The Supreme Court has denied review of New Hampshire’s lawsuit against Massachusetts seeking to invalidate the latter’s controversial personal income tax sourcing regulation.  The Supreme Court’s highly anticipated decision was likely influenced by the acting U.S. Solicitor General’s amicus brief arguing against the Supreme Court taking up the case.  The Supreme Court has thus passed on reviewing the broader issue of whether and to what extent a state may impose its personal income tax on a nonresident telecommuting employee. This is an issue that will certainly resurface as remote work becomes more prevalent because of COVID-19.  This blog post primarily discusses the Solicitor General’s amicus brief and the ensuing Supreme Court decision; for a broader discussion of New Hampshire v. Massachusetts, please see our earlier blog post, “SCOTUS Invites Acting Solicitor General to Weigh In on Ongoing Dispute Between Massachusetts and New Hampshire Regarding Controversial COVID-19 Sourcing Rule.”

Background: The COVID Sourcing Regulation and Ensuing State Dispute

In the early months of the COVID-19 pandemic, the Massachusetts Department of Revenue promulgated an emergency regulation that treated nonresidents who worked in Massachusetts before the pandemic as if they were still working in Massachusetts during the pandemic (the “COVID Sourcing Regulation”).  This was a targeted effort by Massachusetts to continue receiving personal income tax revenues from nonresidents during the state’s state of emergency.  New Hampshire does not impose a personal income tax on its residents. Thus, New Hampshire residents who work in New Hampshire typically don’t pay income tax in any state.  But the COVID Sourcing Regulation would result in many of these individual residents being taxed by Massachusetts.  New Hampshire viewed this tax on its residents as an infringement on its sovereignty.  Thus, the state sought to enjoin Massachusetts from taxing its residents using the COVID Sourcing Regulation on constitutional grounds.  In January, the Supreme Court invited the Solicitor General to file a brief in the case to “express[ ] the views of the United States” in the matter.

The Solicitor General Weighs In

In May, the Solicitor General filed an amicus brief urging the Supreme Court to deny New Hampshire’s Motion for Leave to File Bill of Complaint and thus, reject review of New Hampshire’s constitutional claim.  The Solicitor General argued that (1) New Hampshire “does not invoke the types of interests that would warrant” the exercise of the Supreme Court’s original jurisdiction (which the Solicitor General alleges should be exercised in “rare cases”), (2) the issues presented by New Hampshire “can adequately be raised and litigated by New Hampshire residents who are subject to the Massachusetts income tax” by virtue of the COVID Sourcing Regulation, and (3) the constitutional claims raised by New Hampshire “would more appropriately be considered on developed factual records.”  Each of these arguments are discussed in turn below.

First, the Solicitor General argued that New Hampshire’s asserted interests are not those typically reviewed by the Supreme Court when exercising its original jurisdiction. Those issues were twofold: (i) Massachusetts’s alleged infringement on New Hampshire’s sovereign interests “in controlling its own tax policies with respect to its residents” and (ii) the potential disincentive for individuals to relocate to New Hampshire.  The Court stated that these are not interests “such as those between states in controversies concerning boundaries and the manner of use of the waters of interstate lakes and rivers,” or “cases sounding in contract, such as suits by one state to enforce . . . obligations of another state.”  While acknowledging that New Hampshire has a sovereign interest in their own power to craft and enforce tax policy, the Solicitor General argued that “an independent tax obligation falling on a State’s residents generally is not an injury to that State’s own sovereign prerogatives.”  As for New Hampshire’s concern that the COVID Sourcing Regulation would create a disincentive for individuals to relocate to New Hampshire, the Solicitor General classified such a potential effect as “speculative” and “second-order” and not of a sufficient magnitude to warrant the Supreme Court’s exercise of its original jurisdiction.

Second, the Solicitor General argued that New Hampshire’s constitutional claims are derived from the claims of New Hampshire residents impacted by the COVID Sourcing Regulation.  Such claims could be raised by those New Hampshire residents “through Massachusetts’s procedure for challenging tax assessments.”  Those individuals, the Solicitor General argued, “would be the most natural plaintiffs because they are directly affected by the challenged tax policy.”

Finally, the Solicitor General argued that New Hampshire’s constitutional challenges are not ripe for Supreme Court review because they would benefit from a more developed factual record.  For example, in considering two Commerce Clause standards, the Solicitor General stated, “whether a tax is ‘fairly apportioned’ or ‘fairly related’ to services that Massachusetts provides … could depend on the specific nature of the employee’s job.”  In sum, the view of the United States was that the temporary nature of the COVID Sourcing Regulation makes a potential battle between states a poor vehicle for resolving the broader question of whether similar laws imposed by other states are constitutionally valid.

Supplemental Briefing & SCOTUS Order

The Solicitor General’s amicus brief filing prompted responses from both New Hampshire and Massachusetts. Both states filed supplemental briefs in June.  New Hampshire criticised the Solicitor General for minimizing its sovereign interests and the COVID Sourcing Regulation’s impact on New Hampshire residents. Massachusetts essentially declared the issue moot because its state of emergency ended on June 15, 2021, triggering a 90-day clock before the COVID Sourcing Regulation becomes ineffective. 

Ultimately, the Supreme Court declined to exercise its original jurisdiction, denying New Hampshire’s motion in an order on June 28, 2021.  The order lacks a description of why the Supreme Court denied New Hampshire’s motion. But according to the Order, Justices Clarence Thomas and Samuel A. Alito Jr. would have granted New Hampshire’s motion.  The Supreme Court leaves open the issue of how states may tax remote workers.


Now that the Supreme Court has officially declined review in New Hampshire v. Massachusetts it is important to note what the decision does not mean.  First, the Supreme Court’s decision does not bless or otherwise endorse the COVID Sourcing Regulation as constitutional.  Indeed, the COVID Sourcing Regulation may still be subject to challenge by individuals affected by it.  And perhaps most importantly, the Supreme Court’s decision does not resolve or even address the broader issue of the limitation of state taxation of remote workers.  Regardless of what ultimately happens with respect to the COVID Sourcing Regulation one thing is clear: the COVID-19 pandemic has fundamentally altered the way we work and remote work is here to stay.  Clarification is needed as to how states may tax telecommuting employees, particularly in light of the handful of so-called “convenience of the employer” rules—which operate to tax nonresidents working from home as if they are working in the state if the remote work is for the employee’s own convenience—that several states have adopted and that some states (e.g., New York) have continued to employ seemingly without regard to the impact that the pandemic has had on the U.S. workforce (for additional insight into how New York has responded to telecommuting during the COVID-19 pandemic, see “New York State Issues Personal Income Tax Sourcing Guidance for Nonresident Employees Telecommuting Due to COVID-19 Pandemic”).

Contact the Authors: Michael Tedesco and John Wilson[1]

[1] John is a member of Baker McKenzie’s 2021 summer associate class in Baker McKenzie’s Dallas office.