Supreme Court Refuses to Hear New Hampshire’s Challenge to Massachusetts Taxing Its Residents

The Supreme Court at sundown in Washington on Nov. 2, 2020. (AP Photo/J. Scott Applewhite, File)

The Supreme Court declined to hear New Hampshire’s challenge to Massachusetts’s pandemic-era policy of taxing out-of-state residents who used to work in Massachusetts but switched to telecommuting from their New Hampshire homes during the pandemic.

Billions of dollars in income taxes paid by people who worked from home during the pandemic were at stake in this case, and conceivably in other states such as New York that, even in the absence of a public health emergency, collect taxes on nonresident income.

According to New Hampshire, the Massachusetts tax rule goes against New Hampshire’s state sovereignty, its residents’ economic interests, and runs afoul of the U.S. Constitution’s commerce clause and the 14th Amendment’s due process clause. New Hampshire had asked the court for an injunction preventing Massachusetts from enforcing the rule and requiring it to refund all funds collected under it.

Unlike its high-tax neighbor to the south, New Hampshire has no state income or sales tax as part of an intentional strategy to remain economically competitive with other states.

According to one estimate, 120,000 New Hampshire residents who used to commute to Massachusetts every workday worked from home because of the pandemic but still had to pay the 5 percent income tax in Massachusetts. Massachusetts issued an emergency order retroactively effective March 10, 2020, near the beginning of the pandemic, and continued to tax those individuals even when they stayed at home to work. New Hampshire said it was unfair for Massachusetts to do this because the taxpayers weren’t using Massachusetts services that are funded by the taxes.

“Massachusetts cannot balance its budget on the backs of our citizens, punish our workers for making the decision to work from home and keep themselves and their families and those around them safe,” New Hampshire Gov. Chris Sununu, a Republican, said in October in initiating the lawsuit.

The Biden administration had urged the court not to consider the lawsuit.

In May, Acting U.S. Solicitor General Elizabeth Prelogar brushed aside New Hampshire’s concerns, saying in a friend-of-the-court brief that New Hampshire’s contention “that it has suffered a serious violation of its sovereignty” has “no limiting principle” and could lead to more states suing in the Supreme Court to defend their sovereignty.

“Although New Hampshire might prefer that its residents not pay personal income taxes to any government, an independent tax obligation falling on a state’s residents generally is not an injury to that state’s own sovereign prerogatives,” said Prelogar, the administration’s top Supreme Court attorney.

Instead, New Hampshire should sue in the Massachusetts court system, she said, as The Epoch Times previously reported.

Sununu criticized the court’s decision on June 28.

“By siding with the Biden administration and allowing inappropriate taxation of NH citizens, the Supreme Court is setting a costly precedent,” Sununu said in a statement.

“This decision will have lasting ramifications for thousands of Granite State residents.”

In an unsigned order on June 28, the court declined without explanation to grant leave to New Hampshire to proceed further in New Hampshire v. Massachusetts, court file No. 220154, which New Hampshire initiated by a bill of complaint on Oct. 19, 2020. New Hampshire had invoked the high court’s original jurisdiction to adjudicate disputes between the states.

Justices Clarence Thomas and Samuel Alito voted to hear the case, as they have done in other legal proceedings between states that the Supreme Court has refused to take up. They have said they believe federal law provides states an unfettered right to bring suit against one another directly in the high court.

“The Court chose to punt today, but telework is here to stay and remote work taxation issues are not going away,” attorney Joe Bishop-Henchman, vice president of litigation at the National Taxpayers Union Foundation (NTUF), told The Epoch Times.

“This case will not be the last.

“Massachusetts just a few days ago dropped its policy going forward, so the Court might have thought the whole issue to be moot. The Court takes only a fraction of the cases submitted to it, and everyone who works in tax knows the odds are even smaller for us.

“In the months since we filed in this case, I heard from many taxpayers facing multistate tax incoherence how much they appreciate us trying to get solutions for them. We will press on toward that goal.”

NTUF previously filed a friend-of-the-court brief on behalf of itself and 16 other groups.