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Supreme Court declines to take up Covid-related tax dispute over telework

POLITICO logo POLITICO 6/28/2021 By Bernie Becker
a refrigerator in a room: Unattended work stations fill the Teleworks USA job site in Beattyville, Ky. © Bryan Woolston/AP Photo Unattended work stations fill the Teleworks USA job site in Beattyville, Ky.

The Supreme Court said Monday it would not take up New Hampshire’s challenge to Massachusetts' policy of taxing out-of-state workers, a blow to efforts to bring more nationwide clarity to how states can tax telecommuting employees after Covid scrambled work arrangements.

Massachusetts decided last year to keep taxing out-of-state commuters who work for companies in the state, even if those employees were now telecommuting. New Hampshire Gov. Chris Sununu quickly filed suit.

New Hampshire’s challenge drew the support of more than a dozen other states, after the pandemic and the increase in people working from home exacerbated longstanding questions about how much leeway to allow states to tax out-of-state workers.

However, the Biden administration asked the high court not to get involved.

Outside groups that wanted the court to take up the case noted the issue won’t be going away, with more employees expected to continue telecommuting even as the country’s coronavirus restrictions continue to loosen.

Justices Samuel Alito and Clarence Thomas wanted to take up the case, according to the court orders. But that was well short of the five required for the court to hear New Hampshire v. Massachusetts.


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DOJ intervention: But the U.S. Justice Department's acting solicitor general, Elizabeth Prelogar, had urged the Supreme Court not to take up the case — arguing that it’s not uncommon for residents of one state to have tax obligations in another. She told the justices that New Hampshire hadn’t made a compelling case that Massachusetts' policy violated its right to control its own taxing power and that the court should tread carefully when deciding whether to referee disputes between states.

Prelogar also noted that the Massachusetts policy was temporary. (The state recently brought it to a close.) Some experts also pointed out that it would be surprising for the court to move to limit state taxing power so soon after expanding it, in a 2018 decision that allowed states to collect sales taxes on online purchases from out-of-state retailers.

But critics of the court’s decision to refuse the case say it was a missed opportunity to help employees who either telecommute or frequently travel for work, and get caught up in a confusing web of state tax rules.

“The Court chose to punt today, but telework is here to stay and remote work taxation issues are not going away,” said Joe Bishop-Henchman of the National Taxpayers Union Foundation. “This case will not be the last.”

What now: Sens. John Thune (R-S.D.) and Sherrod Brown (D-Ohio) have been working for years on legislation that seeks to simplify those rules, and pushed unsuccessfully to get their measure included in a coronavirus relief package last year.

New York, home to Senate Majority Leader Chuck Schumer, is among the more aggressive states in taxing out-of-state residents.

New Jersey and Connecticut were among the states that filed briefs in support of New Hampshire’s position — arguing, along with Hawaii and Iowa, that the case was of “serious and of national importance, and there are no sufficient alternative fora to hear them.”

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