Biden urges Supreme Court to stay out of Mass.-NH tax dispute
Granite State challenged taxation of remote workers
THE BIDEN ADMINISTRATION on Tuesday urged the US Supreme Court not to intervene in a high-stakes tax battle between the states of Massachusetts and New Hampshire.
The Solicitor General’s office, which represents the federal government before the Supreme Court, filed a brief weighing in on a dispute over whether Massachusetts can tax out-of-state residents who are working remotely for a Massachusetts company during the COVID-19 pandemic. The brief does not side with Massachusetts on the substance of the case, but for procedural reasons, urges the court not to hear New Hampshire’s challenge of the law.
The case has broad national implications as companies who turned to remote work during the pandemic consider keeping some amount of remote work even after the public health danger subsides. The Supreme Court case could clarify how jurisdictions can tax employees working remotely across state lines.
The case stemmed from emergency regulations put forth by Gov. Charlie Baker and promulgated by the Department of Revenue, which stated that an employee of a Massachusetts company who is working remotely due to the COVID-19 pandemic must pay taxes in Massachusetts, regardless of whether the employee is physically living or working in Massachusetts.
Fourteen states have weighed in on the side of New Hampshire.
The Biden administration brief says the case is not an appropriate one for the Supreme Court to take up, because it should be litigated first in the Massachusetts courts by the New Hampshire residents who are subject to the Massachusetts income tax. Allowing local courts to litigate the issue, the Biden administration writes, “is more respectful of that State’s significant sovereign interest in taxation, and more consistent with principles of equity, comity, and federalism that traditionally have prevented federal courts from interfering in state taxation when taxpayer challenges can be raised in state court.”
While New Hampshire claims the Massachusetts tax could disincentivize people to move to the Granite State, the Solicitor General’s brief says these issues do not rise to the seriousness required for the Supreme Court to accept jurisdiction in the case. It argues that the opposite could actually happen, if the rule incentivizes New Hampshire residents to seek jobs in New Hampshire, rather than in Massachusetts.
“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,” the brief writes.
While acknowledging the broader questions about how to tax remote work, the Biden administration brief says the “idiosyncratic and temporary nature” of the Massachusetts tax rule makes it the wrong vehicle to become a test case for these larger questions. A rule that applies only to someone working in Massachusetts immediately before the pandemic, the brief writes, is different from a rule meant to apply to someone hired specifically to work remotely for reasons unrelated to COVID-19.
Paul Craney, a spokesperson for the generally anti-tax Mass Fiscal Alliance, portrayed the brief as a pro-tax stance by both Biden and Baker. “President Biden’s administration has continually advocated for new taxes, higher taxes, and more complex taxes. It comes as no surprise that the President is now standing shoulder to shoulder with Governor Baker in their quest to tax workers who have virtually no ties to the state,” Craney said in a statement.Mike Porter, a tax attorney at Hemenway and Barnes, said the case is attracting national attention because of the broader implications for whether states can tax income earned outside their jurisdiction – an issue that has come up in other states, such as New York.
“In this climate of political polarization where everything is red states–blue states, is this what we want the states to do now –– besiege the Supreme Court to hear whatever particular grievance of the day is?” Porter asked.