Last week, following Governor Murphy’s proposal to cut $51 million in aid to Jersey City Schools, Board of Education President Natalia Ioffe complained that a payroll tax enacted to support the schools was coming up short. “There seem to be no mechanisms in place to ensure proper collection,” she charged.
Ioffe is at least partially correct. Enforcement of the tax has been hampered by inadequate resources and bureaucratic obstacles. What’s more, the administration has not assessed the tax on the many small businesses throughout the city, potentially a large source of revenue.
The tax on Jersey City businesses, enacted in 2019, followed large cuts in state education aid as a new funding formula prioritized the least affluent school districts. The cuts in state aid, amounting to hundreds of millions of dollars, were driven in large part by legislators in Trenton who determined that homeowners in cities with high property values like Jersey City, needed to shoulder more of their school systems’ costs.
While some local businesses were vehemently opposed to the payroll tax — some appealed its constitutionality all the way to the state’s highest court — Mayor Fulop was an enthusiastic booster. “Your neighbors … your family … your friends, people that you see at church … people that you see at Little League” are the very people who’d benefit from the tax, he told the City Council while it was considering the legislation. “Nobody created this problem by itself,” he added, “but it’s ours to solve.”
The payroll tax requires business owners to remit to the city one percent of the gross payroll of their employees who live outside of Jersey City. All but the smallest businesses — those with payrolls of less than $2,500 per quarter — are expected to pay.
Observers predicted that the tax would bring in as much as $86 million annually.
In some respects, the tax has getting closer to its promise. In 2019 the tax brought in $43 million. Last year, it generated $79 million.
But efforts to collect and enforce the tax have been spotty and incomplete. In 2019, the city sent postcards to thousands of businesses advising them when and where to remit payment. Many businesses ignored them and the mailings ceased after a few quarters.
Complaints about enforcement arose in short order. In 2020 the Board of Education charged that the city was withholding millions owed to the schools. In 2021, it was discovered that the construction company Katerra, had failed to remit its taxes. Former Councilman Rolando Lavarro called for an audit.
Asked on Monday, neither Lavarro nor Ward E Councilman James Solomon knew whether the audit took place.
In a series of emails to the office of Ward F Councilman Frank Gilmore, Jack Scura, Acting Chief Financial Officer/Director of Internal Audits, explained the city’s efforts in 2021 to collect the tax.
According to Scura, obtaining accurate data on the businesses that operate in Jersey City has been a challenge. When he and his team began the collection process the state provided the names of 6,097 businesses. Jersey City had the names of an additional 572 businesses. By removing duplicates and exempt businesses — like single person limited liability companies — he determined that approximately 4,678 businesses had not registered to pay the tax. A letter and postcard were sent out to them.
“I had a phone bank going where we called businesses, which was a tedious process, but we did get businesses to pay…we actually physically went throughout the city and literally knocked on doors,” Scura wrote.
Said Scura “I was satisfied that we outreached every mid to large size business.”
As a result of these efforts Scura said that the city received millions of dollars of back payments from companies including Deloitte and Touche, E-Trade and TD Ameritrade. However, when asked, Scura did not provide the response rate to his efforts, saying only that “I know for a fact I received retroactively $1.4M from Deloitte & Touche, other similar sums from Etrade, TD Ameritrade, William Hill, Oraganon just to name a few.”
However, added Scura, “we basically left small businesses alone.” Scura did not provide a definition for “small business.” An email to Mayor Fulop’s office this week asking how small businesses were defined or why small businesses were exempted, went unanswered.
Scura called it a “time consuming process..given the issues with the data and the staffing constraints.”
“Honestly, I am proud of the work we did here,” said Scura. “We have done other initiatives as well. Not to say that more can’t be done.”
There appears, however, to be little downside if a business chooses not to comply. Regarding interest and penalties, Scura said, “I don’t think they have been applied or connected for the most part…there are system and process constraints that makes it not practical for now…the issue also is that there is not enough dedicated resources in the tax department.”
Scura did not say whether collection the collection efforts continued in 2022 or would be repeated in 2023.
Several local small businesses contacted by the Jersey City Times confirmed that they have been left alone. One owner, who asked that his name not be used, said “No, we have not gotten anything from the city about the tax in years.” When reminded that the purpose of the tax was to fund the public schools, he said ,“Now I remember that. And I supported it.”
Mayor Fulop has repeatedly complained that the city lacks the systems and information needed to enforce the law. “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….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 said.
Unsurprisingly, Scura agrees with the mayor. A takeover by the state “would be the best course of action because the state has FEINs (Federal Employer Identification Numbers), but for security reasons they won’t give it to us,” he said.
At Gilmore’s urging, in April last year, the city council petitioned the state “to conduct a feasibility study to determine the revenue potential of a local income tax on Jersey City residents to fund the Jersey City Board of Education.” Gilmore has suggested an income tax of up to 1 percent on incomes over $85,000 thousand.
Though he has suggested that an income tax may be appropriate, Gilmore appears sensitive to the increasing tax burden on property owners. “We’ve made efforts to try to relieve some of the burden held by Jersey City taxpayers and we will continue to search for alternatives until we find some form of relief.”
On Monday, Solomon said that he is working with Assemblyman Raj Mukherji on legislation that would help Jersey City collect the tax.
Neither Solomon nor Gilmore have said whether they support an effort to collect the tax from small businesses.