The governor of New Hampshire is approaching nightmare-neighbor territory with his income tax battle with Massachusetts.
No longer content with sniping over the back fence, Gov. Chris Sununu (R) has decided to take it to the federal level, promising to take his case to the U.S. Supreme Court.
The subject of his ire is Massachusetts's October 16 final regulation clarifying that nonresidents who worked in the state but now work remotely because of the COVID-19 pandemic will continue paying Massachusetts's 5.05 percent income tax.
“Within five minutes of learning of this rule change, I immediately directed the [state] Department of Justice to file a lawsuit in the United States Supreme Court on Monday,” Sununu said in an October 16 release. "We are going to fight this unconstitutional attempt to tax our citizens every step of the way, and we are going to win," he added. The release says Sununu and state Attorney General Gordon MacDonald will file suit October 19.
It is unlikely the Supreme Court will take up the case, according to Richard Call of McDermott Will & Emery. However, “there is a better chance here because it could be set up as a suit between states,” he told Tax Notes October 16.
The Court has original and exclusive jurisdiction over disputes between states. New Hampshire would have to submit a motion for leave to file a bill of complaint and could submit a brief in support of the motion. If the Court grants the motion for leave to file, it will appoint a special master to hear the evidence and recommend a decision.
Under the Massachusetts regulation, state residents who previously worked in another state before the pandemic but now are required to work remotely in Massachusetts will be eligible for a tax credit for taxes paid to another state under a similar sourcing law. New Hampshire currently does not have an income tax on wages and salaries.
The regulation will apply 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from March 10 until the earlier of December 31, 2020, or 90 days after Massachusetts's state of emergency is no longer in effect.
Neither state justice department returned a request for comment by press time.
In comments submitted to the Massachusetts Department of Revenue August 21, MacDonald asked the department to "rescind or modify the Emergency Income Tax Rule to eliminate the unfair, unexpected, retrospective, and extraterritorial income tax increase on New Hampshire's residents as well as the infringement on the sovereign jurisdiction of the State of New Hampshire." He argued that it would unfairly penalize New Hampshire residents who are staying home because of government orders during the pandemic.