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TaxWatch: Supreme Court won’t hear case on remote workers being taxed by neighboring state

The U.S. Supreme Court on Monday chose not to wade into the issue of one state taxing another state’s residents while they work from home.

New Hampshire wanted permission to sue Massachusetts for continuing to tax a number of New Hampshire residents who had been working in Massachusetts when the pandemic hit, but then switched to work at home back in New Hampshire.

Before that point, Massachusetts taxed non-residents on the money they made when they were physically in the state. That included the “tens of thousands” of people who worked in Massachusetts but lived in New Hampshire, where there is no state income tax, New Hampshire said.

Massachusetts officials said in April 2020 that while Massachusetts remained in a state of emergency due to the pandemic, it would continue taxing the income of people who, up until COVID-19, were making their money in Massachusetts.

New Hampshire said its neighbor’s bid to tax its residents across state borders was a “direct attack” on the state and its allure. “It disrespects New Hampshire’s sovereignty. It undermines an incentive for businesses to locate capital and jobs in New Hampshire,” state officials said in court filings.

More than 10 states urged the court to take the case, saying the problems of cross-state taxation needed the court’s attention — with or without the pandemic.

In court papers, Massachusetts said its early spring 2020 declaration was an attempt to maintain the status quo in a quickly shifting world.

The “sudden transition to work-from-home amidst this emergency not only upended businesses’ operations and their employees’ daily lives, but also posed innumerable logistical and legal quandaries, including in state taxation,” the state said in court filings.

Earlier this month, Massachusetts told the judges it had lifted the emergency order. That action “triggers the sunset of the pandemic-related tax regulation New Hampshire seeks to challenge,” lawyers for Massachusetts wrote.

When the court asked the federal government to share its views, the Solicitor General’s office said the court should pass on the case.

The court refused to hear the case on Monday without any elaboration. Justice Clarence Thomas and Justice Samuel Alito said they would have granted the motions to hear the case, according to the order.

Far from the courthouse, workers all across the country have grappled with varying state-by-state scenarios for when state income taxes kick in during the pandemic. More than two-thirds of people in one survey said they didn’t know working remotely might have some bearing on their state income tax bill.

Representatives for New Hampshire and Massachusetts could not be immediately reached for comment, but other organizations said they were hoping for the Supreme Court to at least hear the case.

The National Taxpayers Union Foundation and 16 other groups wanted the court to hear the case and side with New Hampshire against Massachusetts’ “power grab.”

On Monday, Joe Bishop-Henchman, the vice president of litigation for the right-leaning organization, said “the Court chose to punt today, but telework is here to stay and remote work taxation issues are not going away. This case will not be the last.”

In his statement, Bishop-Henchman said since the start of the effort to persuade the court hear the 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.”

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