'New Hampshire v. Massachusetts' and the Human Capital Implications of Work-From-Home

On Oct. 19, 2020, approximately seven months into the COVID-19 pandemic and the resulting work-from-home transformation of white-collar work, the state of New Hampshire sued the state of Massachusetts over the personal income taxes Massachusetts continued to collect from fully remote New Hampshire residents. In April, Massachusetts had enacted an emergency regulation providing that non-residents employed in the state but working fully remotely out-of-state must still pay its 5% income tax, which became effective as a final rule on Oct. 16, 2020. To New Hampshire residents, who do not pay a state income tax, the Massachusetts rule is no small matter. And if flexible work arrangements become broadly adopted on a permanent basis nationwide, the tax implications would become salient to residents and employers in many other states, especially in the case of employees who may have moved during the pandemic to low tax states but remain tied to an employer headquartered in a high tax state.

The Supreme Court has original and exclusive jurisdiction of disputes between two or more U.S. states, although it retains discretion whether to hear such cases. In this instance, it is likely that the court will grant New Hampshire's motion for leave to file a bill of complaint because the issues raised in its petition have national implications—so much so that at least 14 other states have filed amicus briefs (including New Jersey on behalf of New Hampshire, and New York on behalf of Massachusetts). And, further suggesting that the court will hear the case, on Jan. 25, 2021, it invited the U.S. Acting Solicitor General to submit a brief setting forth the view of the U.S. government.

New Hampshire's bill of complaint asserts that the Massachusetts tax rule is unconstitutional because it is an extraterritorial assertion of taxing power. New Hampshire gives the example of a "New Hampshire resident who commuted to work full time in Boston in February but has not set foot in the Commonwealth [of Massachusetts] for more than eight months" who nevertheless "continues to be subject to the Massachusetts state income tax as if he were still working every day in Boston." Massachusetts, in reply, argues that New Hampshire's petition is merely a run-of-the-mill tax dispute concerning "taxes withheld from private parties" and so is not worthy of Supreme Court review, and that the tax regulation does nothing more than "maintain[] the pre-pandemic status quo for tax filing obligations … to avoid uncertainty and spare employers additional compliance burdens amidst the unprecedented circumstances." On the merits, Massachusetts argues that its taxation of non-residents is fair and rational "in light of the substantial 'protection, opportunities and benefits' provided by Massachusetts to all Massachusetts employees," including "major urban centers that offer employment opportunities and wages on a scale not generally available elsewhere," as well as paid leave laws and a high minimum wage.