Jersey City presses state for fix to local business payroll tax

Jersey City officials are asking the state to close a loophole in the city’s payroll tax that they say keeps them from collecting from the city’s businesses.

Businesses in Jersey City are charged a 1% payroll tax, which is designed to go to the city to pay for its school budget.

The controversial tax was added during state budget talks in 2018 after school funding at the state level was cut across the board, a move that took a sizable bite out of the school budget. Business groups sued in 2019 to block the tax from going into effect, but it went forward on Jan. 1 of that year.

But the city has little in the way of its ability to enforce the payroll tax, or to gauge who is paying, said Jersey City Mayor Steven Fulop. The solution, he said, would instead be for the state to collect those taxes and send them directly to the city.

“The current payroll tax from Trenton lacks any real teeth, and so we’re forced to deploy our resources on the local level to try and enforce something that is essentially unenforceable,” Fulop said in a May 25 statement from the city.

“Without critical information from the state, the city is unable to place liens as the number of employees working at any establishment is opaque,” he added.

The city estimated that there are 3,300 businesses registered within its borders, under an ordinance that requires every establishment to register with city hall.

The issue came up in March when Fulop and school board officials noticed a difference between what they had on the books as coming in from the payroll tax, and what actually ended up in the city’s ledgers, according to various local outlets.

One official told NJBIZ there were no estimates on how many businesses owed taxes because that information is held by the state.

“Jersey City has no idea who is or isn’t paying because they don’t have any of the data that the [state] collects, there’s no payroll information … they don’t have anything that the state has in terms of the regular payroll information,” said one public official involved in the matter. “For the state, it’s just an additional withholding field. The system is already in place.”

A city-run audit team is tasked with enforcing local-level compliance, Fulop’s office said. Their efforts to collect taxes and penalties including “sending out deficiency letters, site visits, and phone calls to each individual business owner,” reads a statement from his office.

“If any homeowner defaulted on their taxes, they’d quickly be slapped with a lien, and the value of the lien would be clear to everyone as the city and the property know what the unpaid dollar amount is,” Fulop said. “Businesses face little to no repercussions if they evade payment on the payroll tax because the city wasn’t provided the tools to enforce the tax with transparency.”

A bill is being floated in the state Legislature that would make those tax collections the responsibility of the state.

“What’s the point of enabling a municipal payroll tax to fund our schools if it isn’t coupled with the tools to enforce and collect?” said Assemblyman Raj Mukherji, D-33rd District, whose office is in Jersey City. “Moving the collection function to the state is only logical so that employers are actually held accountable for their payroll tax obligations.”

Officials from Gov. Phil Murphy’s office, the state Labor Department and the state Treasury could not be reached for comment.