Supreme Court Refuses to Hear New Hampshire v. Massachusetts—An Important Case Challenging Massachusetts' Taxation of NH Residents Working Remotely for MA Firms

But the issue of state taxation of remote workers is likely to recur.


Earlier today, the Supreme Court issued an order denying leave to file a complaint in New Hampshire v. MassachusettsThis is an important case challenging the constitutionality Massachusetts' policy of taxing the income of New Hampshire residents working remotely for Massachusetts firms during the Covid pandemic, at a time when lockdowns and other restrictions prevented them from commuting to their offices in Massachusetts, as they had been doing before.

The order does not give a reason for the Court's decision. Here is all that it says:

The motions for leave to file the bills of complaint are denied. Justice Thomas and Justice Alito would grant the motions.

In my view, the court should have taken the case, and ruled in favor of New Hampshire. Massachusetts' policy and the arguments supporting it raise broader issues about state taxation of remote workers—a problem that is likely to recur in the future as remote work continues to become more common.

This was an "original jurisdiction" case brought directly to the Supreme Court because it involves one state government suing another. Under current precedent, the justices have total discretion over whether they want to consider such cases or not. In this instance, they obviously decided they didn't.

Thomas's and Alito's dissent may not be a result of a particular interest in the case. These two justices have long held the view that the Supreme Court's jurisdiction over state vs. state cases is mandatory, not discretionary.

The fact that the Court took over seven months to issue a ruling in this case and asked for a statement of position by the Biden administration's solicitor general's office is an indication they took the issue at least somewhat seriously (the administration filed a brief  urging them not to hear the case).

It's possible the Court ended up rejecting the case because Massachusetts' policy is now set to expire as the Covid pandemic recedes, a point emphasized in Massachusetts' most recent supplemental brief. If so, I think the justices were wrong to be influenced by this consideration. The New Hampshire workers affected by the policy still had to pay Massachusetts income taxes for many months during which they neither resided in Massachusetts, nor worked there. And the Bay State has no intention of giving the money back!

Be that as it may, I suspect we have not seen the last of this issue. Sooner or later, other states will also try to tax the income of out-of-state remote workers employed by enterprises within their territory. Unless the courts stop it, the opportunity to tax people who don't live in the state and can't vote in its elections will be too tempting to pass up. The temptation will only grow as remote work becomes more common, and the amount of potential tax revenue here grows.

Hopefully, federal courts will put an end to this type of "taxation without representation" before it becomes too widespread to easily get rid of.

UPDATE: I have made a minor correction to this post, indicating that the Massachusetts policy is set to expire soon, as opposed to having expired already. I apologize for the initial error.

NEXT: Interpreting 47 U.S.C. § 230(c)(2)

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  1. pretty clear that the remote workers did not have nexus in Mass during that time.

    SC should have granted cert in Dot Foods

    1. What’s going to get interesting is if (a) the employer(which has withheld the MA tax) has any nexus in NH and (b) the NH employee sues in a NH court for unpaid wages for employment in NH….

      In most states, failure to pay wages is a *criminal* offense…

      And if NH wants to play hardball, why can’t it indict the out-of-state employers, put out bench warrants for them, and pick them up on the 18 miles of I-95 between MA & ME?

      1. That would be “interesting” if state wage payment laws didn’t have express carveouts for statutory withholding.

        1. details like this are of no interest to Special Ed.
          He’s just positive the uprising is just around the corner.

  2. “The Supreme Court shall have original and exclusive jurisdiction of all controversies between two or more States.” 28 U.S.C. 1251(a).

    Since jurisdiction is exclusive, doesn’t that mean the plaintiff has nowhere to go? So how can it be discretionary?

    1. I’m not an expert on this, but I think the argument is that the Court, like any court, can impose pleading procedures. So the same way you can’t get into federal court, despite having a claim that meets both constitutional and statutory subject matter jurisdiction, without pleading plausible facts that support a legal cause of action (the Twombly/Iqbal standard), SCOTUS can say that a state can’t have its claim heard on the merits unless they decide the state’s pleading is sufficient.

      The problem I have with this is actually somewhat different than what Thomas and Alito are saying. I think the Court CAN do this. But to do it, they need a published rule of procedure and some level of reasoned decision, just like what a District Court has to do when it throws out a pleading. The problem is just issuing summary denials, like a cert denial.

      And it is a serious problem- that part of it, I think Thomas and Alito are right on. Because SCOTUS is the only place where states can go to bring their claim, they are entitled to have their pleading evaluated by a rule and guidance from the Court if the pleading is deficient. In contrast, almost every cert petitioner is petitioning to at least their third court, and has received reasoned decisionmaking on their claim below.

      1. The Court did have a procedure of dismissing appeals for want of a substantial federal question, which were judgments on the merits.

        If Alito and Thomas are correct, refusing to hear these cases would not be a decusion to refuse to answer the legal questions oresented, but instead would be ajudgmemt in favor of the defendants, with both ptecedential and collateral estoppel effects.

      2. Generally pleadings are evaluated under Rule 12(b)(6) of the federal rules of civil procedure. But that is an evaluation of whether the complaint states a claim, not whether the court has jurisdiction. If there is jurisdiciton, a district court’s jurisdiciton is mandatory. It can then decide that the plaintiff’s complaint fails to state a claim as a matter of law (which is final unless there is an amendment), but it cannot just decline to hear the case at all.

        1. I realize that, but the Supreme Court doesn’t have to follow the Rule 12(b)(6) standard. It can have a stricter standard. The problem is it needs to tell people what the standard is and give reasoned decisions when leave to file a Complaint is rejected.

          1. The supreme judicial power of the United States shall be vested in the Supreme Court. So, it’s their call, no matter what anyone else thinks.

            1. James,
              No one said that it was not their call. BUT that does not mean that their call makes practical sense.
              See the difference?

              1. The no one who said it was not their call includes the person I responded to, who was describing the things the SC would need to do to make it their call. Hint: when it’s your call, it’s your call, and you don’t have to worry if it makes sense to anybody else. You only have to worry about other people buying into your logic if someone else can do something about it if they don’t. It’s equivalent to when a parent “explains” their actions with “because I’m the parent, that’s why.”

                1. Sure, the Supreme Court can act in a lawless fashion, but then it should not be surprised if it is ignored. That way lies Andrew Jackson’s retort to the SCOTUS.

                  1. To be clear (and I thought I was), I was arguing what SCOTUS should do.

                    In terms of what they can do- they can burn states’ applications for leave to file a Complaint in the trash can on the third floor of the courthouse if they want!

                    1. Can they roast marshmallows too?

                      Seriously, my understanding always was that Congress fixes the SCOTUS jurisdiction. And that could include mandatory as well as discretionary jurisdiction. For a long time, certain cases had appeals as of right to SCOTUS (I think it was from state courts of last resort that dealt with a federal constitutional challenge). Eventually, Congress did away with all mandatory jurisdiction, and we have our current system, where almost all cases go up on writ of certiorari.

                      But that statute I quoted sure sounds mandatory to me. SCOTUS has exclusive original jurisdiction in disputes between states.

                    2. Congress can try to tell the Supremes what to do, but the Supremes are still granted the supreme judicial power of the United States in Article III, so they could, if they chose to do so, tell Congress to pound sand on separation of powers grounds.

        2. The question was not whether the Court had jurisdiction, the issue was whether NH had standing to challenge the MA regulation in question.

      3. Because SCOTUS is the only place where states can go to bring their claim

        The argument is that NH can go to MA courts, where it clearly won’t be treated fairly. But NH can also go to its own courts — which will rule in its favor — and then things will get interesting…

        There is a REASON why SCOTUS was given exclusive jurisdiction over suits between states….

        1. ” But NH can also go to its own courts — which will rule in its favor — and then things will get interesting…”

          Assuming you find laughing at NH interesting.

    2. “Since jurisdiction is exclusive, doesn’t that mean the plaintiff has nowhere to go? So how can it be discretionary?”

      Plaintiff is still a state, so there is that.

  3. The same issue arises when states tax out of state companies due to the company’s alleged nexus within the taxing state.

    How does the line get drawn, and who gets to draw it?

    Surely (I know), it can’t be up to a state to decide for itself by whatever standard it chooses whether a nonresident owes tax?

    1. It would be interesting if NH (which has a corporate income tax) were to impose it on those corporations who withhold MA taxes from NH residents.

      1. There’s this thing called “jurisdiction”, Special Ed. Comes into effect in a couple of ways. First, subjecting individuals (or corporations) to taxes when you don’t have jurisdiction over them is legally dubious (at best). But then second, if someone doesn’t want to pay the state collects by seizing property. It seems unlikely that MA state courts are going to be seizing property on behalf of NH tax officials, in the formulation you anticipate.

  4. I’ve worked in a few areas that have a “local” wage tax and my municipality had none. Since I usually worked remote, and rarely reported to any physical office there, I should not have had to pay the tax. But, tell that to the local tax collectors and you get a different story.

    Degrees of enforcement would vary, but a few that had large office parks were notorious for trying to get every dollar state law (and the constitution) allowed out of your earned income tax.

    There tactics were the standard making you wait for almost a year to see any refund or rejecting your refund for “lack of documentation” at least once. I call those “standard bureaucracy” though.

    One place had used the police to record license plates of certain vehicles that were in the parking lot and then they would run that versus the tax records. Still don’t think this was 100% legal (when challenged a local trial court judge said it was an “administrative search”). If you said you did not report to the office but your license plate came up often in their automated reads then you got tagged for an “audit”. Thing was though showing up for a one hour meeting under state law at the time was not enough to create nexus.

    To get out of the tax you had to keep fairly detailed records of your time and location, like a daily log book almost. I have heard similar stories from people that split residences say from NYC and Florida. The point though was to raise the bar to get the refund so high no one would bother. And I would say it worked. At one company that had about 1000 employees the HR Director said I was the first and only person to ever ask her to sign off on my refund petition.

    1. Crybaby. Multnomah County,OR is trying to collect a tax from me despite the fact that I haven’t lived in Multnomah County since I was 5 years old, and during the relevant time period I was a resident of Wake County, NC.

      1. I wish Multnomah County,OR all the best.

        1. I’ll give you the same amount of money that I gave them.

  5. What you term “standard bureaucracy,” is theft.

    1. “Standard bureaucracy….”

      Oh yeah that is why it exists. Basically just low level organized crime operating under the specter of the “the state”.

      Want your tax refund? Here are 16 forms to fill out and a huge waiting period.

      Want your gun permit? Sure, the legislature says we are “shall issue” but first we need your fingerprints, personally interview 3 references, need to physically inspect your firearm, have you wait for a year while all of this happens, then we will give you your permit…maybe….

      Government in all of its finery and glory.

      1. “Want your tax refund? Here are 16 forms to fill out and a huge waiting period.”

        Want a tax refund you don’t deserve? No need to fill out any forms, here’s your check!

  6. Since SCOTUS refuses to intervene the solution would be for any state that has a resident taxed for remote work by another state to tax the company in the other state at a rate of 10 times the tax paid by the remote worker. The home state can then use this money to make their resident whole and have enough to cover administrative costs.

    1. levying a tax and collecting that tax are different concepts. Best no start spending that “revenue” right away.

  7. Why is the state the plaintiff in the NH-MA case, rather than the individual taxpayers?

    1. Good question. The employees (individual taxpayers) are the injured ones, not NH.

      1. And that question of “standing” to bring the case, i.e., is NH the injured party, likely was the decisive factor in the Court’s decision. That is essentially what MA and the US Solicitor General argued in their briefs respectively.

  8. This is a good remedy. New Hampshire should implement this immediately.

    1. Meant as a reply to Harvey M.

    2. A better remedy might be for New Hampshire to simply pass a tax on on all Massachusetts residents until the remote worker issue is resolved.

      Start tallying up taxes owed to New Hampshire and collect the money opportunistically with a special focus on collections from Massachusetts lawmakers and government personnel.

      Taxing companies with remote workers might negatively impact remote workers. It’s not remote workers’ fault Massachusetts is so greedy, it’s the fault of Massachusetts voters.

      1. Many Mass-holes (really what do you call an individual from MA except for that? A “Baystater”?) spend their summers in NH and work remotely for some time when at their vacation homes. A crafty NH legislature could impose a luxury tax on them for doing so. Probably would get enough attention and political movement to create some kind of amicable solution.

        1. “A crafty NH legislature could impose a luxury tax on them for doing so.”

          Then what’s step two, after the out-of-staters no longer come to buy products and services from in-state vendors?

          1. You are not very good at this…..you would be taxing their income because they are working from their vacation homes….

            1. “You are not very good at this…”

              No, this is your fail.

              “.you would be taxing their income because they are working from their vacation homes….”

              When they decide to avoid the tax by not going to their vacation homes, a fairly predictable result is that they will not be buying groceries from the local grocery store, nor hiring any local service providers to provide services to the vacation homes they are not at.

              So, was punishing NH vendors and service-providers your intended goal? Because that’s the result you’re going to get.

        2. This is the closest I have seen here to a comment that actually makes sense. Rest assured that to the extent that NH can show that employees of a MA based business are regularly working from homes in NH, The New Hampshire DRA will seek to impose the Business Profits Tax on said employer.

    3. And the thing about New Hampshire is that you really can’t get a truck to Maine or Atlantic Canada (i.e. east of Quebec city) without going through New Hampshire, so any company of significance has trucks going through NH.

      1. I believe the East Germans tried your clever solution, only with rail cars mostly instead of trucks. Turned out that besides trucks and rail cars we also had C47s.

      2. Trucks driving through a state do not create a filing obligation for an out of state company.

  9. Taxing the incomes earned in state of out-of-state residents is really not a big deal. Sales taxes are charged on out-of-state residents all the time.

    1. Only when in-state.

      1. Internet sales are subject to sales tax, even if the goods are shipped from another state.

        1. Not if you reside in Oregon.

    2. Reason has offices in LA and D.C. does that mean that the author of this article should pay income taxes in either or both of California and Washington D.C.? Let’s assume for the sake of argument that, as a professor at George Mason University, he lives in Virginia.

      What next, is California going to make all Apple store employees pay Cali income tax regardless of what state they actually work in? Not that I’d actually be surprised if they tried.

      1. Tangodelta – “Reason has offices in LA and D.C. does that mean that the author of this article should pay income taxes in either or both of California and Washington D.C.?”

        That depends of the legal structure and ownership of Reason for both federal and state income tax purposes. If the author is a partner in reason and reason is a partnership and/LLC taxed as a partnership, then the author would be taxed on his/her share of the various state source income. (same if the entity is an S corporation.)

      2. No, but NY has just such a rule and it is not limited to people working from home due to the coronavirus. This rule has been challenged unsuccessfully in the NY Courts and the US Supreme Court has declined to hear the matter.

    3. “Taxing the incomes earned in state of out-of-state residents is really not a big deal.”

      This is about a tax on incomes earned out-of-state on out-of-state residents.

      1. Worse, if one lives in Maine, which has a higher income tax than MA, the MassDOR will credit that against the tax obligation to MA.

        In other words, the NH resident pays taxes to MA while the ME one doesn’t…

        1. Maybe the answer is to get a job in the state where you live.

        2. That sounds like a pretty standard [no[ double taxation agreement between sovereign countries. Very normal.

        3. Dr. Ed 2
          June.28.2021 at 5:24 pm
          “Worse, if one lives in Maine, which has a higher income tax than MA, the MassDOR will credit that against the tax obligation to MA.”

          I presume you meant to state, the Maine department of revenue will credit the Maine state income tax by the amount of state income tax paid to Mass. Credit for taxes paid to other states – which is the standard method.

    4. This just in.

      Florida repeals ALL taxes.

      This also just in.

      Florida says all New Yorkers must pay the state 10% of all income earned.

      1. Maybe we can give them back to Spain.

      2. This just in, Cuomo signs legislation to tax the current annual income of Florida residents if they or any ancestor lived in New York within the past 150 years.

  10. ” The New Hampshire workers affected by the policy still had to pay Massachusetts income taxes for many months during which they neither resided in Massachusetts, nor worked there.”

    If we start by assuming your conclusion, sure. But where is remote work actually performed? On the local desktop computer or on the network servers? That puts the work being done for money wherever the datacenter is physically located.

    1. You should read up on your personal jurisdiction a little before dropping comments like this….

      1. Yeah, you’re in position to give advice…

        1. Actually, even under the normal MA rules, where someone is physically is considered determinative. It was only under this emergency that this regulation was applied. As I stated above, NY has the same rule and it is much more broadly applied.

          1. Actually, it can get a lot more complicated, even without a pandemic.

    2. That makes perfect sense! The computer does all the work. I just can’t figure out why the employers pay the humans all that money…

      1. Why limit it to other states? Workers in India are quaking in their boots.

        I am sure.

        1. I’ll ask some at my virtual meeting tomorrow am.

    3. So my actual location is based on the server I’m working from? What if I’m working from servers in multiple localities at the same time? (Oh, now I *really* can be in two (or four!) places at once!)

      In reality, if one can consider the “server” doing the “work” then your home “server,” AKA your laptop/desktop CPU, is doing that work first and then relaying those commands to secondary CPUs located over the internet. Your work interface is local even if that interface uses long-term storage services located elsewhere.

      Consider: corporations using Google or Microsoft online productivity software could be using servers located in multiple locations with separate tax authorities, potentially international ones, simultaeously. When running software on a cloud server farm like Amazon or Azure, how does a tax authority even know which locality as which amount of claim on a portion of the work performed?

      Oh, and don’t even get me started on how services like TOR could really make this even more fun and colorful!

      1. “So my actual location is based on the server I’m working from? ”

        Could be. As I wrote before, it depends on the nature of your work. For some people, the work is where they are, no exceptions. But, some people have jobs that aren’t necessarily done where they are at the time. If I do research for an article for a magazine that publishes in NY. The work is done when I hand in the results of my research. That could happen where I am, because it’s considered “done” when I hit “send” on my local computer. Or maybe it’s “done” when the person who needs the research actually gets it. That would depend on where THEY are at the time, rather than where I am. If my employer is in state A, and I’m working in state B, should be be taxed based on where the paycheck was written? Or where it was cashed? Or where the work was that I did to earn it? I don’t think there are simple, clear rules for this yet.

  11. I wish the Court had taken the case – and then decided for MA.

    In our ever increasingly mobile world, we’re all going to – sooner or later – need clearance guidance.

  12. If I’m working remotely in NH while using my Boston office’s servers to do my job, am I not earning income in MA the same as if I’m sitting in my Boston office?

    1. No, you are not, in my opinion, no more than you are earning income in Vermont if your phone calls go through an exchange there.

      1. If you work as part of a team, isn’t the pay earned where the team is working?

  13. I live in Massachusetts, worked in an office in Boston 3 days of the week, and have colleagues who live in New Hampshire. Our company is headquartered in a third state.

    Massachusetts is being predatory, in my opinion. What my NH colleague who was assigned to an office in Massachusetts did was just ask the company that he be home-assigned. This broke his nexus with Massachusetts. Payroll changed his work location, etc., and no more Massachusetts taxes. Problem solved.

    Many companies that have offices in Mass are HQ’d in other states.

    I’ve heard that if folks were paying Mass taxes before the pandemic that Mass tried to hold onto them when they stopped coming to work, but if you quit or get re-assigned, geographically, I don’t think there’s anything Mass can do about it.

    1. But this solution would not prevent the imposition of the New York rule which holds that employees of a NY company are taxable on all their wages unless their work outside of NY is “for the convenience of the employer” not the convenience of the employee. This was challenged and the US Supreme Court declined to hear the appeal.

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