CONCORD, NH — The state of New Hampshire will sue the state of Massachusetts in the U.S. Supreme Court after that state's department of revenue finalized a plan to tax out-of-state workers while working remotely from home during the COVID-19 pandemic.
Gov. Chris Sununu (R-NH) has directed the New Hampshire Department of Justice to file the lawsuit after the Mass. Department of Revenue published and approved a final rule imposing the state's 5.05 percent income tax on the earnings of New Hampshire residents Friday who were not physically working in the state. Massachusetts officials said it was irrelevant that workers were working from home during the pandemic and pointed to state income tax laws for their reasoning.
"Wage income paid to an individual that is subject to the Massachusetts personal income tax generally must be withheld upon for each payroll period by his or her employer," the Massachusetts ruling stated. "(The law) sets forth general rules applicable to non-resident employees who are telecommuting on behalf of an in-state business from a location outside the state due to the COVID-19 pandemic, and explains the parallel treatment that will be accorded to resident employees with income tax liabilities in other states that have adopted similar sourcing rules."
Massachusetts officials proposed extending the taxation earlier this year while New Hampshire leaders denounced the proposal. Gordon MacDonald, the attorney general in New Hampshire, and others at the justice department reviewed the proposal and found it raised "various legal concerns." Sununu called the proposal an "unconstitutional attempt" to "pick the pockets of our citizens" and tax them "every step of the way."
According to officials, about 100,000 Granite Staters commute to Massachusetts to work and pay income tax on their earnings. The income tax will drop down to 5 percent in January 2021. Workers do not pay income taxes in Massachusetts on earnings made in other states. Workers file an out-of-state income tax form and after various exemptions and deductions, they can get a small portion of the income tax money back.
In the past, Massachusetts officials and politicians have said they appreciated New Hampshire workers because they get to keep most of their taxes but they use little in actual services — mainly roads and public safety, but not schools and other state or local services utilized by residents.
It is unknown how much money New Hampshire residents pay into Massachusetts coffers. But if, as an example, all 100,000 workers earned the median income of the state and deductions were limited to the personal exemptions of $4,800 an individual and $9,600 for a couple, it would amount to hundreds of millions of dollars in taxes paid — or a lot of money to lose during the pandemic economic freewill.
Sununu said he and MacDonald would be making the filing official Monday.
Some state leaders heralded the action by Sununu and the justice department while others blamed the governor for not working well with others.
State Sen. Dan Feltes (D-Concord), who is also running for governor, called the decision by Massachusetts "unfair" to workers in the state.
"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," he said. "This is a failure of leadership by Chris Sununu, with his ongoing inability to work with surrounding governors."
Lou D'Allesandro, the state Senate majority leader and a Democrat from Manchester, said Granite State workers were making "significant sacrifices" to protect public health in both states and now, should not be penalized.
"We continue to stand in opposition to this anti-worker measure that puts unjust financial pressure on New Hampshire families at the worst possible time," he added.
House GOP Leader Dick Hinch, a Republican from Merrimack, said the action against Massachusetts' "cross-border theft" to fund the state's "historically big government spending problems" was long overdue.
"For the last two years, we have been fighting against New Hampshire Democrats’ proposals to institute a state income tax here in New Hampshire," Hinch said. "Now, we are pushing back against another state's assault on New Hampshire's growing work-from-home population. Let us be clear: The New Hampshire Advantage should be defended from all enemies — both in-state, and out of state."
Even some in Massachusetts who could potentially be harmed by less tax revenue coming into the state found the decision by the department to be the wrong one.
The Massachusetts Fiscal Alliance, an organization that focuses on fiscal responsibility, transparency, and accountability in state government, called the decision cruel, a potential nightmare for human resource departments and businesses, and an unfair burden for employees.
"Pick pocketing out of state workers is not the right approach for Massachusetts," stated Paul Diego Craney, a spokesman of the alliance. "Business owners don't want to see their employees feel any more of a hardship then they already have. These workers are no longer using our state's resources to do their jobs — so taxing them at this point is a blind money grab with no fee for use aspect."
Craney said potential complaints to businesses could lead companies to consider leaving the Bay State, especially when considering the rise of telecommuting and "fewer factors than ever before" requiring companies to remain in Massachusetts.
"In January alone, health care costs will again go up in Massachusetts, unemployment benefit costs are set to rise, the Paid Family and Medical Leave Act will go into effect, and new costs associated with the state minimum wage increase will start being felt," Craney said. "More economic hardship is coming, and it will be entirely due to callous state mandates. With any luck, New Hampshire will be successful in their lawsuit and force our state to finally take a step towards being more business friendly."
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