Supreme Court Considering Taking Up Remote Work Taxation Case

The state of New Hampshire is suing the state of Massachusetts over billions of dollars in income tax paid by people working from home during the pandemic.

The rapid rise in remote work has fed into a tax issue that is now reaching the United States Supreme Court. The Court is set to look at issues raised in a New Hampshire suit against the state of Massachusetts over billions of dollars in income tax paid by people working from home during the pandemic and consider if they will take up the issu.

Background

When the COVID-19 pandemic hit the U.S., it upended the way many of us work, causing companies to shift to telecommuting to keep employees safe while maintaining business continuity. American workers are typically taxed in the states they work; for example, a commuter from New Hampshire into Massachusetts would likely pay taxes to Massachusetts. With more employees working remotely, the issue of nexus has risen to create a tax problem many mobility professionals are left to solve. 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. The issue of payroll, property and sales means companies must review state payroll registration requirements as well as corporate income tax obligations. Individuals need to review whether they have an income tax filing requirement in their temporary location, creating a complex tax web.

Issues are Prominent in Other States

Massachusetts has continued to require telecommuters to pay income taxes despite most workers remaining remote. Issues raised in the New Hampshire example are supported by other state experience in New Jersey and Connecticut, whose residents would typically travel to New York for work but are now working remotely, yet continuing to be taxed by New York.

The Rise in Remote Work Tax Complications

“If New Hampshire is successful the concept of ‘where’ work is done and therefore to whom taxes on income earned for producing that work should go will be re-examined, and a new definition of ‘tax home’ will emerge and ultimately be adopted by the IRS as well as the states," says Craig Anderson, Vice President of AECC Mobility and Chair of the Worldwide ERC® Tax Forum. “In New Hampshire’s favor in this case is their argument for state sovereignty. New Hampshire believes such action corrodes the ‘New Hampshire Advantage’ which differentiates themselves from other New England states with ‘a deliberate policy choice to reject personal earned income tax or a general sales tax.’ This is going to be fun to watch!"

Jennifer Stein, Managing Director of Global Tax Network and Vice Chair for the Worldwide ERC® Tax Forum agrees, adding that this lawsuit and the Organization for Economic Co-operation and Development’s (OECD) updated guidance on tax treaties and the impact of COVID-19 all reveal that “the laws are trying to catch up to reality.”

The Supreme Court is currently in the beginning stages considering if it will take up of the case. Last Friday, 22 January, the Court invited the Solicitor General to submit a brief. IT remains uncertain if the Court plans to take up the case but if it chooses to the next step to watch for would be on the beginning of oral arguments. Worldwide ERC® will keep members updated on whether this case is taken up or not over the next few weeks.

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How This Impacts Mobility

With this case sent to the Supreme Court, all eyes will be whether the court will take up the case because if it does that will have an immense impact on states, employers, and employees navigating complex remote work taxation. Mobility professionals who have been key to understanding these complexities will continue to be of utmost importance in compliance for employers and employees. Should any member have questions regarding this development, please reach out to our Vice President of Member Engagement and Public Policy Rebecca Peters, rpeters@worldwideerc.org.