The challenge was sparked by the Mass. Department of Revenue’s finalization of rules that continue to impose state income tax on people who used to commute here from other states.
The border war between Massachusetts and New Hampshire over housebound commuters’ income taxes intensified on Friday when Governor Chris Sununu declared that his administration would challenge the Baker administration in federal court.
At issue is whether the Massachusetts Department of Revenue can continue to impose its 5-percent state income tax on New Hampshire residents who would normally drive to offices in Massachusetts but remain stuck at home because of the COVID-19 pandemic.
Governor Charlie Baker’s revenue department insists that it has this right, and has been doing so since March when Baker declared a state of emergency because of the pandemic. Sununu and many other New Hampshire officials argue that residents of their state who are working from home should be taxed under the rules in New Hampshire — which has no broad-based income tax at all — particularly given the prolonged nature of the pandemic.
Sununu’s lawsuit was expected. He has been gearing up to challenge his fellow Republican governor on this issue in court since the summer, when it became clear that the Massachusetts Department of Revenue would draw up formal regulations to allow for the continued taxation.
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These regulations, made official on Friday, would allow the Massachusetts revenue agency to continue to collect income taxes from out-of-state workers who previously commuted into Massachusetts until the end of the year, or until Baker ends the state of emergency, whichever comes first. (With rising COVID-19 rates in Massachusetts, the end of the year seems the more likely end date.) One estimate indicates the number of people affected in New Hampshire to be more than 80,000.
Sununu’s press office issued a statement on Friday, saying the New Hampshire Department of Justice planned to challenge the Massachusetts rules in the US Supreme Court on Monday. Among other claims, New Hampshire attorney general Gordon MacDonald has argued that the federal Constitution doesn’t allow a state to impose income taxes on nonresidents for income derived outside of that state’s borders.
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“The Commonwealth has launched a direct attack on the New Hampshire Advantage, attempting to pick the pockets of our citizens,” Sununu said in the statement. “We are going to fight this unconstitutional attempt to tax our citizens every step of the way, and we are going to win.”
In normal, pre-pandemic times, Massachusetts apportioned the income taxes it collected based on the number of days a commuter from a different state spent each week in a Massachusetts workplace. The new Massachusetts rules will continue to do this, but will base these percentages on the amount of time a commuter spent in Massachusetts in the first two months of 2020 (that is, before the pandemic hit), or on the apportionment used to determine the commuter’s 2019 tax return if that person is still with the same employer.
The Baker administration said these regulations are aimed at establishing clarity with regard to tax collections, and to minimize disruptions caused by the pandemic by essentially keeping the old system in place. The administration has pointed out that Vermont and Rhode Island have adopted similar rules.
“The Commonwealth has implemented temporary regulations that are similar to those adopted by other New England states," said Naysa Woomer, spokeswoman for the Department of Revenue. “The administration does not comment on pending lawsuits.”
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Jon Chesto can be reached at jon.chesto@globe.com. Follow him on Twitter @jonchesto.
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Governor Sununu plans to sue Massachusetts next week over plan to tax housebound N.H. commuters - BetaBoston
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