The state of New Hampshire has filed a complaint in the Supreme Court against the Commonwealth of Massachusetts over its remote worker tax policy, which attorneys for New Hampshire call “an unconstitutional tax grab.”
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At issue is an intra-pandemic measure imposed by Massachusetts that essentially maintains the income tax status quo – meaning if a New Hampshire resident would otherwise be in a Massachusetts office if not for the virus outbreak, that individual would have taxes withheld as though he or she were earning income in the state.
"New Hampshire has no choice but to seek relief in our nation’s highest court," the state’s Republican governor, Chris Sununu, said in a statement on Monday. "Massachusetts cannot balance its budget on the backs of our citizens and punish our workers for working from home to keep themselves, their families, and those around them safe.”
Unlike Massachusetts, New Hampshire does not levy an income tax on wages, which officials say help boost its economy by attracting businesses and residents, creating jobs and generating higher per capita income.
Those economic benefits, the lawsuit argues, are jeopardized by Massachusetts' decision to impose an income tax "within New Hampshire."
“In the middle of a global pandemic, Massachusetts has taken deliberate aim at the New Hampshire Advantage by purporting to impose Massachusetts income tax on New Hampshire residents for income earned while working within New Hampshire,” the complaint stated.
Massachusetts, which taxes earned income at 5.05%, issued the guidance in April, but the policy was retroactive to March.
More than 100,000 individuals could be affected by the decision.
Michael Corrente, managing director at the independent CPA firm CBIZ MHM, told FOX Business that New Hampshire has a solid argument because it references pre-pandemic policies under which income earned by an individual working remotely from his or her home office in New Hampshire would not count as Massachusetts-sourced.
“[They’re asking], ‘Why are these people in a worse position now?’” Corrente explained.
A spokesperson for the Massachusetts Executive Office for Administration and Finance noted in an emailed statement that the policy is temporary, but added that the government does not comment on pending lawsuits.
New Hampshire may also be thinking about a future where remote work becomes routine, and is seeking to protect residents from having New Hampshire-sourced income taxed elsewhere, Corrente added.
As previously noted by FOX Business, some workers could be faced with a tax headache next year depending on how their work situation changed during the pandemic.
There are a complex patchwork of state laws governing income taxation, some of which have temporarily changed during the national emergency.
A ruling in this case could have widespread implications, potentially creating an “administrative nightmare” among states that have worked out reciprocal withholding agreements during the pandemic, Corrente added.