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Feds Urge SCOTUS Not to Review New Hampshire's Remote Worker Tax Suit

Posted on May. 27, 2021

The federal government says the Supreme Court should not take up New Hampshire’s case over Massachusetts’s regulation allowing the state to tax nonresident remote workers.

In a May 25 brief in New Hampshire v. Massachusetts, acting U.S. Solicitor General Elizabeth B. Prelogar asked the Court to deny New Hampshire’s motion for leave to file a bill of complaint.

The Court, in a January 25 order, invited the solicitor general to express the views of the United States regarding New Hampshire’s motion in the case.

Prelogar said, “This is not an appropriate case for the exercise of this Court’s original jurisdiction, which the Court has repeatedly stated should be exercised only ‘sparingly.’”

“New Hampshire does not invoke the types of interests that would warrant such an exercise, and the issues New Hampshire seeks to present can adequately be raised and litigated by New Hampshire residents who are subject to the Massachusetts income tax,” the brief continued.

At issue is a regulation adopted by the Massachusetts Department of Revenue that clarified that nonresidents who worked in the state but are now working remotely because of the COVID-19 pandemic will continue paying Massachusetts income tax. The regulation applies retroactively from March 10 until the earlier of December 31, 2020, or 90 days after Massachusetts's state of emergency is no longer in effect. On December 8, 2020, the DOR readopted the emergency regulation extending the rule until 90 days after the state of emergency is lifted, and it issued a proposed regulation extending the state’s income sourcing rules for nonresidents working remotely because of the COVID-19 state of emergency.

Under the regulation, Massachusetts residents who worked in another state before the pandemic but now are required to work remotely in the state will be eligible for a tax credit for taxes paid to another state under a similar sourcing law. However, New Hampshire does not levy an income tax on wages and salaries.

New Hampshire filed its motion for leave to file a bill of complaint on October 19, 2020, asking the Supreme Court to hear its challenge of Massachusetts’s reg — namely, that the regulation violates the federal commerce and due process clauses by taxing New Hampshire residents for work performed entirely in New Hampshire.

In the complaint, New Hampshire argues that the Court’s exercise of its original jurisdiction is urgently needed as “New Hampshire has fundamental sovereign interests at stake.”

“Massachusetts’ extraterritorial tax rule imposes an income tax on citizens of a state who are not, and historically have not been, subject to one, and who have selected New Hampshire (at least in part) for that reason,” the complaint argues.

But Prelogar said New Hampshire’s case is not one of the few that justifies the exercise of the Supreme Court’s original jurisdiction.

“Original jurisdiction is unwarranted in this case for the additional reason that the constitutional claims New Hampshire seeks to raise are derivative of the claims of, and of the tax’s effect on, individual New Hampshire residents — and those individual taxpayers’ challenges to the tax could be raised through Massachusetts’s procedure for challenging tax assessments,” Prelogar said.

Joseph Bishop-Henchman of the National Taxpayers Union Foundation said in an email that part of the solicitor general's job is to advance federal interests, and that it isn't surprising that the acting solicitor general doesn't see interstate tax policy as an urgent priority.

The foundation filed an amicus brief in support of New Hampshire along with Americans for Prosperity — New Hampshire, Americans for Tax Reform, the Cato Institute, the Tax Foundation, and several other groups.

Bishop-Henchman noted that Justices Clarence Thomas and Samuel A. Alito Jr., like the late Justice John Paul Stevens before them, believe the Supreme Court should not be able to turn down cases between states.

“We shall see if enough additional justices want to resolve this case or instead consign thousands of individual taxpayers to deal with an unfriendly Massachusetts forum,” Bishop-Henchman said.

Richard Pomp, professor of law at the University of Connecticut, told Tax Notes that the government’s brief has probably put the nail in the coffin for New Hampshire and that it's hard to imagine the Court granting the state's motion.

“The action will now shift to the Massachusetts courts. The Supreme Court may get a chance to revisit should a petition for cert be filed down the road,” Pomp said.

Andrew Appleby, assistant professor of law at Stetson University, told Tax Notes that he thinks the brief understates the impact on states’ rights, possibly because New Hampshire does not impose a personal income tax.

“If the state at issue did [have an income tax, such as] Connecticut for example, which participated in an amicus brief, it is clearer that the rule at issue is creating a significant fiscal impact for the residence state that is granting a credit for taxes paid to the source state. With that said, the brief recognizes that there may be situations when sourcing telecommuter income to the employer state is justified by the benefits being provided by that state, but concludes that the determination is too fact-specific for an original jurisdiction matter,” Appleby said.

Charlie Kearns of Eversheds Sutherland (US) LLP pointed out that in South Dakota v. Wayfair Inc., the solicitor general asked the Court for leave to participate as an amicus, whereas here the Court asked the solicitor general to opine.

“This may be because this case has a potentially broader impact that relates to the Court’s original jurisdiction under Article III and related jurisprudence. Not to discount the substantive issue related to taxation of nonresident wages earned out of state, but the jurisdictional issue applies in any number of legal disputes, as shown in the case law cited by the [acting] solicitor general,” Kearns said.

In New Hampshire v. Massachusetts (No. 154, Original; No. 22O154), New Hampshire is represented by the New Hampshire Department of Justice and attorneys from Consovoy McCarthy PLLC.

Andrea Muse contributed to this article.

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