The Supreme Court’s brief, one-sentence order Monday declining to weigh in on the tax spat between New Hampshire and Massachusetts — over taxing remote workers’ incomes — drew predictable responses on both sides of the border. Here, Gov. Chris Sununu sought to tie the Biden administration to the decision and gloomily foretold “lasting ramifications for thousands of Granite State residents.” Meanwhile, a spokesman for Massachusetts Gov. Charlie Baker issued a statement that his administration “appreciates” the decision.
The case arose over the tax the Bay State has long imposed on Granite State commuters over their Massachusetts earnings. That seemed not to have raised New Hampshire’s hackles until last year, when the commonwealth implemented a rule continuing to tax the wages of those who had been commuting, but were working remotely — presumably from New Hampshire — because of COVID-19 restrictions, on the same basis as before the pandemic.
Sununu, who joined other New Hampshire officials of both parties in expressing outrage, accused the commonwealth of seeking to balance its budget on the backs of New Hampshire citizens and headed to court, asking the Supreme Court to decide the matter under its authority to settle disputes between the states.
Whether the high court would agree to decide the case was uncertain at best. First, the Massachusetts rule is only a temporary one implemented during the pandemic restrictions and will expire on Sept. 13. Also, the New Hampshire remote workers subject to being taxed under the Massachusetts rule are the ones most directly harmed by Massachusetts, and they can challenge the rule through administrative or legal means on their own. Given the Supreme Court’s long-standing reluctance to step in to decide suits between states, it’s no surprise it will not get involved, at least at this time.
Yet “at this time” is important, because the remote working that pandemic restrictions forced on so many has led businesses to recognize many of their employees can work as efficiently and cost-effectively from home as from the office. With most income-tax states already taxing at least a proportion of out-of-state commuters’ wages, the temptation for them to go after out-of-state teleworkers’ wages will only increase as the shift to replacing workplace commuting with teleworking accelerates and erodes a revenue source.
The situation needs a solution, and two avenues are foreseeable. One would be if one or more of the out-of-state remote workers living in New Hampshire were to mount a court challenge to being taxed under the Massachusetts rule. Certainly, there’s nothing about the Supreme Court’s action Monday that forestalls either that or even an eventual resolution by the high court in such a case. And if the governor and other state leaders feel New Hampshire has a strong interest in resolving this — which they should — the state should consider funding or otherwise supporting any such challenge brought by its residents.
A legislative solution should also be pursued in Washington to establish limits on the cross-border reach of states seeking to tax out-of-state remote workers. New Hampshire Sens. Jeanne Shaheen and Maggie Hassan already introduced legislation in May to address the situation, and 1st District Congressman Chris Pappas says he plans to reintroduce the House companion bill he co-sponsored with 2nd District Congresswoman Ann Kuster last year.
In the state’s initial Supreme Court filing last year, the Sununu administration rather grimly predicted the Massachusetts rule taxing out-of-state telecommuters would harm the Granite State’s ability to attract and retain people and businesses and end the “New Hampshire Advantage” of not taxing its residents’ earned income. That seems a bit of an overreach, but the state’s leaders should continue to force the issue by supporting the teleworking residents Massachusetts seeks to tax and pressing for legislation in Congress to settle the issue nationwide.