May 26, 2021
In a brief filed yesterday, acting Solicitor General Elizabeth B. Prelogar argued New Hampshire’s complaint against a Massachusetts regulation imposing income tax on remote workers during the COVID-19 pandemic does not merit the United States Supreme Court’s original jurisdiction.
As a result of the Coronavirus, Massachusetts had adopted a rule last year whereby nonresidents who once worked in the State, but were now forced to do their jobs from home, remained subject to Massachusetts income tax. This rule applied to many individuals residing in New Hampshire and Connecticut that had previously been commuting into Massachusetts for work.
New Hampshire, which does not impose an income tax, brought an action before the U.S. Supreme Court seeking to enjoin Massachusetts from enforcing this new telecommuting regulation against New Hampshire residents, arguing Massachusetts was violating the Constitution’s commerce and due process clauses.
States seeking to file suit under the Supreme Court’s original jurisdiction are required to ask permission and show they lack an alternative forum to press their case. To date, Arkansas, Connecticut, Hawaii, Indiana, Iowa, Kentucky, Louisiana, Missouri, Nebraska, New Jersey, Ohio, Oklahoma, Texas, and Utah have filed or joined amici curaie briefs urging the Supreme Court to take the case. In response, The Court invited the Acting Solicitor General to file a brief expressing the views of the Executive Branch on whether The Court should hear the case. In her brief, Acting Solicitor General Prelogar wrote that the court has found repeatedly that original jurisdiction should “be exercised only ‘sparingly,'” and the harms New Hampshire complains of do not meet that standard.” She would go on to add, “The issues New Hampshire seeks to present can adequately be raised and litigated by New Hampshire residents who are subject to the Massachusetts income tax, [and] New Hampshire’s contention that its residents’ constitutional rights were violated by being subject to Massachusetts tax when they had chosen to live in a state without an income tax can be sufficiently litigated in Massachusetts courts … Those courts are best suited to adjudicate a case that requires an interpretation of wrongful taxation by the state.”
It should be noted that the Solicitor General’s guidance on this issue is not binding on The Court . However, the Solicitor General is often referred to as the “tenth Justice,” so The Court often defers to such advice.
The impact on whether or not to adjudicate has a broader impact as well; a number of states impose rules similar to Massachusetts’ taxing non-residents for work they do from home for in-state employers. Any decision by The Court would likely affect other state “office of convenience” rules as well.
March 17, 2021
For taxable periods ending on or after December 31, 2021, New Hampshire will adopt a market-based sourcing method of apportioning sales of services and intangibles for purposes of both the Business Profits Tax (“BPT”) and Business Enterprise Tax (“BET”). The market-based methodology will replace the previously used the cost-of-performance method. Going forward, sales of services will be sourced to New Hampshire if “delivered to a customer in the state,” and gross receipts from the licensing or other use of intangible property will be sourced to New Hampshire when such property is used in the state.