On Monday, the United States Supreme Court declined to take up the question of one state taxing residents of another state who work from home. New Hampshire sought to sue Massachusetts for continuing to tax a number of New Hampshire citizens who had been working in Massachusetts when the pandemic struck but subsequently returned to New Hampshire to work from home.
Prior to that, Massachusetts taxed non-residents on their earnings while they were physically present in the state. According to New Hampshire, this included the “tens of thousands” of people who worked in Massachusetts but lived in New Hampshire, which has no state income tax. Massachusetts officials announced in April 2020 that while the state was still under a state of emergency due to the pandemic, it would continue to tax the income of those who earned money in Massachusetts prior to COVID-19. The state of New Hampshire called its neighbor’s attempt to tax its residents over state lines a “direct attack” on the state and its allure. “It is an affront to New Hampshire’s sovereignty. In court filings, state authorities stated that it “undermines an incentive for firms to locate money and jobs in New Hampshire.” More than ten states requested the court to consider the case, claiming that cross-state taxation issues required the court’s attention regardless of the pandemic. According to court documents, Massachusetts’ proclamation in early spring 2020 was an attempt to protect the status quo in a rapidly changing world. The state argued in court filings that the “sudden move to work-from-home within this disaster not only upended enterprises’ operations and employees’ everyday lives, but also caused many logistical and legal quandaries, including in state taxation.” Massachusetts informed the judges earlier this month that the emergency order had been revoked. Massachusetts lawyers said that this action “triggers the sunset of the pandemic-related tax policy New Hampshire seeks to challenge.” When the court requested the federal government’s input, the Solicitor General’s office argued the lawsuit should be dismissed. The court declined to hear the case on Monday without providing any additional information. According to the order, Justices Clarence Thomas and Samuel Alito said they would have granted the applications to hear the case. Workers around the country have battled with varied state-by-state circumstances for when state income taxes kick in during the pandemic, far from the courthouse. In one survey, more than two-thirds of respondents claimed they had no idea that working remotely could affect their state income tax burden. Representatives for New Hampshire and Massachusetts could not be reached for comment immediately, but other organizations said they hoped the case would be heard by the Supreme Court at the very least. The National Taxpayers Union Foundation and 16 other organizations urged the court to hear the case and rule in favor of New Hampshire in the face of Massachusetts’ “power grab.” “The Court chose to punt today, but telework is here to stay, and remote work taxation issues are not going away,” Joe Bishop-Henchman, the right-leaning organization’s vice president of litigation, said on Monday. This isn’t the end of the story.” “I heard from many people experiencing multistate tax incoherence how much they appreciate us attempting to seek solutions for them since the beginning of the endeavor to persuade the court to hear the case,” Bishop-Henchman said in his statement. We’ll keep working toward that goal.”
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