New Hampshire’s governor has thrown down the gauntlet on the taxation of resident remote workers, threatening legal action in a letter to Massachusetts.
Gov. Chris Sununu (R) wrote in an August 21 letter to Massachusetts Gov. Charlie Baker (R) that he has "serious policy and legal concerns with Granite Staters being taxed in Massachusetts when they have not crossed the state line in months due to the COVID-19 pandemic," adding that he hopes the state can avoid pursuing legal remedies to resolve the issue.
Along with his letter, Sununu included letters from the state attorney general and the Department of Business and Economic Affairs, which he said contained comments that were being offered at his direction.
Massachusetts adopted in July an emergency regulation imposing the state's income tax on nonresidents who worked in the state before the pandemic but are now working remotely. Soon after, Sununu directed the New Hampshire attorney general's office to investigate whether the regulation results in improper taxation of New Hampshire residents.
Before the pandemic shutdown, New Hampshire residents who worked in Massachusetts but occasionally telecommuted from home were allowed to allocate that portion of their income to New Hampshire. Under the emergency Massachusetts rule, working from home for a Massachusetts employer because of pandemic-related circumstances is treated as Massachusetts-sourced income.
“In other words, the Emergency Income Tax Rule imposes a retrospective, extraterritorial tax penalty on New Hampshire residents who comply with important government orders and employer instructions by staying in their New Hampshire homes in order to protect the public health,” Attorney General Gordon J. MacDonald said in his letter to Massachusetts Department of Revenue Commissioner Geoffrey Snyder.
MacDonald outlined four points of contention with the emergency rule: 1) Massachusetts’ statutes provide the DOR with limited authority to adopt regulations on nonresident income from sources within the state; 2) the rule is overbroad and could affect work arrangement changes that were not pandemic-related; 3) the rule violates the due process and commerce clauses; and 4) it goes against principles of comity and fails to respect the interests of a neighboring state.
In its letter to the Massachusetts DOR's Ruling and Regulations Bureau, the Department of Business and Economic Affairs outlined New Hampshire’s intentional policy choices for not taxing income and argued that the emergency rule goes against regional efforts at cooperation.
A public hearing on the Massachusetts emergency rule is scheduled for August 27.