Earlier this week, the Supreme Court denied New Hampshire’s motion to sue Massachusetts for the Bay State’s taxation of New Hamsphirites working from home during the pandemic. In doing so, the Court missed an important opportunity to provide some certainty to remote workers about which states have a right to tax their income — and which do not.
Early on in the pandemic, Massachusetts’s Department of Revenue issued a tax rule that required non-residents who commuted to Massachusetts prior to the onset of the pandemic to continue paying income taxes to Massachusetts, even if they were working from home across state lines. While this rule was confusing and illogical for commuters from all nearby states, it was particularly impactful for New Hampshire residents, as the Granite State has no income tax.
That meant that rather than paying no state taxes on their work income at all, they were stuck paying Massachusetts income taxes. A family filing jointly with one dependent making the median New Hampshire income of $74,000 paid an additional $2,711 in taxes from this rule alone.
That’s especially hard to stomach considering how federal policy focused on getting middle-class families more money to make it through the pandemic, not hiking taxes. Unfortunately, Massachusetts’s aggressive tax scheme would take a large chunk out of the relief the federal government tried to deliver to the above family.
It shouldn’t be controversial to say that taxpayers should benefit at some level from the taxes they pay. Yet New Hampshirites working remotely in New Hampshire don’t benefit from Massachusetts’s education programs, road infrastructure, or law enforcement. In fact, odds are they didn’t set foot in Massachusetts at all for the final nine or ten months of 2020.
And the taxation of remote workers was an issue that went well beyond New England. Millions of Americans across the country faced uncertainty, unexpected filing requirements, and higher tax bills due to states like Massachusetts targeting tax revenue from nonresidents who switched to remote work during the pandemic. New York took this aggression to awhole new level by demanding that healthcare workers who volunteered to come to the state to help with New York City’s health crisis pay New York state taxes for their time there.
This is not a problem confined to the pandemic. Remote work certainly isn’t going away, and it’s likely to be far more prevalent in the aftermath of the pandemic than it was beforehand. Absent strong guidelines, these workers risk having their income targeted by unscrupulous state bureaucrats desperate to prevent the erosion of their tax base, and even the prospect of double taxation.
That, more than the narrow issue of a dispute between New Hampshire and Massachusetts, is what the Supreme Court failed to address. Left to their own devices, states are claiming more and more power to tax outside their borders, so either the Court or Congress badly needs to step in and lay some ground rules.
It seems that the Court, with the exception of Justices Alito and Thomas (who would have granted the motion), failed to appreciate this. It’s even possible that a significant factor in the Court’s decision was the fact that Massachusetts dropped its policy moving forward, which the other seven justices may have misunderstood as making the issue moot. It certainly did not, and not only does the Court’s decision permanently stick New Hampshirites with tax bills they were sent by Massachusetts during the pandemic, but it also fails to provide remote workers with protection from double taxation moving forward should future lockdowns trigger another tax rule like the one at issue here.
It’s unfortunate that the Supreme Court missed this opportunity, but it should only emphasize the importance for Congress to address this issue. Members of Congress like Senator John Thune (R-SD) and Senator Sherrod Brown (D-OH) have already drafted common sense legislation to address these issues, and should form the basis of a long-term fix.
Congress has let this issue lie for long enough. Taxpayers deserve certainty that their tax system is fair, standardized, and not unnecessarily burdensome. Current tax treatment of remote workers fails on all three counts.
Andrew Wilford is a policy analyst with the National Taxpayers Union Foundation, a nonprofit dedicated to tax policy research and education at all levels of government.