be earmarked entirely for the school district. The tax will be assessed on one percent of a business’ payroll, but the wages of Jersey City residents are exempt.

Jersey City is just the second municipality in New Jersey to enact a local payroll tax, with Newark being the first. Charitable organizations won’t have to pay the Jersey City version of the tax, and while major corporations will likely shoulder most of the load, small businesses in Jersey City would still be subject to the new taxes.

The state passed legislation back in June to allow Jersey City to implement a payroll tax if they desired, which was conceived as a way to offset state aid cuts to their public school district. Jersey City is expected to lose $175 million in aid over the next seven years under the new school funding formula.

The tax, which could generate up to $80 million annually in revenue, is set to go into effect on January 1, but a diverse group of businesses is seeking to derail it in court. Notable plaintiffs in the lawsuit, filed on December 11, include several Mack-Cali subsidiaries, landowners of the Hyatt Regency Jersey City, Roseland Residential, Cambridge Corporate Services, multiple local construction unions, parking lot management company SP Plus Corporation, the Exchange Place Alliance District Management Corporation, Spartan Security Services, and the upcoming Los Cuernos restaurant in the city’s Newport neighborhood.

In the case, the businesses argue that “the state is shirking its mandate to provide supplemental funding putatively needed for the thorough and efficient education required by the New Jersey Constitution, by favoring Jersey City with arbitrary and unjustifiable special legislation.” The filing cites the New Jersey Supreme Court Abbott rulings that provide additional funding for the state’s poorest districts, which include Jersey City.

The 15-count lawsuit, which spans over 70 pages, argues that Jersey City’s schools have been overfunded for years, and that “the new funding formula simply moved state aid from Jersey City to municipalities that needed it more, such as Newark, Elizabeth, Paterson, and Trenton.” It additionally claims that Jersey City receives over $127 million in PILOT payments and that if they “used even a fraction of those payments for [their] schools, it would more than make up for the cuts to state aid.”

Mack-Cali CEO Mike DeMarco said in a statement following the lawsuit’s filing that “the payroll tax will decimate Jersey City businesses small and large, it will harm cash-strapped nonprofit organizations, and will undo the progress that the community has made in Jersey City over the last 20 years.”

Not surprisingly, the city held a different view; spokeswoman Ashley Manz said, “It’s unfortunate that some of these huge corporations that have made millions of dollars in Jersey City would file this lawsuit. Jersey City has acted properly with the tools provided by the state of New Jersey to protect our schools and we intend to fight on behalf of the schools.”

Despite the legal issues, a judge ruled late Friday that the upcoming payroll tax can be implemented as planned, denying the plaintiffs an injunction they were seeking to put the brakes on the ordinance.

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2 COMMENTS

  1. I am a resident of Jersey City and also a the President of Caduceus Inc. a healthcare management firm located in Jersey City, we currently employ 75 people.

    As a local JC resident and parent, I fully appreciate the need to improve the education system in Jersey City. However, I don’t understand why the City and State leadership are forcing this on the backs of local Jersey City businesses? This tax is local and therefore gives our competitors an advantage, as they are not forced to absorb this added cost of business.

    Our line of business is extremely competitive, winning and losing deals sometimes by a fraction of a percent, every cent of cost is factored into our rates. We compete every day with national companies, some off shore that don’t have to absorb this added local tax. This tax is will force us into a pricing disadvantage.

    Wining deals enables us to continue to grow, to hire more people and expand our positive financial impact to Jersey City. This tax, as I am certain 1% is only the beginning rate of what will be dialed up as deficits increase, will force us to move out of Jersey City to remain competitive. We are already looking for new space somewhere else. Good Luck Jersey City, Taxes like this don’t work.

    JB

    • Thanks for your insight. I can only conclude that Jersey pols are excellent at deflecting responsibility but are really bad at economics.

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