The Gloves Are Off Between the Granite and Bay States
Massachusetts has introduced a controversial policy that taxes Granite State residents’ income if they work remotely for Massachusetts-based companies. Originally introduced during the early days of the COVID-19 pandemic, this legislation aims to maintain state revenues that would be normally gathered from out-of-state employees working within Massachusetts’ borders. Simple purchases like gas, meals, even auto-services are all happening in New Hampshire instead of Massachusetts, and the Bay State wants to take its cut.
Taxachusetts' policy taxes the income of New Hampshire residents who would have been commuting into the state. So if a New Hampshirite previously drove to Massachusetts five days a week before COVID-19, Massachusetts now taxes them for the five days of income earned working remotely. According to New Hampshire’s Department of Employment Security, nearly 100,000 Granite State residents commuted to Massachusetts pre-pandemic. Take this number and apply it to other states, and this policy creates a larger issue that needs to be addressed nationally.
How Is New Hampshire Fighting This Policy?
The state of New Hampshire and Governor Chris Sununu have filed a lawsuit with the U.S. Supreme Court to challenge the tax policy after Massachusetts’ Governor Charlie Baker announced that the policy would be extended in 2021.
Andrew Cline, president of the Josiah Bartlett Center for Public Policy, is working with New Hampshire lawmakers and Gov. Sununu on this lawsuit and has stated that there is a lot at stake here outside of just these two states. One of the lawsuit's key factors that is going largely unnoticed is the steep and dangerous precedent such a policy would create for other states moving forward. Remote work isn’t going anywhere; it’s quickly becoming the new norm, and if states can bill remote workers beyond their borders, things are bound to get messy.
"There are six states that tax remote workers in similar ways," said Cline. "If [Massachusetts] wins and the Supreme Court allows a state to tax remote workers wherever they live regardless of having any physical nexus in the state, you will see states quickly passing laws to reach over their borders and tax everyone who they can claim is doing remote work in their states. And all of a sudden, tax competition among states is reduced."
What’s at Stake Here?
"Massachusetts has radically redefined what constitutes Massachusetts-sourced income in order to tax earnings for work performed entirely outside its borders," New Hampshire Attorney General Gordon Macdonald said in the state's latest submission to the Supreme Court. "This does not maintain the status quo. It upends it."
The real problem here is that if this policy stands, then there is nothing stopping other states from further upending the status quo and also taxing employees who work remotely but don’t operate within their borders. And for residents in the Northeast, where taxes are notably higher than the rest of the country, this can create large issues that could push employees to leave the Northeast altogether.
Throughout the COVID-19 pandemic, the Northeast has quickly become a safe haven for Americans looking to relocate to safer states with lower positive case counts.
However, policies like the tax Massachusetts has enacted threaten the growth of states like New Hampshire and will have a negative ripple effect. And, if fewer people are looking to move to New Hampshire, the real estate industry will inevitably suffer - so here’s to hoping that the Supreme Court heeds the call of the New Hampshire legislators and attorneys who are working to protect their residents from an arguably unconstitutional policy.