The oft-cited New Hampshire Advantage of no earned-income tax has run smack into the COVID-19 pandemic, and the result is an unneighborly spat between the Granite State and the Commonwealth of Massachusetts that’s landed in the U.S. Supreme Court.
The dispute arises because Massachusetts plans to continue taxing New Hampshire residents who previously commuted to jobs in the commonwealth but have been working remotely from their homes during the pandemic. Before COVID-19, residents who commuted south across the border for work generally paid income tax to the Bay State on their Massachusetts-sourced compensation. With the onset of the coronavirus pandemic, Gov. Charlie Baker declared a state of emergency that sent workers of all non-essential businesses home, and even since the subsequent loosening of those restrictions many businesses continue to keep their employees working remotely.
Facing a loss in tax revenue, the Massachusetts tax authorities announced in April they would continue to tax out-of-staters working remotely due to the pandemic on their Massachusetts wages as before.
New Hampshire officials, led by Gov. Chris Sununu and leaders of both parties, objected strongly, charging the commonwealth with trying to balance its budget on the backs of New Hampshire citizens. After Massachusetts refused to change its stance and finalized the rule on Oct. 16, the Granite State filed suit in the Supreme Court.
In one sense, the commonwealth’s position is understandable. It has long taxed commuters on their Massachusetts income without raising the ire of New Hampshire, and those commuters will, if the rule stands, pay no more in Massachusetts taxes than they would have if there had been no pandemic. From that perspective, it might be easy to dismiss New Hampshire’s objections as parochial posturing.
But New Hampshire and Gov. Sununu are right to press the issue. Dealing with COVID-19 has led to many societal shifts, and one is the recognition by businesses that many of their employees can work from home as efficiently and cost-effectively as from the office, or more so. That won’t change even when the pandemic goes away, and there will surely be more and more New Hampshire residents who work for Massachusetts employers without commuting from their homes. The temptation for the commonwealth to continue to reach outside its borders to tax their earnings will be strong, and it makes sense for New Hampshire to make a stand now.
The prospects for New Hampshire’s case are unclear. The state has gone directly to the Supreme Court under its authority to settle disputes between states. Whether the court will agree to hear the case now, however, may depend on whether it believes the aggrieved parties who should be suing are the New Hampshire residents being subjected to Massachusetts tax rather than the state itself.
New Hampshire’s court filing extols the regional and national advantages of its tax structure and grimly forecasts the end of the New Hampshire Advantage should the Massachusetts tax rule stand, predicting such results as harming the Granite State’s ability to attract and retain people and businesses.
We’re not so sure that life as we know it in New Hampshire might end if the Bay State’s rule stands for the duration of the pandemic. But the changing nature of the workplace — or more precisely, the non-workplace — makes this an important issue to resolve.