The New Jersey Supreme Court upheld Jersey City’s payroll tax on Tuesday in a 5-1 ruling, affirming an Appellate Division’s decision that the tax created to help fund the city’s school district is constitutional.
The legal battle over the payroll tax had been in the courts for nearly four years, with about a dozen plaintiffs led by Jersey City-based real estate developers suing the city against it, arguing unfair taxation.
Chief Justice Stuart Rabner, Justices Anne Patterson, Lee Solomon, Fabiana Pierre-Louis and Judge Jose Fuentes (who was appointed on a temporary basis) ruled to uphold the appellate decision, while Justice Barry Albin was the only dissent.
In response to the cuts, the state passed a law that allowed Jersey City to implement a payroll tax to help offset the cuts, which the City Council then did so, with a one percent tax that applies to private employees that work but do not live in Jersey City. Employers were left to decide whether they or their employees would pay the tax.
Employees of the city government and school district, as well as Jersey City residents, were exempt from the tax, but not subcontractors for the city or schools.
The plaintiffs, led by developers Mack-Cali (now known as Veris) and LeFrak, had sued the city to overturn it. Among their arguments for unfair taxation was because employees who live in Jersey City were exempt from the tax.
Hudson County Superior Court Judge Peter Bariso had initially ruled in favor of the tax back in 2019, saying that the tax is “valid as a matter of law,” and that taxing businesses to help school funding is “rational.”
An appeal to the Appellate Division then saw a panel upholding Bariso’s decision last year, but they had also ruled that the tax violated the Commerce Clause of the U.S. Constitution, and remanded that matter to the trial courts.
In the state Supreme Court, the majority referred to the appellate decision. Albin wrote in his dissenting opinion that while he agrees with the remanded matter, the complaint by the plaintiffs was valid, and that the lower courts did not take the “hospitable approach” to the allegations.
“On this bare record, we do not know the true extent of the payroll tax’s effect: whether and to what extent the payroll tax impacts Jersey City employers’ hiring decisions, and whether out-of-state resident employees are adversely affected by the tax,” he wrote.
“Only if plaintiffs were given the opportunity to take discovery would we know whether the payroll tax has only an incidental effect on interstate commerce,” he continued.
Jersey City spokeswoman Kimberly Wallace-Scalcione applauded the high court’s decision as a “big win” for the city and the school district.
“The overall intent of the payroll tax is maintained, which is to generate a steady revenue stream to our underfunded school district, while simultaneously saving Jersey City taxpayers from increased rates,” she said.
Representatives from Veris could not be reached for comment. Board of Education President Gerald Lyons did not respond for comment.