George Isaacson is a nationally known tax attorney who appeared before the U.S. Supreme Court in the Wayfair interstate sales tax case. He wrote this analysis of the state of New Hampshire’s Supreme Court filing challenging Massachusetts’ new commuter tax policy for New Hampshire Journal.


I think New Hampshire has a strong constitutional claim against the Massachusetts Department of Revenue’s effort to reach across its border, by exploiting the COVID crisis, to impose its income tax on New Hampshire residents who are required to work from their homes.  The relevant constitutional issues are admittedly complex (e.g., “nexus” and “sourcing”), and there is not clear controlling precedent.

Therefore, employees, businesses, and state tax officials should welcome clarification by the Supreme Court.

The Constitution limits the extent to which a state can tax activity occurring beyond its borders. New Hampshire has a serious and credible argument that when an employee is required to performs work in a state different from where his or her employer is located (e.g., the employer’s headquarters or regional office), there are constitutional limits on the extent to which the employer’s home state can impose its income tax on the income earned in another state.

Several states have attempted to avoid these constitutional limitations by adopting a rule which provides that when an employee is working in a state other than where the employer is located and is doing so at the behest of the employee and not the employer  (e.g., the employee prefers to work at home and telecommute), then the work will still be considered to have occurred in the state where the employer is located and not where the employee chooses to work because of his or her personal preference.

On the other hand, if the employer requires the employee to work in a location different from its headquarters or regional facility (i.e., the work location is not the voluntary choice of the employee), then, under these states’ rules, the employer’s home state may not impose its income tax on the income earned by the remotely located employee.  This situation may arise, for example, where the employer wants the employee to be located near customers in another state.

Massachusetts has taken a giant step further by issuing a rule that even if the employee is required to work at home in another state because of  “a government order issued in response to the COVID-19 pandemic,” or because of an employer’s policy relating to COVID working arrangements, Massachusetts will continue to tax the employee’s income if the employee previously worked in Massachusetts. Certainly, this COVID-related work-at-home requirement is not a voluntary decision by the employee.  Much to the contrary, it is an order directed at the employee by the Massachusetts government or by an employer.

The Massachusetts DOR has dramatically changed its income “sourcing” rule to the detriment of New Hampshire residents.  In doing so, it may not only have crossed its boundary with New Hampshire, but it may have crossed the boundary set by the U.S. Constitution as well.

Whether the Supreme Court will ultimately agree to hear the case under its “original jurisdiction” authority, with no prior lower court proceedings, remains to be seen.  The Supreme Court can do so under Article III, Section 2 of the Constitution where a state is a party to the litigation, but the Court generally exercises such jurisdiction only in a small number of cases, usually involving disputes between two states over such matters as territorial borders or water rights.