Massachusetts told the Supreme Court Tuesday that New Hampshire’s lawsuit contesting its temporary income tax on remote workers is no longer relevant because the pandemic emergency is over in the Bay State.
The request came just over a week before the nine justices of the Supreme Court are scheduled to hold a closed-door conference on June 24 to decide whether to put the case on their docket for the fall term.
The taxation of telework involving out-of-state workers has national implications because of the sudden increase in remote work caused by the COVID-19 pandemic. Many of those workers have not returned to their offices and, in many cases, may never return.
Massachusetts enacted an emergency regulation effective March 10 of last year that continued to impose income taxes on former commuters from out-of-state who had begun working from home because of the pandemic.
But Massachusetts Gov. Charlie Baker signed an executive order May 28 that ended the state of emergency effective June 15. The emergency regulation sunsets on September 13, which is 90 days after the end of the emergency, according to the Massachusetts Department of Revenue.
“The governor’s declaration of an end to the emergency triggers the sunset of the pandemic-related tax regulation New Hampshire seeks to challenge in this court,” Massachusetts Attorney General Maura Healey wrote in a three page brief filed Tuesday.
New Hampshire last year asked the Supreme Court to take the case because 103,000 of its residents, about 15% of its workforce, worked for Massachusetts-based companies in 2017.
New Hampshire has no state income tax and claimed the taxation of its residents was causing economic harm.
New Jersey, Connecticut, Hawaii, and Iowa filed a friend of the court brief in support of New Hampshire, noting many of their residents are in the same position of being forced to pay income taxes to other states where their jobs are based.
New Jersey said more than 400,000 of its residents and 78,000 from Connecticut commuted to jobs in New York City prior to the pandemic.
On the other side are five states that in addition to Massachusetts, rely on income taxes paid by out-of-state commuters for a significant amount of their revenue.
Most notable among the five is New York, where New York City is an employment hub that draws hundreds of thousands of workers from northern New Jersey and southern Connecticut. Arkansas, Delaware, Nebraska, and Pennsylvania also have similar taxes on out-of-state workers.
The federal government last month filed a friend of the court brief advising the Supreme Court to not take the case because it does not rise to the level of original jurisdiction that warrants the court’s consideration.
“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,” Acting Solicitor General Elizabeth B. Prelogar said in a brief filed in response to the high court’s January invitation for the executive branch to weigh in.
The acting solicitor general said the case involves only a temporary rule. “That sort of temporary rule, applicable only to a subset of nonresidents based in part on their having satisfied a past condition, is unlikely to substantially affect long-term incentives about relocation or employment going forward,” the federal government’s brief said.
The acting solicitor general also wrote that in general “one state should not lightly be permitted to demand relief for its residents from another state when the individual residents themselves have an available means of redress.”
