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New Hampshire goes right to the Supreme Court over Mass tax

  • Gov. Chris Sununu, left, speaks at a press conference announcing the state's decision to sue Massachusetts to stop the collection of cross-border income taxes, alongside Attorney General Gordon MacDonald, right, Oct. 19, 2020.

Monitor staff
Published: 10/19/2020 3:12:13 PM

New Hampshire officially filed a lawsuit in the U.S. Supreme Court against Massachusetts Monday, seeking to stop the state from collecting income tax from New Hampshire residents working from home.

In a 36-page complaint brought against the Commonwealth, the New Hampshire Department of Justice argued that Massachusetts has no constitutional authority to collect an income tax on employees who used to work in the state before the pandemic, and asked the court to block the new rule and refund any taxes collected.

Under the temporary rule enacted by the Massachusetts Department of Revenue, residents of other states who were working for a Massachusetts employer before the pandemic remain subject to Massachusetts’ 5% income tax while they work from home.

While the regulation will expire Dec. 31 or 90 days after the coronavirus state of emergency in Massachusetts is lifted, New Hampshire officials argue it represents a permanent shift in underlying policy and amounts to an “aggressive attempt to impose Massachusetts income tax” beyond its borders.

The lack of an income tax in New Hampshire is part of the state’s identity, Gov. Chris Sununu and Attorney General Gordon MacDonald asserted and has helped boost per capita income, decrease unemployment and motivated businesses and individuals to move to the state.

Before the pandemic, about 80,000 New Hampshire residents were crossing state lines into the Bay State to work – about 15% of all commuters, Sununu said Monday. Those people were subjected to the cross-border tax. But if those employees are doing their work from home in New Hampshire because of the virus, they should be spared the tax, Sununu said.

Though the lawsuit has been filed, it faces an uncertain course. To start, the Supreme Court must decide whether to take it up at all, at a period when the court only tackles between 100 and 150 cases a year. Then, the court must find wrongdoing.

At a press conference Monday morning in front of the state’s Department of Justice, Sununu brushed off a question about whether the Supreme Court would take the case.

“This is a case where clearly, New Hampshire citizens have been very adversely impacted,” he said. The case touches on the authority of states to use a national emergency to create rules “inflicting on the sovereign rights of another.”

“We think it’s a very compelling case,” he continued. “We think the arguments are clear. And the sovereignty of not just New Hampshire, but of all states is really at stake.”

In its filing, the Department of Justice is invoking the Commerce Clause of the Constitution and the Due Process Clause, and arguing that Massachusetts has been taxing value earned outside its border, a violation of those clauses.

The Massachusetts tax rule took formal effect last week, but it was months in development. Through the summer, the his administration attempted to stop its implementation, Sununu said Monday.

“Last month we sent letters and sent individuals down to speak publicly to the board to hopefully get them to understand that they couldn’t make this very aggressive overreach into the state of New Hampshire,” Sununu said. “Within five minutes of hearing that our words had fallen on deaf ears, I instructed the Attorney General to file in the U.S. Supreme Court. So we’re moving as fast as we possibly can.”

Still, whatever the timetable of a court decision, the new income tax rule has already begun affecting New Hampshire residents.

The cross-border taxation issue has caught the attention of political leaders across the spectrum. In a statement Friday, Sen. Dan Feltes, the Democratic nominee for governor, expressed frustration over the decision by the Massachusetts Department of Revenue, calling it “completely unfair.”

“These workers are acting in everyone’s best interest when it comes to public health and safety and should not be penalized for their actions,” Feltes said.

But Feltes also used the issue to castigate Sununu for a “failure of leadership,” charging an “ongoing inability to work with surrounding governors.”

Material from the Associated Press was used in this report.

(Ethan DeWitt can be reached at 369-3307, edewitt@cmonitor.com, or on Twitter at @edewittNH.)

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