MACK-CALI REALTY CORP. VS. STATE OF NEW JERSEY (L-4903-18, HUDSON COUNTY AND STATEWIDE)

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-3097-18
MACK-CALI REALTY
CORP., CAL-HARBOR
V URBAN RENEWAL
ASSOCIATES, LP,
CAL-HARBOR VII URBAN
RENEWAL ASSOCIATES, LP,
ROSELAND RESIDENTIAL APPROVED FOR PUBLICATION
TRUST, GARY WAGNER, IVAN February 16, 2021
BARON, H.P. ROOSEVELT APPELLATE DIVISION
URBAN RENEWAL COMPANY,
LLC, CAMBRIDGE CORPORATE
SERVICES, INC., LOCAL 621,
UNITED CONSTRUCTION
TRADES INDUSTRIAL UNION,
LOCAL 365, UNITED
EMPLOYEES OF SERVICE
WORKERS, SP PLUS
CORPORATION, LOS CUERNOS
CORP., EXCHANGE PLACE
ALLIANCE DISTRICT
MANAGEMENT CORPORATION,
SPARTAN SECURITY SERVICES,
INC., NEW JERSEY BUSINESS &
INDUSTRY ASSOCATION, and
HUDSON COUNTY CHAMBER
OF COMMERCE & INDUSTRY,
Plaintiffs-Appellants,
v.
STATE OF NEW JERSEY, CITY
OF JERSEY CITY, MAYOR AND
COUNSEL OF THE CITY OF
JERSEY CITY, DONNA MAUER,
in her Official Capacity as Director
and Chief Financial Officer of the
City of Jersey City, and BRIAN
PLATT, in his Official Capacity
as Business Administrator of the
City of Jersey City,
Defendants-Respondents.
______________________________
CITY OF NEWARK,
Intervenor-Respondent.
______________________________
Argued October 19, 2020 – Decided February 16, 2021
Before Judges Messano, Hoffman, and Suter.
On appeal from the Superior Court of New Jersey,
Law Division, Hudson County, Docket No. L-4903-
18.
Clark E. Alpert and Stephen J. Edelstein argued the
cause for appellants (Weiner Law Group, LLP,
attorneys; Clark E. Alpert, of counsel and on the
briefs; Stephen J. Edelstein, Richard L. Rudin, Donald
A. Klein, and Paul S. Grossman, on the briefs).
Jean P. Reilly, Assistant Attorney General, argued the
cause for respondent State of New Jersey (Gurbir S.
Grewal, Attorney General, attorney; Jean P. Reilly, of
counsel and on the brief; Jamie M. Zug, Eileen W.
Siegeltuch, Michael J. Duffy, Heather Lynn Anderson,
and Miles Eckardt, Deputy Attorneys General, on the
brief).
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Vito A. Gagliardi, Jr., argued the cause for
respondents City of Jersey City, Mayor and Council of
the City of Jersey City, Donna Mauer, and Brian Platt
(Porzio, Bromberg & Newman, PC, attorneys; Vito A.
Gagliardi, Jr., of counsel and on the brief; Jeffrey M.
Pypcznski, Tanya Y. Shah, and Thomas J. Reilly, on
the brief).
Cheyne R. Scott argued the cause for intervenor-
respondent City of Newark (Chasan, Lamparello,
Mallon & Cappuzzo, PC, attorneys; Cheyne R. Scott,
of counsel and on the brief; Cindy Nan Vogelman, on
the brief).
Craig A. Long argued the cause for amici curiae New
Jersey Education Association and Jersey City
Education Association (Zazzali, Fagella, Nowak,
Kleinbaum & Friedman, PC, attorneys; Richard A.
Friedman, of counsel; Craig A. Long, on the brief).
The opinion of the court was delivered by
MESSANO, P.J.A.D.
Plaintiffs — real estate developers and urban renewal entities in Jersey
City; business owners with operations in Jersey City; labor unions, which
members provide personnel and services to Jersey City businesses and some of
which have members that live in Jersey City; and business trade associations
— challenged Jersey City Ordinance 18-133 (the Ordinance), which imposed a
payroll tax of one-percent of an employer's payroll, but exempted from the
calculation employees who were residents of Jersey City (the City). Plaintiffs
filed a verified complaint and order to show cause seeking to declare the
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Ordinance and certain 2018 amendments (Chapter 68) 1 to the Local Tax
Authorization Act (LTAA), N.J.S.A. 40:48C-1 to -42, violated the United
States and New Jersey Constitutions. They also alleged the Ordinance was
ultra vires, void for vagueness and violated contractual rights certain plaintiffs
had under tax abatement agreements with the City pursuant to the Long-Term
Tax Exemption Law (LTTEL), N.J.S.A. 40A:20-1 to -22.
After considering oral argument, the judge denied plaintiffs' request for
a preliminary injunction and scheduled a dispositive nontestimonial hearing.
The City and defendant State of New Jersey moved to dismiss the complaint. 2
The judge granted amicus status to the New Jersey Education Association and
the Jersey City Education Association (collectively, NJEA). Plaintiffs cross -
moved for summary judgment.
In a comprehensive written decision, the judge granted defendants'
motion to dismiss and denied plaintiffs' cross-motion for summary judgment.
He concluded plaintiffs failed to join an indispensable party, the City of
Newark (Newark), and, on the merits, the judge determined the statutory
amendments were constitutional, and the Ordinance was a valid, constitutional
1
This is a reference to the amendments' session law designation, L. 2018, c.
68.
2
Individual City officials were also named as defendants in their official
capacities. We include them collectively in our references to the City.
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exercise of the City's authority. The judge entered conforming orders, and this
appeal followed; we subsequently granted Newark's motion to intervene, and
NJEA's motion to appear as amicus.
Plaintiffs reprise their arguments before us. They contend that Chapter
68, which authorized enactment of the Ordinance, in conjunction with 2018
amendments to the School Funding Reform Act of 2008 (SFRA), N.J.S.A.
18A:7F-43 to -63, violates the Education Clause of our State constitution, N.J.
Const. art. VIII, § 4, ¶ 1, as interpreted by the Court and reaffirmed most
recently in Abbott v. Burke, 199 N.J. 140 (2009) (Abbott XXI), and Abbott v.
Burke, 206 N.J. 332 (2011) (Abbott XXII). Plaintiffs also argue Chapter 68 is
unconstitutional special legislation, N.J. Const. art. IV, § VII, ¶ 9; violates the
constitutional requirement that property be taxed pursuant to general and
uniform laws, N.J. Const. art. VIII, § 1, ¶ 1; and violates the constitutional
prohibition on using payroll taxes for non-employee benefit purposes, N.J.
Const. art. VIII, § 2, ¶ 8. They argue enactment of Chapter 68 was arbitrary,
capricious, and unreasonable.
Plaintiffs further contend that Chapter 68 and the Ordinance violate their
federal constitutional rights under the Commerce Clause of the United States
Constitution, U.S. Const. art. I, § 8, the Equal Protection and Due Process
Clauses of the Fourteenth Amendment, U.S. Const. amend. XIV, § 1, and the
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Privileges and Immunities Clause of the United States Constitution. U.S.
Const. art. IV, § 2, cl. 1.
Plaintiffs also reassert their claim that the Ordinance was void for
vagueness and ultra vires. Finally, they contend the judge misapplied the
standards governing a motion to dismiss under Rule 4:6-2(e) and erred in
dismissing the complaint for lack of an indispensable party, i.e., Newark.
The State, City and Newark oppose these contentions and urge us to
affirm the judge's orders. The NJEA similarly supports this position as
amicus.
I.
We provide some historical background regarding the LTAA, SFRA,
amendments to both enacted in 2018, and relevant provisions of the Ordinance.
A.
As originally enacted in 1970, the LTAA granted municipalities of a
certain population the authority "to enact an ordinance . . . imposing any of the
taxes" thereafter provided in the statute. N.J.S.A. 40:48C-1.3 One tax
3
Only Newark met the then-existing population threshold. See City of Jersey City
v. Farmer, 329 N.J. Super. 27, 31–32 (App. Div. 2000). In 1990, the Legislature
amended N.J.S.A. 40:48C-1 to reduce the population threshold to 200,000, where
it remains today. L. 1990, c. 9. As a result, the City joined Newark as the only
municipalities authorized to enact a payroll tax. Farmer, 329 N.J. Super. at 32.
The City, however, did not adopt a payroll tax until 1995, effective January 1,
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authorized by the LTAA was "an employer payroll tax for general municipal
purposes . . . at a rate of . . . one percent of the employer's payroll." N.J.S.A.
40:48C-15(a) (1970) (emphasis added). Chapter 68 significantly amended this
and other provisions of the LTAA.
First, Chapter 68 authorized adoption of an ordinance that "provide[d]
. . . the employer payroll tax shall not apply to the remuneration paid . . . to
employees who are residents of the municipality." N.J.S.A. 40:48C-15(c).
Second, Chapter 68 expanded the permissible use of payroll tax revenues by
allowing a municipality to impose a payroll tax not only "for general municipal
purposes," but also "for the purposes set forth in subsection d. of this section ."
N.J.S.A. 40:48C-15(a) (emphasis added).
Subsection (d)(1), also part of Chapter 68, provided:
If a municipality adopts an ordinance pursuant to
[N.J.S.A. 40:48C-15(a)] . . . and the municipality has a
median household income of $55,000 or greater
according to the . . . United States Census Bureau, all
employer payroll tax revenues collected . . . pursuant
to the ordinance shall be deposited into a trust fund to
be used exclusively for school purposes . . . .
1996; by then, the Legislature had amended N.J.S.A. 40:48C-19 to retroactively
preclude the City's collection of the tax, which we upheld against constitutional
challenge by the City. Id. at 30–31. A provision of Chapter 68 repealed N.J.S.A.
40:48C-19, see L. 2018, c. 68 § 3, thereby permitting the City to enact and collect a
payroll tax.
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Subsection (d)(2) requires the municipality to pay over from the trust fund to
its school board on a monthly basis "an amount equal to one-twelfth of the
difference in State school aid provided to that school district, pursuant to
[SFRA], between the current State fiscal year and State fiscal year 2018, for
use in lieu of adjustment aid and all other categories of State school aid ." The
balance of any payroll tax revenues collected remain in the trust fund "in the
event the employer payroll tax revenues collected in a year are insufficient to
pay the full amount" required under (d)(2). N.J.S.A. 40:48C-15(d)(3).
B.
The Education Clause of our state Constitution requires the Legislature
to "provide for the maintenance and support of a thorough and efficient system
of free public schools for the instruction of all the children . . . between the
ages of five and eighteen years." N.J. Const. art. VIII, § 4, ¶ 1. When enacted
in 2008, SFRA reflected "the State's most recent, lengthy and painstaking
effort to craft a redesigned school funding formula that satisfies the
constitutional standard." Abbott XXI, 199 N.J. at 147.
SFRA uses a formula to calculate the "adequacy budget" for each school
district, that, in general terms, multiplies enrollment by a "base per pupil
amount" added to the costs of other necessary educational services and district -
specific geographic costs. N.J.S.A. 18A:7F-50(b); N.J.S.A. 18A:17F-51. To
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meet its portion of its adequacy budget, each school district must set a "general
fund tax levy" in an amount equal to that district's "required local share."
N.J.S.A. 18A:7F-5(b). For most districts, the "required local share" equals the
lesser of "the local share 4 calculated at the district's adequacy budget" or the
district's local share from the previous year. N.J.S.A. 18A:7F-5(b). SFRA
directs the State to remit to each school district "equalization aid" in an amount
equal to the remainder after subtracting the local share from the adequacy
budget. N.J.S.A. 18A:7F-53.
For former so-called Abbott districts like the City, the required local
share is calculated differently. N.J.S.A. 18A:7F-5(b). In addition to other
forms of state aid, SFRA established "educational adequacy aid" for former
Abbott districts that were spending beneath their adequacy budget and did not
meet certain educational criteria. N.J.S.A. 18A:7F-58(b). When enacted,
SFRA directed that eligible districts would take the funds received from the
combination of its own tax levy and "equalization aid" received from the State,
and, with minor adjustments, subtract that amount from the adequacy budget;
the result was the amount of "educational adequacy aid" sent to the district.
Ibid.4
The "local share," distinct from the "required local share," considers the
property values and incomes in a school district. N.J.S.A. 18A:7F-52.
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Separate from equalization aid, educational adequacy aid, and other
categories of state aid, SFRA also allocated "adjustment aid" to ensure that,
generally speaking, former Abbott districts would receive "the greater of the
amount of State aid" between the amount calculated under SFRA and the
amount the district had received in the prior year plus two percent. N.J.S.A.
18A:7F-58(a)(3) to (4). SFRA also included a two-percent growth limitation
on the amount by which a school district could increase its budget without first
obtaining approval from voters in a local election, N.J.S.A. 18A:7F-38(a),5 and
tiered growth limits on the total aid former Abbott districts could receive from
the State. N.J.S.A. 18A:7F-47.6
The 2018 amendments to SFRA were intended to address concern that,
since its inception nine years earlier, the statute "ha[d] not been fully
implemented" towards its goal of distributing State school aid to districts
"based on the needs of the student population and local fiscal capacity."
Sponsor's Statement to S. 28 (L. 2018, c. 67). The amendments were intended
to "realign[ ] the amount of State aid provided to school districts with their
current needs," and to correct inequities in the amount of school aid districts
5
Initially this was a four-percent cap that applied to districts spending above
adequacy, L. 2007, c. 260, §3, but in 2010, the two-percent cap was set and
extended to all districts. L. 2010, c. 44, § 3.
6
Repealed by L. 2018, c. 67, § 8.
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had been receiving. Ibid.
In pertinent part, the SFRA amendments eliminated adjustment aid going
forward and incorporated a "state aid differential" variable used to recalculate
the distribution of aid more equitably. N.J.S.A. 18A:7F-67. The state aid
differential is calculated by subtracting the district's budget-year state aid —
not including any adjustment aid, educational adequacy aid, or other "non-
SFRA aid" — from the prior year's total state aid — a sum that includes
adjustment and non-SFRA aid. Ibid. Generally, districts with a positive state
aid differential receive the amount of aid received in the prior year, reduced by
a specified percentage that increases annually in gradual increments 7 until the
excess aid is eliminated in the 2024–25 school year. N.J.S.A. 18A:7F-68(b).8
The total amount of adjustment aid cut each year is added to any
increase in the State's total appropriated aid for that year, and that sum is then
allocated proportionately to districts with negative differentials. N.J.S.A.
18A:7F-68(a). The Legislature also repealed the state aid growth limitation, L.
2018, c. 67, §8, and amended the two-percent local tax levy growth limitation
7
Thirteen-percent reduction in the 2019–20 school year, 23% in 2020–21,
37% in 2021–22, 55% in 2022–23, 76% in 2023–24, and 100% in 2024–25.
N.J.S.A. 18A:7F-68(b).
8
Certain former Abbott districts and non-Abbott districts are exempt from the
reductions, but those exemptions are not at issue here. N.J.S.A. 18A:7F-68(c).
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in N.J.S.A. 18A:7F-38 to allow former Abbott districts to increase the amount
of their general fund tax levy irrespective of the cap. N.J.S.A. 18A:7F-38(a).9
It is undisputed that the 2018 SFRA amendments resulted in significant
reductions in State aid to the City's school district commencing in fiscal year
2019.
C.
Our Constitution provides that "corporations may be authorized by law
to undertake . . . clearance, replanning, development, or redevelopment" of
"blighted areas," and "improvements made for these purposes . . . may be
exempted from taxation . . . for a limited period of time" during which the
corporation's "profits . . . and dividends . . . shall be limited by law." N.J.
Const. art. VIII, § 3, ¶ 1. The Legislature enacted the LTTEL "to encourage
private capital and participation by private enterprise" in "the restoration of
deteriorated or neglected properties . . . in the elimination of the blighted
condition," in exchange for "special financial arrangements, including the
granting of property tax exemptions." N.J.S.A. 40A:20-2. Among other
things, the LTTEL authorized qualified "urban renewal entit[ies]" to enter into
financial agreements with municipalities and conduct long-term redevelopment
projects. N.J.S.A. 40A:20-8.
9
See L. 2018, c. 67, §§ 3, 8.
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"Every approved project shall be evidenced by a financial agreement
between the municipality and the urban renewal entity," and the agreement
shall provide "[t]hat all improvements . . . in the project . . . shall be exempt
from taxation." N.J.S.A. 40A:20-9(b). "During the term of any exemption, in
lieu of any taxes to be paid on the . . . improvements of the project and, . . . the
urban renewal entity shall make payment to the municipality of an annual
service charge . . . ." N.J.S.A. 40A:20-12(b). After the exemption terminates,
the improvements are taxed like any other real property improvements in the
municipality. N.J.S.A. 40A:20-12(c). Several plaintiffs entered into financial
agreements with the City whereby they remit an annual service charge
payment in lieu of property taxes (PILOT payments) on the improvements, but
not the real property, within their redevelopment projects; the assessed value
of the real property is taxed like other real property in the municipality. The
specific terms of these financial agreements are not in the record.
In 2018, the value of real property in the City subject to tax abatements
was $320,932,804. The Education Law Center, a non-profit public interest law
firm that advocates for students, reported that in the 2018–19 school year,
Jersey City received State aid that exceeded the amount needed to meet its
adequacy budget. However, due to the depletion of the property tax base
resulting from LTTEL financial agreements, the City was underfunding its
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local share and spending $103,749,652 below its adequacy level, or $3367 per
pupil.
D.
The City enacted the Ordinance with the stated purpose "to establish a
payroll tax on the payrolls of Non-Jersey City residents for the benefit of
Jersey City schools." The Ordinance became effective on January 1, 2019.
See Jersey City, N.J., Code § 304-18.
The Ordinance imposed a payroll tax "equal to one percent of the
employer's payroll," with those revenues to be placed in a trust fund "used
exclusively for [s]chool purposes." The Ordinance further directed that "[a]ll
tax revenue distributed" through the trust fund "be used in lieu of State
adjustment aid and all other categories of State school aid." Id. at § 19.1(d).
The ordinance provided that "[a]n employer shall incur no payroll tax relative
to its Jersey City-resident [e]mployees." Id. at § 304-19(a). Consistent with
the LTAA,10 the Ordinance defined "payroll," as "the total remuneration paid
by employers to employees . . . for services . . . performed within the City of
Jersey City; or . . . performed outside of the City of Jersey City but . . .
supervised . . . in Jersey City." Ibid.
10
See N.J.S.A. 40:48C-14 (defining "[p]ayroll" for purposes of the LTAA).
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II.
A.
Plaintiffs contend Chapter 68 violates the Education Clause by enabling
the City to enact the Ordinance, which generates revenue used to relieve the
State of its constitutional obligation to fund a thorough and efficient
educational system as the Court ordered in its Abbott decisions. The motion
judge rejected the argument, noting that because the City faced "extraordinary
circumstances," the Legislature was justified in amending the LTAA to ensure
that Jersey City raised enough revenue for its schools and avoided any
budgetary shortfall.
Plaintiffs argue the judge erred, because revenue from the payroll tax
was not replacing Jersey City's local share under SFRA, but, as the Ordinance
itself made clear, the revenue replaced cuts in State adjustment aid. They
argue that under SFRA, a district's adequacy budget and a municipality's local
share are set by statutory formulae; the only variable to bridge any gap and
meet the State's constitutional obligations under the Education Clause is the
amount of state aid provided in a given year. In plaintiffs' view, the State is
not permitted to empower a municipality to generate aid that the State is
constitutionally obligated to provide pursuant to the Education Clause as
construed by the Abbott cases. We disagree.
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We set some guideposts that inform our consideration of plaintiffs'
arguments. Against facial constitutional challenges, we "afford every possible
presumption in favor of an act of the Legislature." Town of Secaucus v.
Hudson Cnty. Bd. of Tax'n, 133 N.J. 482, 492 (1993) (citing Holster v. Bd. of
Trs., 59 N.J. 60, 66 (1971)); accord Strategic Env't Partners, LLC v. N.J. Dep't
of Env't Prot., 438 N.J. Super. 125, 144 (App. Div. 2014). Simply put, "the
courts do not act as a super-legislature." Newark Superior Officers Ass'n v.
City of Newark, 98 N.J. 212, 222 (1985) (citing Burton v. Sills, 53 N.J. 86, 95
(1968)). "Only a statute 'clearly repugnant to the constitution' will be declared
void." Secaucus, 133 N.J. at 492–93 (quoting Newark Superior Officers, 98
N.J. at 222–23). Reviewing courts are "not limited to the stated purpose of the
legislation and 'should seek any conceivable rational basis'" to uphold it.
Strategic Env't, 438 N.J. Super. at 145 (quoting Secaucus, 133 N.J. at 494–95).
A statute will not be found "facially unconstitutional if it operates
constitutionally in some instances." Whirlpool Props., Inc. v. Dir., Div. of
Tax'n, 208 N.J. 141, 175 (2011) (quoting Gen. Motors Corp. v. City of Linden,
150 N.J. 522, 532 (1997)).
"[T]he burden is on the party challenging the constitutionality of the
statute to demonstrate clearly that it violates a constitutional provision."
Newark Superior Officers, 98 N.J. at 222 (citing Bd. of Educ. v. Caffiero, 86
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N.J. 308, 318 (1981)). That burden is onerous. See, e.g., In re P.L. 2001,
Chapter 362, 186 N.J. 368, 392 (2006) ("[W]e will not declare void legislation
'unless its repugnancy to the Constitution is clear beyond a reasonable doubt.'"
(emphasis added) (quoting Harvey v. Bd. of Chosen Freeholders, 30 N.J. 381,
388 (1959))). These same principles apply to our review of a challenge to the
constitutionality of an ordinance. Singer v. Twp. of Princeton, 373 N.J. Super.
10, 19–20 (App. Div. 2004). Lastly, because plaintiffs challenge the
constitutionality of tax legislation, we recognize that, "in the field of taxation,
the Court has accorded great deference to legislative judgments." Secaucus,
133 N.J. at 493 (citing McKenny v. Byrne, 82 N.J. 304, 314 (1980)).
We agree with plaintiffs that the purpose of the Ordinance, enabled by
Chapter 68, was to supplement the City's revenue available for school
purposes. However, plaintiffs leap from the ineluctable conclusion that payroll
tax revenues under the Ordinance supplemented municipal, not State, revenues
to a wholly unsupportable result, i.e., that the Ordinance and Chapter 68
violate the Education Clause.
In Stubaus v. Whitman, the plaintiffs challenged the constitutionality of
a predecessor to SFRA, arguing the funding formula's "disparate tax burdens
constitut[ed] violations" of the Education Clause. 339 N.J. Super. 38, 44
(App. Div. 2001). Relying on the Court's interpretation of the Education
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Clause in Abbott's predecessor litigation, Robinson v. Cahill, 62 N.J. 473(1973), we noted that "taxpayer equality" was "not encompassed within the . . .
constitutional mandate." Id. at 54. Because the Education Clause "does not
protect taxpayers," the plaintiffs' arguments were "more appropriately . . .
made to the Legislature." Id. at 56. In this case, the Legislature has acted; it
passed Chapter 68 to permit the City to supplement its revenues and dedicate
them for school purposes. We fail to see how plaintiffs, none of whom
represent the interest of the City's schoolchildren, are positioned to cha llenge
whether the Ordinance or Chapter 68 violates the Education Clause.
To overcome this obvious impediment, plaintiffs contend that to comply
with the Court's Abbott line of cases, the State must enforce the SFRA funding
formula without resort to other legislative remedies. They assert the Court
"made it crystal clear that . . . the State is not permitted to rely on outside
sources instead of funding its share," emphasizing that in Abbott XXII, the
Court rejected the argument "that the availability of certain non-SFRA funds
[could] be used to deflect the State's responsibility for the provision of a
constitutionally mandated, adequately funded thorough and efficient system of
education." (citing Abbott XXII, 206 N.J. at 364). A closer examination
reveals the fallacy of this argument.
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The Court made clear early on that "what a thorough and efficient
education consists of is a continually changing concept," and that it may be
necessary for the State to supplement poorer districts' financing to address
educational disparities between districts. Abbott v. Burke, 119 N.J. 287, 303,
319–20 (1990) (Abbott II). The Court did not mandate any specific remedy
and expressly held it was ultimately the responsibility of the Legislative and
Executive branches to adopt a "comprehensive remedy." Abbott v. Burke, 149
N.J. 145, 189 (1997) (Abbott IV). The Legislature crafted such a remedy with
SFRA, leading the Court to release the State from its prior enforcement orders.
Abbott XXI, 199 N.J. at 238–39.
Abbott XXII provides no support for plaintiffs' argument. There, the
Court specifically found that the State had "made a conscious and calculated
decision to underfund the SFRA formula" in its annual appropriations, and the
alternative non-SFRA funding the State pointed to "was insufficient to fill the
gaps left by the reductions in state aid in the individual Abbott districts." 206
N.J. at 359, 365. The overall budgetary shortfall of $1.6 billion in that case
was "spread across various SFRA aid categories, including . . . [e]qualization
[a]id." Id. at 346.
Here, the purpose of expanding the payroll tax was to offset the shock
from cuts in adjustment aid to the City's school district that the Legislature
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determined were necessary to avoid continuation of historic overfunding at the
expense of other, underfunded districts. The Court's admonition in Abbott
XXII that the State could not rely on non-SFRA funds to avoid their
constitutional obligation was premised on the fact that the State was not
meeting its obligation under SFRA and was leaving former Abbott districts
underfunded, a factual premise absent here. Nothing in Abbott XXII suggests
the Education Clause prohibits the Legislature from providing a municipality
with other revenue-raising tools it may employ to supplement its share of
school costs associated with providing its children with an adequate educatio n.
B.
Plaintiffs alleged that Chapter 68 was unconstitutional special
legislation. See N.J. Const. art. IV, § VII, ¶ 9(6),(7) ("The Legislature shall
not pass any private, special or local laws" for certain purposes, including laws
"[r]elating to taxation or exemption therefrom," or "[p]roviding for the
management and control of free public schools."). The motion judge relied
heavily on our decision in Farmer, reasoning that if the prior version of the
LTAA permitted imposition of a payroll tax when the statute only applied to
Newark, adding eligibility for the City did not render the statute
unconstitutional, especially given the City's unique fiscal struggles. He noted
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Newark and Jersey City had the largest student populations in the State, and
the proliferation of PILOT agreements entered into by the City reduced its
ability to meet its "local fair share for school funding" because although the
agreements spurred development, they "depleted [the City's] property tax
revenues and [left it] struggling to fund [its] public schools."
The Court has "established a three-part test to determine whether a
statute constitute[s] special legislation." Secaucus, 133 N.J. at 494 (citing
Vreeland v. Byrne, 72 N.J. 292, 300–01 (1977)).
[T]he method of analysis is this: we first discern the
purpose and object of the enactment. We then
undertake to apply it to the factual situation presented.
Finally we decide whether, as so applied, the resulting
classification can be said to rest upon any rational or
reasonable basis relevant to the purpose and object of
the act.
[Ibid. (alteration in original) (quoting Vreeland, 72
N.J. at 300–01).]
"[T]he Legislature has wide discretion in determining the perimeters of a
classification and an adequate factual basis for the legislative judgment is
presumed to exist." Horizon Blue Cross Blue Shield of N.J. v. State, 425 N.J.
Super. 1, 18 (App. Div. 2012) (alteration in original) (quoting N.J. State Bar
Ass'n v. State, 387 N.J. Super. 24, 52 (App. Div. 2006)). Population has long
been considered a valid criterion on which the Legislature can rely in making a
statutory classification. See Twp. of Mahwah v. Bergen Cnty. Bd. of Tax'n, 98
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N.J. 268, 287 (1985) ("[U]nder the law of the State of New Jersey population
is generally accepted as a means of classification."); Newark Superior
Officers, 98 N.J. at 225 ("Statutes relating to city government classified by
population are generally upheld.").
Plaintiffs argue that the 2018 SFRA amendments resulted in aid cuts to
more than 170 school districts, some of which lost a greater percentage of their
aid than did the City. Plaintiffs contend the legislative classification was
arbitrary because only Jersey City was singled out to receive favorable
replacement aid via a payroll tax. They also contend that the prospect of any
other cities ever qualifying to benefit from Chapter 68 is remote.
To some extent, plaintiffs' argument posits an incomplete classification
scheme. The LTAA permits all municipalities with more than 200,000
residents to impose a payroll tax. Under the Vreeland test, the Legislature
reiterated this as an express purpose of Chapter 68. See Assembly Budget
Committee Statement to A. 4163 (June 18, 2018) (noting purpose of legislation
was to "allow any municipality having a population over 200,000 to impose
and collect an employer payroll tax."). The Legislature then created a sub-
classification, evidencing its intent that a municipality eligible to impose a
payroll tax, and that also met the median household income requirement, was
required to "use employer payroll tax revenues for school purposes," which
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"would help offset certain reductions in State school aid" brought about by the
SFRA amendments. Ibid. The Legislature enacted the 2018 SFRA
amendments simultaneously with Chapter 68, without which Chapter 68 would
not have gone into effect. See L. 2018, c. 68, § 4 (making Chapter 68
effective upon enactment of the SFRA amendments). In short, the two pieces
of legislation were a coordinated response by the Legislature that recognized
the drastic effects the SFRA amendments would have on the City.
Currently, it is true that no other municipality in the State is "similarly
situated" to Jersey City and Newark, which are unique with respect to the size
of their populations. Vreeland, 72 N.J. at 299. See Newark Superior Officers,
98 N.J. at 220 (upholding statute granting only mayors of cities of the first
class the power to appoint police chiefs). More directly, we have already held
"in the case of the payroll tax, there is an obvious State interest in strictly
limiting the municipalities that collect such a tax." Farmer, 329 N.J. Super. at
42. These precedents support the rationality of the population-based statutory
classification employed by Chapter 68.
To the extent a municipality is "singled out" by the median income
classification, it is Newark; yet Newark urges us to affirm the orders under
review. Newark still is permitted to continue using the revenue from its
payroll tax "for general municipal purposes," as the LTAA had authorized it
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23
alone to do for five decades. N.J.S.A. 40:48C-15(a). Regarding the LTAA,
we have already held that the Legislature had a rational basis to treat Newark
differently than other municipalities given Newark's long history of reliance on
the payroll tax. Farmer, 329 N.J. Super. at 46.
Newark currently does not have a median household income of $55,000
or greater. However, the wealth and income within a school district have long
been variables used by SFRA to calculate the amount municipalities must raise
through a general tax levy. N.J.S.A. 18A:7F-52. The legislative decision to
authorize a different kind of tax levy to fund schools may rationally vary
depending on district wealth, and it was not irrational for the Legislature to
decide that a municipality with a greater median income should be limited in
the permissible uses of any payroll tax imposed.
[O]ur Supreme Court has emphasized "the long
established principle of deference to the will of the
lawmakers whenever reasonable men might differ as
to whether the means devised to meet the public need
conform to the Constitution . . . [and] the equally-
settled doctrine that the means are presumptively
valid, and that reasonably conflicting doubts should be
resolved in favor of validity."
[Farmer, 329 N.J. Super. at 46 (second alteration in
original) (quoting Roe v. Kervick, 42 N.J. 191, 229
(1964)).]
It is not for us to dispute the wisdom of the Legislature's choice.
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Finally, contrary to plaintiffs' claim, this case is distinguishable from
Secaucus, 133 N.J. at 498–99, where there was no possibility any other
municipality would ever qualify for the tax exemption at issue. Here, any
municipality that exceeds the neutral population threshold in the future is
authorized to impose the payroll tax, N.J.S.A. 40:48C-1, and whether the
school trust fund requirement is triggered will depend on the neutral median
income criterion. N.J.S.A. 40:48C-15(d)(1). Chapter 68 contained no
provision blocking the admission of other municipalities into the classificati on
scheme.
C.
Turning to the balance of plaintiffs' contentions that rely upon provisions
of our State Constitution, the urban renewal entities contend the judge erred in
dismissing claims that the Ordinance violated the Uniformity Clause. That
provides, "Property shall be assessed for taxation under general laws and by
uniform rules. All real property assessed and taxed locally or by the State for
allotment and payment to taxing districts shall be assessed according to the
same standard of value, except as otherwise permitted herein . . . ." N.J.
Const. art. VIII, §1, ¶ 1(a). By its terms, the provision concerns real property
and the "limits on the Legislature's ability to classify real property for purposes
of taxation." Gen. Motors, 150 N.J. at 526.
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The motion judge held that because the Uniformity Clause speaks only
to the taxation of real property, the City's payroll tax did not violate this
provision. On appeal, plaintiffs appear to argue that the payroll tax violates
the Uniformity Clause because it supplements the City's property tax levy
under SFRA with funds raised from private businesses, some of whom own
real estate in the City, through the payroll tax. They contend that because not
all owners of real estate in the City suffer the burden of the payroll tax, the
substitution of tax revenue derived from the payroll tax violates the
constitutional mandate of uniformity in real estate taxation.
Plaintiffs cite no authority for the position that the Uniformity Clause
limits the State's ability to delegate authority to the City to raise revenue for its
own school district through a payroll tax on businesses operating within it.
Instead, in the context of school funding, the Court has suggested the contrary:
[T]he tax clause was not intended to say that a State
function may not be delegated to local government to
be met by local taxation . . . . [L]ocal government is
simply an arm of the State with respect to the many
State functions which the State decides shall be
performed through local government. The tax clause
does not restrict the State with respect to that decision.
[Robinson, 62 N.J. at 502.]
As a corollary argument, plaintiffs contend the payroll tax was a
"surrogate" or "substitute" real estate tax precluded by the PILOT agreement s.
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They similarly allege that the payroll tax unconstitutionally impaired their
contract rights, noting "[t]he City did not reserve the right in the financial
agreements entered into pursuant to the LTTEL to impose an additional
financial burden" on them through the payroll tax.
The motion judge held the urban renewal entities failed to establish the
PILOT payments were in lieu of anything other than property taxes collected
from assessments on improvements to real property. Because the financial
agreements had nothing to do with Jersey City's authority to impose the payroll
tax, the judge reasoned there was no connection between the Ordinance and
those financial agreements.
Plaintiffs have not pointed to any legal authority to support their claim
that PILOT agreements immunize the contracting urban renewal entities from
being subject to different, generally applicable taxes imposed, not on
improvements to real estate, but on businesses. The LTTEL does not
explicitly state or implicitly suggest that the "special financial agreements"
authorized by the statute effect anything other than financial obligations in lieu
of property taxes. Imposition of the payroll tax through enactment of the
Ordinance did not inhibit in anyway the urban renewal entities from receiving
the fruits of their financial agreements with the City.
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Plaintiffs also contend that the court erred by dismissing their complaint
alleging that Article VIII, Section 2, Paragraph 8 of our Constitution
prohibited collection of the payroll tax. The provision at issue, adopted in
2010, states:
No contributions from employers, other than the
State, or from employees of those employers,
collected by the State entirely by means of an
assessment exclusively on, or exclusively measured
by, the wages or salaries paid by the employers to the
employees . . . shall be used for any purpose other
than providing and administering benefits to
employees and their families or dependents . . . . All
contributions collected by the State from any
employer . . . shall be dedicated solely to the purpose
of providing and administering [those] benefits . . . .
No part of the contributions, interest or income shall
be directly or indirectly transferred, borrowed,
appropriated or used for any purpose other than
providing and administering benefits pursuant to this
paragraph.
[Ibid. (emphasis added).]
The motion judge held this provision had no bearing on the payroll tax because
by its plain language, it applied only to contributions collected "by the Sta te,"
and not those collected by municipalities.
On appeal, plaintiffs claim the judge's analysis was "overly simplistic,"
because it failed to consider that Chapter 68 "authorize[d the] City to assist in
the State's circumvention of its Abbott obligations." Stated differently,
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plaintiffs contend that the City is acting as an agent of the State; therefore, the
payroll tax violated Article VIII, Section 2, Paragraph 8.
As already noted, we reject plaintiffs' claim that imposition of a payroll
tax to supplement school funding violates our Constitution. More importantly,
"[i]n ascertaining the intent of a constitutional provision, a court must first
look to the precise language used by the drafters. If the language is clear and
unambiguous, the words used must be given their plain meaning." State v.
Trump Hotels & Casino Resorts, Inc., 160 N.J. 505, 527 (1999) (citing
Gangemi v. Berry, 25 N.J. 1, 10 (1957)). We agree with the motion judge; the
meaning of the provision at issue is plain, and the constitutional prohibition
only applies to the State, not the City.
III.
Plaintiffs contend the Ordinance is ultra vires because it exceeded the
grant of legislative authority and was unconstitutionally vague. We disagree.
The motion judge held the Ordinance was not ultra vires because the
Legislature had left municipalities with discretion to define the terms to be
used in any ordinance. The judge found that the City reasonably incorporated
several definitions from Newark's ordinance, which we upheld against
constitutional challenge, and further that the City was entitled to latitude and
deference in how it implemented the tax. On appeal, plaintiffs contend the
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29
Ordinance exceeded the scope of the LTAA in two respects: (1) the
"supervisor provision" is so expansive that it includes employees who neither
live nor work in Jersey City and may even be located in other countries; and
(2) the Ordinance imposes penal consequences.
"[A] municipality is a creature of the Legislature, and as such is a
government of enumerated powers which can act only by delegated authority."
Inganamort v. Borough of Fort Lee, 72 N.J. 412, 417 (1977) (citing Giannone
v. Carlin, 20 N.J. 511, 517 (1956)). "Any exercise of a delegated power by a
municipality in a manner not within the purview of the governing statute is
capricious and ultra vires of the delegated powers." Giannone, 20 N.J. at 517;
accord Kress v. LaVilla, 335 N.J. Super. 400, 410 (App. Div. 2000). "Two
forms of ultra vires acts exist under the law: ultra vires acts in the primary
sense and ultra vires acts in the secondary sense." City Council of Orange
Twp. v. Edwards, 455 N.J. Super. 261, 272 (App. Div. 2018).
"Ultra vires acts in the primary sense are 'act[s] utterly beyond the
jurisdiction of a municipal corporation' and are void." Ibid. (alteration in
original) (quoting Middletown Twp. Policemen's Benevolent Ass'n Local No.
124 v. Twp. of Middletown, 162 N.J. 361, 368 (2000)). "For a municipal
decision or action to be considered ultra vires in the primary sense, the
municipality must be 'utterly without capacity to perform the act or make the
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appointment.'" Id. at 273 (quoting Maltese v. Twp. of N. Brunswick, 353 N.J.
Super 226, 246 (App. Div. 2002)).
"In contrast, an ultra vires act in the secondary sense arises from the
'irregular exercise of a basic power under the legislative grant in matters not in
themselves jurisdictional.'" Id. at 272 (quoting Middletown Twp. Policemen's
Benevolent Ass'n, 162 N.J. at 368). "[A]n act is ultra vires in the secondary
sense when the action is generally within the power of the municipality but
was carried out improperly or irregularly." Id. at 273.
Although the LTAA does not define "supervision," it does define
"[p]ayroll" to mean "the total remuneration paid by employers to
employees . . . for services . . . performed within the municipality; or . . .
outside the municipality and the place from which the services are supervised,
is in the municipality." N.J.S.A. 40:48C-14. The Ordinance adopted the same
language and further provided that services should be considered to be
"supervised from the City if an individual who either works in or is based in
the City has the right to control and direct the manner of rendition of the
[e]mployee's service, has hiring and firing responsibility and oversees the work
of such employee." Jersey City, N.J., Code § 304-18. This additional
language is clearly consistent with the common usage of the term "supervise";
plaintiffs have not demonstrated the definitional sections of the Ordinance
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were outside "the purview of the governing statute" or "ultra vires of the
delegated powers." Giannone, 20 N.J. at 517.
The LTAA states that "[a]ny ordinance adopted pursuant to this article
shall," among other things, "[p]rovide methods for enforcement of, and for the
imposition of penalties for failure to report and pay, the tax imposed," and
shall "[p]rovide a procedure for claims for refunds, and repayment of
overpayment of taxes." N.J.S.A. 40:48C-16(c) to (d). Consistent with this
legislative mandate, the Ordinance imposes "penalties . . . of up to $2000, and
the imposition of sentences of imprisonment or community service, neither of
which can exceed ninety days." Jersey City, N.J., Code § 304-19.4(e). This is
entirely consonant with the City's general police powers. N.J.S.A. 40:69A -
29(b). Because the LTAA requires a municipality to adopt an enforcement
mechanism, we fail to see how the Ordinance, which incorporates one, is ultra
vires.
We also reject plaintiffs' contention that the Ordinance is
unconstitutionally vague because it imposed "criminal consequences" for
unintended misinterpretations of its provisions. "Vagueness challenges are . . .
typically brought in contexts implicating the enforcement of criminal statutes,
and are usually based on a contention that . . . no one should be prosecuted for
violation of a statute, unless the statute provides adequate warning of the
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proscribed behavior and sufficient guidance to . . . prevent arbitrary
application[]" by law enforcement. In re Loans of N.J. Prop. Liab. Ins. Guar.
Ass'n, 124 N.J. 69, 78 (1991).
By contrast, "civil statutes in general, and economic regulations in
particular, are subject to less stringent scrutiny under the vagueness doctrine."
Ibid.; accord Visiting Homemaker Serv. of Hudson Cnty. v. Bd. of Chosen
Freeholders of Hudson, 380 N.J. Super. 596, 613 (App. Div. 2005). This is in
part "because business entities can be expected to consult legislation
considerations in advance of economic action." Ibid. "[A] commercial
regulatory statute" will be "held unconstitutionally vague only if it is
'substantially incomprehensible.'" In re Farmers' Mut. Fire Assurance Ass'n of
N.J., 256 N.J. Super. 607, 619–20 (App. Div. 1992) (alteration in original)
(quoting In re Loans, 124 N.J. at 78).
Here, the challenged provision of the Ordinance is § 304-19.4(e), which
authorizes three potential penalties for failing to provide or file necessary
records or for making a false report to "avoid the payment in whole or in part
of the payroll tax." The penalties include a monetary fine, community service,
and imprisonment up to ninety days. Ibid. The motion judge held that because
the Ordinance included imprisonment as a potential penalty, it was "penal" in
nature and therefore subject to stricter scrutiny than a civil statute. However,
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because the payroll tax attached only to employees' salaries that are subject to
federal tax withholding, and the Ordinance was consistent with the terms of
the LTAA, it was not unconstitutionally vague.
"To avoid the pitfall of vagueness, a statute must enable a person of
common intelligence to understand its essential terms." Farmers' Mut., 256
N.J. Super. at 619 (citing State v. Lashinsky, 81 N.J. 1, 17 (1979)). A statute
is facially vague only if it is "'impermissibly vague in all its application,' that
is, there is no conduct that it proscribes with sufficient certainty." State v.
Cameron, 100 N.J. 586, 593 (1985) (quoting Vill. of Hoffman Estates v.
Flipside, Hoffman Estates, Inc., 455 U.S. 489, 495 (1982)).
Plaintiffs' arguments fail to present any cogent reason why the motion
judge's analysis was wrong. No further discussion is necessary. R. 2:11-
3(e)(1)(E).
IV.
Plaintiffs contend the Ordinance and Chapter 68 violate the federal
Constitution's "Privileges and Immunities" (P&I) clause because "they
discriminate against out-of-state residents by making it more expensive to
employ them." The P&I clause states: "The [c]itizens of each State shall be
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34
entitled to all Privileges and Immunities of Citizens in the several States."
U.S. Const. art. IV, § 2, cl. 1 (emphasis added). 11
It is settled law that only "citizens" may bring a claim for alleged
violations of the P&I clause; corporations may not. See, e.g., Pembina Consol.
Silver Mining & Milling Co. v. Pa., 125 U.S. 181, 187 (1888) ("Corporations
are not citizens within the meaning of [the P & I] clause)."; accord Am.
Trucking Ass'ns. v. Larson, 683 F.2d 787, 790 (3d Cir. 1982) (the term
"citizen" in the P & I clause only applied to "natural persons" and barred a
trucking association's claim); Am. Fire & Cas. Co. v. N.J. Div. of Tax'n, 375
N.J. Super. 434, 457 (App. Div. 2005) ("[C]orporations are not held to be
'persons' to which that clause applies."). The motion judge dismissed
plaintiffs' P&I clause cause of action on these grounds, and, as to plaintiffs,
Ivan Baron and Gary Wagner, who were "natural persons" employed by two
company plaintiffs, the judge held the payroll "tax neither adversely
affect[ed]" their tax liability "nor restrict[ed] their right to employment."
As to the plaintiffs who are not natural persons or labor unions, we agree
entirely with the motion judge; they have no cognizable claim under the P&I
clause. For the first time before us, plaintiffs contend in a footnote that they
11
Plaintiffs do not rely on the separate "privileges and immunities" clause in
the Fourteenth Amendment. U.S. Const. amend XIV, § 1.
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35
are also representing the interests of "members of the public similarly situated"
to Messrs. Baron and Wagner, and individual members of the union plaintiffs.
We refuse to consider the argument. See Zaman v. Felton, 219 N.J. 199, 226–
27 (2014) (refusing to consider a claim raised for the first time on appeal
(citing State v. Robinson, 200 N.J. 1, 20 (2009))); Almog v. Israel Travel
Advisory Serv., Inc., 298 N.J. Super. 145, 155 (App. Div. 1997) (noting "the
raising of additional legal issues by" footnotes is inappropriate).
As to the individual plaintiffs and labor unions, we affirm the dismissal
of their P&I clause cause of action for several reasons. "[D]isadvantaged New
Jersey residents have no claim under the Privileges and Immunities Clause."
United Bldg. & Constr. Trades Council v. Mayor & Council of Camden, 465
U.S. 208, 217 (1984) (citing Slaughter-House Cases, 83 U.S. 36, 77 (1873));
accord Taylor v. Rorke, 279 N.J. Super. 63, 68 (App. Div. 1995) (holding the
P&I clause "prevents states from discriminating against out-of-state
individuals" (citing Toomer v. Witsell, 334 U.S. 385, 395 (1948))). Thus,
Wagner and the union members residing in New Jersey have no claim under
the P&I clause.
The P&I clause protects non-New Jersey residents right to pursue their
"livelihood free from economic discrimination." Salorio v. Glaser, 82 N.J.
482, 501 (1980). As the motion judge recognized, however, the payroll tax
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36
does not burden individual employees; employers are expressly prohibite d
from passing the burden onto their employees through deductions in salaries.
N.J.S.A. 40:48-16(e). Thus, the Ordinance does not impose a "higher tax[] or
imposition[]" on non-resident employees compared to resident employees. Id.at 502 (citing Austin v. New Hampshire, 420 U.S. 656, 661 (1975)).
Plaintiffs seemingly understand this shortcoming, because they contend
employers are less likely to hire out-of-state residents because of the payroll
tax, and therefore out-of-state residents are economically disadvantaged
compared to New Jersey residents. However, that certainly is not borne out in
Mr. Baron's case, nor is there any other proof for the proposition. Plaintiffs'
P&I clause cause of action was properly dismissed.
V.
We address the most troublesome aspect of the appeal, i.e., whether
Chapter 68, which permits adoption of an ordinance that excludes resident
employees from the payroll calculation, and the Ordinance, which excludes
Jersey City residents from the calculation, violate the Commerce Clause of the
United States Constitution. If there is such a violation, we must also consider
whether these provisions in the LTAA and the Ordinance may be severed.
Article I, Section 8, Clause 3 of the United States Constitution provides,
in pertinent part, that Congress shall have power "[t]o regulate Commerce . . .
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37
among the several States." Historically, "removing state trade barriers was a
principal reason for the adoption of the Constitution" which precluded the
"notorious[ ] obstruct[ion]" that states had previously engaged in under the
Articles of Confederation. Tennessee Wine & Spirits Retailers Ass'n v.
Thomas, __ U.S. __ , __ (2019), 139 S. Ct. 2449, 2460 (2019). "The negative
or dormant implication of the Commerce Clause prohibits state taxation . . .
that discriminates against or unduly burdens interstate commerce and thereby
'imped[es] free private trade in the national marketplace.'" Gen. Motors Corp.
v. Tracy, 519 U.S. 278, 287 (1997) (alteration in the original) (quoting Reeves,
Inc. v. Stake, 447 U.S. 429, 437 (1980)). "This 'negative' aspect of the
Commerce Clause prohibits economic protectionism — that is, regulatory
measures designed to benefit in-state economic interests by burdening out-of-
state competitors." New Energy Co. v. Limbach, 486 U.S. 269, 273 (1988)
(emphasis added).
The United States Supreme Court has set forth a four-
part test in determining whether a tax can be sustained
against a Commerce Clause challenge: whether the
tax (1) is applied to an activity with a substantial
nexus to the taxing state; (2) is fairly apportioned; (3)
does not discriminate against interstate commerce; and
(4) is fairly related to the services provided by the
state.
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38
[Stryker Corp. v. Dir., Div. of Taxation, 168 N.J. 138,
152 (2001) (citing Complete Auto Transit, Inc. v.
Brady, 430 U.S. 274, 282 (1977))]. 12
Plaintiffs do not assert Chapter 68 or the Ordinance fail the first prong of
the Complete Auto test, and the argument regarding prong four is limited to a
single sentence and accompanying footnote. 13 We, therefore, focus on
plaintiffs' challenges under prongs two and three of the Complete Auto test.
We do so in reverse order because "the first step in analyzing any law . . .
under the negative Commerce Clause is to determine whether it 'regulates
evenhandedly with only "incidental" effects on interstate commerce[] or
discriminates against interstate commerce.'" Or. Waste Sys., Inc. v. Dep't of
Env't Quality of Or., 511 U.S. 93, 99 (1994) (quoting Hughes v.
Oklahoma, 441 U.S. 322, 336 (1979)).
The motion judge concluded that plaintiffs failed to meet their burden of
establishing prong three of the Complete Auto test, in part because plaintiffs
conceded the tax only "indirectly violated" the dormant Commerce Clause, and
12
We hereafter refer to these as the four prongs of the Complete Auto test.
13
In Telebright Corp. v. Director, New Jersey Division of Taxation, we
refused to consider a taxpayer's Commerce Clause challenge to the
Corporation Business Tax Act as to three prongs of the Complete Auto test
because its brief addressed the issues in "one sentence in the conclusion
section" and "present[ed] no arguments in support of its contention." 424 N.J.
Super. 384, 393 (App. Div. 2012).
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precedent required a "direct burden or direct discrimination against interstate
commerce," or an explicit "commercial advantage to local businesses." He
further determined that plaintiffs "failed to make a competent showing of their
economic loss attributable to the law, as well as a discriminatory effect on
interstate commerce as a whole." The judge concluded the payroll tax did not
facially discriminate against interstate commerce because it "applie[d] evenly
to all businesses with employees in Jersey City regardless of whether the
business [was] located inside or outside the City limits."
Before us, plaintiffs contend residency exemption provisions of Chapter
68 and the Ordinance are "per se invalid" because they favor "in-state
'economic interests' over out-of-state ones." As we understand the argument,
plaintiffs claim businesses that hire non-resident employees are burdened with
the payroll tax, whereas those who hire Jersey City residents are not, and
because businesses in Jersey City are likely to draw employees from out -of-
state, such as plaintiff Baron, the payroll tax violates the dormant Commerce
Clause.
Discrimination claims under the dormant Commerce Clause require a
two-step analysis. "'[D]iscrimination' simply means differential treatment of
in-state and out-of-state economic interests that benefits the former and
burdens the latter." Or. Waste, 511 U.S. at 99 (emphasis added). "[I]f a state
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40
law discriminates against out-of-state goods or nonresident economic actors,
the law can be sustained only on a showing that it is narrowly tailored to
'advanc[e] a legitimate local purpose.'" Tennessee Wine, ___ U.S. at ___, 139
S. Ct. at 2461 (alteration in original) (quoting Dep't of Revenue of Ky. v.
Davis, 553 U.S. 328, 338 (2008)).
However, "[w]here [a] statute regulates evenhandedly to effectuate a
legitimate local public interest, and its effects on interstate commerce are only
incidental, it will be upheld unless the burden imposed on such commerce is
clearly excessive in relation to the putative local benefits." City of
Philadelphia v. New Jersey, 437 U.S. 617, 624 (1978) (quoting Pike v. Bruce
Church, Inc., 397 U.S. 137, 142 (1970)). "The crucial inquiry, therefore, must
be directed to determining whether [the statute] is basically a protectionist
measure, or whether it can fairly be viewed as a law directed to legitimate
local concerns, with effects upon interstate commerce that are only incidental."
Ibid.Our Court has recognized that "with respect to the discrimination prong
of Complete Auto," a statute "is not facially discriminatory" if "[i]t does not
differentiate between in-state and out-of-state businesses." Whirlpool, 208
N.J. at 174; accord Ampro Fisheries, Inc. v. Yaskin, 127 N.J. 602, 614 (1992)
(concluding regulation limiting menhaden fishing did not place out-of-state
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41
plaintiff "at a competitive disadvantage in relation to in-state fishing
interests"). However, even if the statute does not directly regulate or
discriminate against interstate commerce, it will be a per se violation of the
Commerce Clause "when its effect is to favor in-state economic interests over
out-of-state interests." Brown-Forman Distillers Corp. v. N.Y. State Liquor
Auth., 476 U.S. 573, 579 (1986); see also, Trinova Corp. v. Mich. Dep't of
Treasury, 498 U.S. 358, 385 (1991) ("The Commerce Clause requires more
than mere facial neutrality.").
Chapter 68 permits, but does not require, that a municipality exclude its
residents from the payroll calculation for tax purposes. The Ordinance
incorporates this provision. The exclusion of Jersey City-resident employees
applies equally, however, to all employers, whether located in Jersey City,
elsewhere in New Jersey or in another state. Plaintiffs have failed to
demonstrate, beyond mere conjecture, that the payroll tax as enacted burdens
out-of-state-resident employees, i.e., that the Ordinance's effect burdens out-
of-state economic interests. In this regard, the facts here are entirely
distinguishable from those in Camps Newfound/Owatonna v. Town of
Harrison, 520 U.S. 564 (1997), a case on which plaintiffs principally rely.
In that case, the plaintiff, a charitable organization which operated a
summer camp to benefit children of the Christian Science faith, challenged a
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42
Maine statute that exempted such institutions from real estate and personal
property taxes, but provided a limited or no tax exemption to those whose
activities principally benefitted non-residents. Id. at 567–69. Ninety-five
percent of the camp's attendees were not Maine residents. Id. at 581. The
Court held that it was obvious from the "text of th[e] statute . . . that it
discriminate[d] against interstate commerce." Id. at 575–76. Further, the
Court held that although the tax was imposed on a Maine property holder, it
was of no moment, because "the burden of Maine's facially discriminatory tax
scheme falls by design in a predictably disproportionate way on out-of-
staters." Id. at 579.
Here, the exclusion of Jersey City residents from the payroll tax
calculation applies without respect to whether the employer is a resident of this
state or another. Chapter 68 and the Ordinance do not, on their face, favor
New Jersey's economic interests over another state's. Nor have plaintiffs
demonstrated that the impact of the payroll tax as enacted was either intended
to, or does, burden out-of-state residents. Chapter 68 and the Ordinance
prohibit employers from collecting the tax from their employees, and the
record lacks any proof that employers are or will be inhibited from hiring out -
of-state residents because they will have to pay a tax on their salaries. We
need not consider the second tier of the discrimination analysis in this case.
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Addressing the second, "fair apportionment" prong of the Complete
Auto test, plaintiffs argue Chapter 68 and the Ordinance are neither internally
nor externally consistent, because they "allow Jersey City to tax the payroll of
people who work in other states . . . without any effort to ensure that it is
taxing only economic value attributable to New Jersey." The motion judge
found the payroll tax was internally consistent, noting that Newark had
virtually the same ordinance that permitted employees who worked outside the
city to be included in the computation if supervised from within the city. He
noted that the LTAA and the Ordinance limited an employer's obligation to
pay a payroll tax for a specific employee's wages only once, and that conflicts
between municipalities were to be resolved by the Tax Court in accordance
with the Ordinance.
"With regard to the second prong, there are two requirements to fair
apportionment: internal consistency and external consistency." Whirlpool,
208 N.J. at 164. "The internal consistency analysis examines the hypothetical
functioning of a tax formula, not its real[-]world effects on a taxpayer." Id. at
165 (citing Moorman Mfg. Co. v. Bair, 437 U.S. 267, 278–79 (1978)). "A
failure of internal consistency shows as a matter of law that a State is
attempting to take more than its fair share of taxes" when "allowing such a tax
in one State would place interstate commerce at the mercy of those remaining
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States that might impose an identical tax." Okla. Tax Comm'n v. Jefferson
Lines, Inc., 514 U.S. 175, 185 (1995); accord Whirlpool, 208 N.J. at 165. "To
be internally consistent, a tax must be structured so that if every State were to
impose an identical tax, no multiple taxation would result." Goldberg v.
Sweet, 488 U.S. 252, 261 (1989) (citing Container Corp. of Am. v. Franchise
Tax Bd., 463 U.S. 159, 169 (1983)).
The LTAA provides for resolution of tax disputes whenever an employer
is assessed more than one payroll tax on a specific employee. N.J.S.A.
40:48C-18. However, neither the statute nor the Ordinance provide a
mechanism to resolve disputes if two taxing entities, in different states, impose
a payroll tax on the same employee. The violation of the dormant Commerce
Clause in such circumstances is obvious. A simple hypothetical better
expresses the problem.
If a non-Jersey City resident employee of a company works in
Manhattan but is supervised by the company's Jersey City-based supervisor,
the Ordinance imposes a tax on the company for that employee. The LTAA
permits the City to do so. See N.J.S.A. 40:48C-14(b) (including with the
definition of "[p]ayroll" the amount of compensation paid to an employee
whose services are provided outside the municipality but are supervised fr om
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within the municipality). 14 If New York City, for example, were to impose a
payroll tax on the company for that same employee, the supervisor provision
of the LTAA as incorporated in the Ordinance would be internally
inconsistent, i.e., both states' identical taxes would result in multiple taxation
of that employee's services. Goldberg, 488 U.S. at 261. Because an internally
inconsistent tax is, by definition, not fairly apportioned, Whirlpool, 208 N.J. at
164, we need not address whether the LTAA and the Ordinance are externally
inconsistent before concluding that the payroll tax as enacted fails to satisfy
prong two of the Complete Auto test. What then is the appropriate remedy?
"[A] challenged statute will be construed to avoid constitutional defects
if the statute is 'reasonably susceptible' of such construction." N.J. State Bd. of
Higher Educ. v. Bd. of Dirs. of Shelton Coll., 90 N.J. 470, 478 (1982) (quoting
State v. Profaci, 56 N.J. 346, 350 (1970)); accord Gallenthin Realty Dev., Inc.
v. Borough of Paulsboro, 191 N.J. 344, 366 (2007). The question becomes
"whether a construction of the statute is possible that avoids the constitutional
problem." Whirlpool, 208 N.J. at 172 (citing State v. Miller, 170 N.J. 417, 433
(2002)). "When a statute's constitutionality is doubtful, a court has the power
to engage in 'judicial surgery' and through appropriate construction restore the
14
We refer to these portions of the Ordinance and the LTAA as the
"supervisor provisions."
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statute to health." Town Tobacconist v. Kimmelman, 94 N.J. 85, 104 (1983)
(quoting N.J. State Chamber of Com. v. N.J. Election Law Enf't Comm'n, 82
N.J. 57, 75 (1980)).
In Whirlpool, the Court limited the reach of New Jersey's "Throw-Out
Rule," a provision of the Corporate Business Tax used to apportion a multi -
state corporation's local taxable income. 208 N.J. at 150–51. By throwing out
a company's receipts that were untaxed by other states, the Throw-Out Rule
resulted in an apportionment formula that increased the taxpayer's New Jersey
tax liability. Id. at 151. The Court concluded,
that the [Rule] may operate constitutionally . . . when
applied to untaxed receipts from those states that lack
jurisdiction to tax the corporate taxpayer due to the
insufficient business activity in that state, but not
when applied to receipts that are untaxed due to a
state's determination not to have an income or similar
business activity tax.
[Ibid.]
"Faced with a tax formula that predictably operate[d] unconstitutionally in
some circumstances, [the Court] . . . interpret[ed] the statute narrowly so that it
generally operate[d] constitutionally." Id. at 173. The Court further found that
such limited construction was consistent with the legislative history of the
provision. Ibid.A-3097-18
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Here, the LTAA and the Ordinance could operate constitutionally if both
provided a mechanism to ensure internal consistency in application of a
payroll tax, i.e., that both provided a procedure and remedy for an aggrieved
taxpayer to demonstrate it was being taxed twice for the same employee by
application of the supervisor provisions. Certainly, the Legislature intended
such a result. See N.J.S.A. 40:48C-18 (providing that no employer would be
subject to more than one municipality for the remuneration paid to a particular
employee). However, we are reluctant to order a specific remedy at this time .
"[A] State found to have imposed an impermissibly discriminatory tax
retains flexibility in responding to this determination." McKesson Corp. v.
Div. of Alcoholic Beverages & Tobacco, 496 U.S. 18, 39–40 (1990); see also
Tyler Pipe Indus., Inc. v. Wash. State Dep't. of Rev., 483 U.S. 232, 252–53
(1987) (noting that whenever a tax fails the internal consistency test, it is
generally left to the taxing authority to determine the exact remedy that must
be provided to aggrieved taxpayers). Often, determining what is the most
appropriate remedy to cure the constitutional infirmity "may necessitate more
of a record" than exists. Id. at 252 (quoting Bacchus Imps., Ltd. v. Dias, 468
U.S. 263, 277 (1984)).
The lack of a complete record in this case is obvious. We have no idea
whether plaintiff-businesses and other Jersey City employers actually face
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double taxation. We also do not know whether the State or the City, faced
with the prospect of our holding, would fashion another remedy, including,
possibly striking the supervisor provisions entirely. To be clear, the supervisor
provisions of the LTAA and the Ordinance, left as enacted without limitations,
violate the second prong of the Complete Auto test, and, therefore, violate the
dormant Commerce Clause of the United States Constitution. We therefore
vacate the dismissal of plaintiffs' Commerce Clause cause of action as it
pertains to the supervisor provisions, remand the matter to the trial court to
permit the parties to supplement the record and for any further proceedings
consistent with this opinion.
VI.
Plaintiffs contend the judge misapplied the standard for deciding a
motion to dismiss and placed a burden on plaintiffs to produce evidence
proving allegations of the impact of the payroll tax on their business
operations. The argument is meritless.
With the consent of all parties, the judge entertained oral argument on
plaintiffs' motion for summary judgment and defendants' motion to dismiss
with the common understanding that the court would issue dispositive rulings
on all issues because there were no facts in dispute bearing on the legal
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arguments. For example, in colloquy with the judge prior to oral argument,
plaintiffs' counsel unequivocally stated that the facial constitutional challenges
were ripe for adjudication, there were no real facts in dispute, and the "timing"
was right for a decision "on the merits today."
We agree with the State and the City that plaintiffs' now object to a
procedure they invited. See Brett v. Great Am. Recreation, Inc., 144 N.J. 479,
503 (1996) ("The doctrine of invited error operates to bar a disappointed
litigant from arguing on appeal that an adverse decision below was the product
of error, when that party urged the lower court to adopt the proposition now
alleged to be error.").
Lastly, we agree with plaintiffs that, to the extent he did, it was error for
the judge to premise dismissal of their complaint upon the failure to join
Newark as an indispensable party. "[A]bsence of an indispensable party does
not deprive the court of jurisdiction to adjudicate the issues among
the parties who were joined." Toll Bros. v. Twp. of W. Windsor, 334 N.J.
Super. 77, 91 (App. Div. 2000) (citing Raynor v. Raynor, 319 N.J. Super. 132,
144 (App. Div. 1998)); accord In re Adoption of N.J.A.C. 19:3, 19:4, 19:5 &
19:6, 393 N.J. Super. 173, 186 (App. Div. 2007).
Read together, Rules 4:28-1(a) and 4:30 grant courts authority on their
own motion to join indispensable parties when "in the person's absence
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complete relief cannot be accorded." But, these rules do not provide for
dismissal of a complaint on the merits for failure to join an indispensable party
unless it has been established that the party at issue "cannot be served with
process." R. 4:28-1(b). Nevertheless, we granted Newark's motion to
intervene on appeal, it has addressed plaintiffs' arguments, and, to the extent
there was any error, the issue is moot.
Affirmed in part; vacated in part; remanded for further proceedings
consistent with this opinion. We do not retain jurisdiction.
Further, we stay our judgment for forty-five days to permit the parties to
seek further review.
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