STATE AND LOCAL TAX – GROSS INCOME TAX ACT – W-2 WAGES AND COMMISSIONS -- BROKERS ACT -- INDEPENDENT CONTRACTOR AGREEMENT
Tax Court: Estate of Michael R. Monihan and Holly P. Monihan v. Dir., Div. of Taxation, Docket No. 012125-2021; opinion by Nugent, J.T.C., decided January 2026. For plaintiff - Howard Pashman, Esq., and Justin P. Kolbenschlag, Esq., (Pashman Stein Walder Hayden, PC, attorneys); for defendant – Judith O’Malley, Deputy Attorney General (Matthew J. Platkin, Attorney General of New Jersey, attorney).
HELD: Taxpayer’s independent contractor election under the Brokers Act, N.J.S.A. 45:15-1 to -34, was not a legitimate basis to challenge Taxation’s reclassification of Taxpayer’s 1099 commission income as W-2 income, due to the Legislature not intending to legislate tax classifications in the Brokers Act.
Michael Monihan (Taxpayer), as a broker and broker-salesperson with Monihan Realty, Inc., had entered an independent contractor agreement (ICA) with the company. In reliance on the ICA, Taxpayer reported his commissions earned from sales and rental of real estate as 1099 income. Decided on cross-motions for summary judgment, the court rejected Taxpayer’s plain meaning interpretation of the Brokers Act’s “notwithstanding” clause, where Taxpayer suggested that the business affiliation elected must override any conflicting classifications from Gross Income Tax (GIT) Act, N.J.S.A. 54:5A-1 to 12-6, and its administrative withholding regulation, N.J.A.C. 18:35-7. Per the court, the clause’s override of “any other law, rule, or regulation to the contrary” applies when there is a conflict between the overall statutory schemes of the Brokers Act and the GIT Act, not the results attained by their respective applications. The court determined that the Brokers Act’s statutory scheme of regulating the licensing and business activities of the real estate professionals covered therein did not conflict with the GIT Act’s statutory scheme to tax expressly identified classes of income, specifically, N.J.S.A. 54A:5-1(a) and 1(b). Thus, the Brokers Act does not supplant the GIT Act or N.J.A.C. 18:35-7. The court further found that Kennedy v. Weichert, 257 N.J. 290 (2024), where the Supreme Court interpreted the Brokers Act, is not determinative in assessing the validity of reclassification of Taxpayer’s commission income. Taxation’s basis for reclassification was properly placed on N.J.A.C. 18:35-7.1, where Taxpayer is a corporate officer defined as an employee under the regulation. The court thereby upheld Taxation’s reclassification of Taxpayer’s 1099 commissions as W-2 income, granted Taxation’s cross-motion for summary judgment, and denied Taxpayer’s motion for summary judgment.