The divide between Massachusetts and New Hampshire is as much about taxes as it is geography. The Granite State’s famous distaste for income or sales taxes — the “New Hampshire advantage,” it’s sometimes called — entices many who work in and around Boston to buy houses and move their families north of the border.
Hence the incense among Gov. Chris Sununu and others in New Hampshire when revenue officials in Massachusetts tweaked their rules this spring to levy their state’s income tax on those forced to work from home in New Hampshire instead of commuting to offices in Massachusetts.
In other words, these New Hampshire residents may not be crossing the border to work, much less leaving their homes, due to steps taken to limit the spread of COVID-19. But, says the Massachusetts Department of Revenue, they’re still subject to the state’s 5% income tax, at least through the end of this year.
If you’re standing on the Massachusetts side of the border, this change may seem necessary to shore up the state’s coffers, hit hard due to the recession brought on by COVID-19. But the rule is illogical and unfair. Gov. Charlie Baker’s administration should reverse it lest their northern neighbors drag them into court, deservedly, thus piling up legal bills on both sides.
In normal times, those New Hampshire commuters pay income taxes to Massachusetts, where they are working and earning their living. Also, in normal times, people living and working in New Hampshire — even if they’re working for Massachusetts-based companies — do not pay the Massachusetts income tax.
Remote workers not assigned to an office are a unique circumstance. Even before the pandemic, a half-dozen states adopted “convenience rules” to claim taxes they would otherwise get from teleworkers, according to the Tax Foundation, a Washington, D.C., nonprofit that advocates for simplicity and transparency in tax policy.
In a report last week, the group calls these rules “inequitable, inconsistent with widely accepted principles of sound taxation, and potentially incompatible with … the U.S. Constitution.”
And in Massachusetts, anyway, the rule was very much a matter of convenience. The foundation refers to it as a “pandemic-era innovation” and the fruit of “perverse logic.”
Jared Wasczak, vice president of state projects, wrote in the report, “… Massachusetts is clearly within its rights to tax income earned in the state. But when that person’s office becomes their Nashua home, what is Massachusetts’ ongoing claims? Just that there employer owns a vacant office building in Boston?”
This ruling is about money, and still unclear is how many workers, paying how much money in income taxes, are affected by this wrinkle. Doubtlessly every one of them would benefit in these difficult times from not having to pay income taxes, since they are no longer traveling to Massachusetts to do their work. And why shouldn’t they? They no longer drive on Massachusetts highways, park in Massachusetts parking lots, or eat their lunches at restaurants in Massachusetts.
In a letter to Massachusetts revenue officials, New Hampshire state Sens. Lou D’Allesandro and Dan Feltes called the unshakable income tax on teleworkers “unfair,” “anti-worker” and “anti-public health.” Certainly Massachusetts officials are less concerned about the fairness of taxing workers in New Hampshire than they are keeping as much of their state’s budget intact as possible.
A bill simmering in Congress, the Multi-State Worker Tax Fairness Act, could clear the air. So could a federal court. Sununu is threatening to bring this issue to the latter, saying, “We will take immediate steps to stop any attempts to impose income taxes on Granite Staters in a manner that violates the law or the New Hampshire or U.S. constitutions.” Neither of those remedies will come anytime soon, however.
And it shouldn’t have to come to that. The income tax tether attached to these workers no longer commuting to their jobs in Massachusetts isn’t right. The state shouldn’t count on collecting that money, and it should quickly reverse its emergency ruling acknowledging as much.