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Justices Reject Fight Over Massachusetts Tax on Out-of-State Workers

The Supreme Court declined to take up New Hampshire’s complaint challenging Massachusetts’ collection of income tax from out-of-state commuters who have been working at home during the pandemic.

WASHINGTON (CN) — New Hampshire residents working remotely for companies in Massachusetts during the Covid-19 pandemic will still have to pay income tax as if they were commuting to work, after the Supreme Court turned away a challenge to Massachusetts’ rule.

The high court on Monday rejected New Hampshire’s complaint without comment. The justices have exclusive jurisdiction to hear disputes between states if they so choose and such complaints are filed directly with the court.

The dispute centers on a temporary emergency regulation adopted by Massachusetts last year that places a tax on “nonresident income received for services performed” outside of the state.

“For example, the entire salary of a New Hampshire resident who commuted to work full time in Boston in February but has not set foot in the commonwealth for more than eight months continues to be subject to the Massachusetts state income tax as if he were still working every day in Boston,” the complaint states. (Emphasis in original.)

New Hampshire sought a refund of those taxes for its roughly 80,000 residents working remotely for Massachusetts companies. It claims the rule infringes on its “sovereign right to control its own tax and economic policies." New Hampshire is one of nine states that does not impose an income tax. It says prospective businesses and residents are attracted by “the New Hampshire Advantage.”

The benefit of that policy is reflected in its residents’ median income, which ranks seventh-highest in the nation at more than $74,000 per household, according to the complaint.

“The New Hampshire Advantage is not merely an abstract concept,” the complaint states. “New Hampshire’s sovereign policy choices have helped boost per capita income, decrease unemployment and create a competitive advantage that motivates businesses and individuals to choose New Hampshire as their homes."

Massachusetts State Solicitor Elizabeth Dewar wrote in a reply brief to the Supreme Court that the state’s tax code does not infringe on New Hampshire’s sovereign authority. She noted the dispute only concerns a subset of the New Hampshire population and therefore is not the kind of states' rights case the high court has taken up in the past.

“Such a tax complaint, in essence brought on behalf of a discrete subset of residents rather than to redress an injury to the state itself, is precisely the type the court has long held unsuitable to its original jurisdiction,” Dewar wrote.  

The federal government agreed with Dewar, filing an amicus brief in opposition to New Hampshire’s complaint. The Justice Department argues the issues New Hampshire seeks to rectify could be litigated through the state court system, and constitutional claims would be better supported by individual tax records.

“Although New Hampshire might prefer that its residents not pay personal income taxes to any government, an independent tax obligation falling on a state’s residents generally is not an injury to that state’s own sovereign prerogatives,” the brief states.

New Hampshire Governor Chris Sununu, a Republican, said in a statement Monday that “by siding with the Biden administration,” the justices are “setting a costly precedent.”

“This decision will have lasting ramifications for thousands of Granite State residents,” Sununu said.

A spokesperson for the Massachusetts Executive Office for Administration and Finance said in a statement, “The administration appreciates the Supreme Court’s decision.”

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