Yesterday, the U.S. Supreme Court declined to take up the case of New Hampshire v. Massachusetts (No. 220154). The New Hampshire v. Massachusetts case resulted from a pandemic-related, temporary rule, adopted by the Commonwealth of Massachusetts that sought to preserve the “status quo.” Under the temporary rule, Massachusetts required businesses to continue to withhold wages for employees that had previously worked within the Commonwealth but had temporarily transitioned to working from home due to the coronavirus pandemic. Therefore, employees who had worked within the Commonwealth continued to have their wages withheld to Massachusetts even though they no longer worked within the State. The State of New Hampshire had argued that the Commonwealth could no longer tax its residents because there was no longer a nexus between the services they were performing and the location where those services were performed.
While this case was unique, in that it sought to petition the Supreme Court under the Constitution’s original jurisdiction doctrine, the implications of the case are significant. According to the Pew Research Center survey, pre-pandemic, approximately 20% of the workforce worked from home.[1] Post-pandemic, approximately 71% of individuals surveyed now work from home. Id. In fact, several major technology companies have now implement permanent work-from-home policies, including Facebook, Twitter, and Square.[2] There is a growing trend towards employers having a more flexible work-from-home policy. However, the law related to the taxation of such income has not necessarily caught up with this growing trend. Employers implementing work-from-home policies where the employee may reside out-of-state must consider the logistical and tax-specific implications of creating such a policy. An employee working in another state may require the company to register to do business within that state, withhold wages to that state, and be subject to income or a gross-receipts tax.
While the Supreme Court has declined to take up the case, similar facts will inevitably arise and require that the Supreme Court provide clarity on when a state may reach across borders in order to tax the residents of another state. The idea of remote work is not going away and will continue to grow as technology continues to increase and workers demand such an adjustment.
For more information on payroll taxes and/or multi-jurisdictional taxation please contact our Tax Practice Group, including Demetrius Robinson at (614) 427-5749 or djr@kjk.com.