US Supreme Court Declines to Take Up Major Remote Work Taxation Case

On 28 June, the Supreme Court of the United States announced that it had declined to take up New Hampshire’s challenge to Massachusetts’s taxation of remote workers.

On 28 June, the Supreme Court announced that it declined to hear New Hampshire’s challenge to Massachusetts’s taxation of remote workers. First announced in January, New Hampshire filed suit against the state of Massachusetts due to the income tax paid by people working from home in New Hampshire for Massachusetts-based employers during the pandemic.

What was New Hampshire’s lawsuit against Massachusetts about?

In the U.S., employees are typically taxed in the states they work; for example, a commuter from New Hampshire into Massachusetts would likely pay prorated taxes to Massachusetts for the days worked there. With more employees working remotely, the issue of which state has claim on an individual’s earnings has risen to create a tax problem many mobility professionals are left to resolve. Even a temporary remote worker can create tax reporting and withholding requirements for the company, so companies have had to review their payroll withholding and reporting capabilities in other jurisdictions.

Massachusetts unilaterally decided to tax former New Hampshire commuters in 2020 based on their pre-pandemic Massachusetts work schedule. However, they then chose to tax those employees who previously worked full time in Massachusetts based on their entire 2020 earnings even if they worked completely in New Hampshire during the pandemic, forcing the New Hampshire’s lawsuit.

With so many workers remaining remote, all eyes were on the Supreme Court and whether it would take up the case. It would have had an immense impact on states, employers, and employees navigating complex remote work taxation. Consider New York, which continued to tax the more than 400,000 people who stopped commuting from New Jersey throughout the pandemic. Connecticut and New Jersey, who reportedly have lost massive amounts of money to their neighbors, also urged the court to accept the case.

What does the Supreme Court’s decision mean for the future of the case?

“This was a big disappointment,” said Craig Anderson, Vice President of AECC Mobility and Chair of the Worldwide ERC® Tax Forum. “I had hoped that hearing of the case would bring about some definitive guidance on the constitutionality of certain taxes on remote workers, and a better definition of a ‘Tax Home’ and where work is done.”

However, because New Hampshire lacks state taxes and provides no offsetting credits for taxes residents pay to other states, their position in the case was diminished from a revenue perspective and may have played into the Court’s decision not to hear the case. The other main issue cited by New Hampshire was the concept that Massachusetts was causing damage to New Hampshire’s sovereignty. “Regrettably, we are left with no Court opinion on the claim of state sovereignty and only the injured New Hampshirites having the financial loss, will be able to seek remedy in the Massachusetts courts,” said Anderson.