Posted on by Californiacontrarian

A State of Denial ?


I usually do not get interested in things that are basically New England in nature, but the other day I read something from the Boston Globe that piqued my interest. Even though the subject matter was specifically about a New Hampshire vs. Massachusetts issue, it is about taxation and it likely will become even more of an issue as more and more individuals continue to work from home.

In this particular situation Massachusetts says that if you live in Massachusetts, you pay state income tax in Massachusetts … okay so far. 

If you physically work in Massachusetts, but live in New Hampshire (actually Boston is very close to the New Hampshire border), you pay taxes in Massachusetts on the income earned in Massachusetts … okay so far.

But the following s the curveball.

From Townhall:

What about a New Hampshire resident who used to commute to Massachusetts for work, but no longer commutes?

A no-brainer, surely. If you don’t live in Massachusetts, and you no longer work in Massachusetts, then Massachusetts should have no right to tax your earnings. What could be more self-evident?

Until last spring, that was the law. The Massachusetts Department of Revenue itself said so: “Compensation for services rendered by a non-resident wholly outside Massachusetts, even though payment may be made from an office or place of business in Massachusetts,” the department affirmed in a 1984 ruling, “is not subject to the individual income tax.” 

Then came the pandemic. Massachusetts declared a state of emergency and ordered non-essential workplaces to close. Many of the 84,000 New Hampshire residents who had been commuting to jobs in the Bay State switched to working from home instead. Under the straightforward rule that had been in place for decades, Massachusetts could no longer tax their income.

So it created a new rule!

For the first time ever, Massachusetts was claiming the authority to tax income earned by persons who neither lived nor worked in Massachusetts. So New Hampshire sued.

New Hampshire isn’t fighting alone. Fourteen other states, including New Jersey, Connecticut, Hawaii, and Iowa,  have filed briefs urging the Supreme Court to take up its complaint. They urge the justices to reassert and reinvigorate a basic principle of the Constitution’s federal system: that the power of states to tax nonresidents’ income does not extend past their own borders.

Is this problem and this subsequent lawsuit all a consequence of lockdowns? If certain states did not deny individuals the chance to work at their physical place of business, would have as many people started to work from home. Are these “states of denial” now in some financial trouble? Is Massachusetts a state of such denial?

The reason I find this of interest is that people are leaving California in droves. Some because they can now work remotely from a state where not only are taxes less but also the cost of housing and the cost of living are both significantly less. 

California is soon going to be in trouble when some of its high earners continue to work online while living in another state. It’s only a matter of time before California tries to claim a share of that income. 

Three cheers for New Hampshire in its lawsuit against Massachusetts!

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