In the early months of the COVID-19 pandemic, the Massachusetts Department of Revenue promulgated an emergency regulation that treated nonresidents who worked in Massachusetts before the pandemic as if they were still working in Massachusetts during the pandemic (“COVID Sourcing Regulation”).This was a targeted effort by Massachusetts to continue receiving personal income tax revenues from nonresidents during the state’s state of emergency. New Hampshire, which does not impose a personal income tax on its residents, viewed the COVID Sourcing Regulation as an infringement on its sovereignty because the COVID Sourcing Regulation would subject many New Hampshire residents to the Massachusetts personal income tax. Thus, New Hampshire filed a Motion for Leave to File Bill of Complaint in the Supreme Court seeking to enjoin Massachusetts from enforcing the COVID Sourcing Regulation on constitutional grounds.
In response to the Supreme Court's invitation to weigh in on the matter, the Solicitor General filed an amicus brief urging the Supreme Court to deny New Hampshire’s Motion for Leave to File Bill of Complaint and thus, reject review of New Hampshire's constitutional claim. Specifically, the Solicitor General argued that New Hampshire’s asserted interests — (i) Massachusetts’s alleged infringement on New Hampshire’s sovereign interests and (ii) New Hampshire’s concern that the COVID Sourcing Regulation would create a disincentive for individuals to relocate to New Hampshire — were not of a sufficient magnitude to warrant the Supreme Court’s exercise of its original jurisdiction. Moreover, the Solicitor General argued that a challenge to the COVID Sourcing Regulation brought by a New Hampshire resident through Massachusetts's established procures for challenging tax assessments would be a more appropriate vehicle for challenging the COVID Sourcing Regulation (as opposed to a potential battle between the two states). Ultimately, the Supreme Court declined to exercise its original jurisdiction, denying New Hampshire’s motion in an order on 28 June 2021.
Now that the Supreme Court has officially declined review in New Hampshire v. Massachusetts it is important to note what the decision does not mean. First, the Supreme Court’s decision does not bless or otherwise endorse the COVID Sourcing Regulation as constitutional. Indeed, the COVID Sourcing Regulation may still be subject to challenge by individuals affected by it. And perhaps most importantly, the Supreme Court’s decision does not resolve or even address the broader issue of the limitation of state taxation of remote workers. Regardless of what ultimately happens with respect to the COVID Sourcing Regulation one thing is clear: the COVID-19 pandemic has fundamentally altered the way we work and remote work is here to stay. Clarification is needed as to how states may tax telecommuting employees.
For additional background on and insight into New Hampshire v. Massachusetts, please see our two blog posts on the topic, “SCOTUS Invites Acting Solicitor General to Weigh In on Ongoing Dispute Between Massachusetts and New Hampshire Regarding Controversial COVID-19 Sourcing Rule” and “The Sun Has Set On New Hampshire v. Massachusetts" available at https://www.saltsavvy.com/