You May Not Live Or Work Here. But, Pay Us Taxes.
The Covid pandemic has brought out the best and worst-case scenarios for human and political behavior. Soon after the pandemic arrived in March 2020, many firms and businesses could direct their workers to operate out of their homes. After all, it’s the age of fiber-optic and massive Netflix downloads, so why not put your digital options into play with broadband?
In 2019, workers sometimes did not pay income taxes to the state where they worked. Instead, they paid state income tax where they resided.
In 2020, nonresident workers stopped paying income taxes unless there was a state reciprocity agreement. Why? Because they no longer went to that state to work.
In 2021, cash-poor states are starting to hunt.
Massachusetts: not so fast!
In mid-2020, Massachusetts decided to dun New Hampshire residents who had worked in the Bay State pre-Covid, to retrieve some lost income. The Massachusetts Department of Revenue issued an order to withhold the 5% income tax from the New Hampshire residents.
New Hampshire has a very particular and proud tic in its DNA. There’s no state income tax.
New Hampshire: Hands off!
New Hampshire sued. With the Interstate Commerce Clause and all, it probably made sense to issue an order rather than pass a law that could not have held up in court. It’s fascinating that the furor in New Hampshire was bipartisan:
“The actions taken by the State of Massachusetts to dip their hand into Granite State pockets because they cannot balance their budget is disgraceful,” Senate Republican Leader Chuck Morse said in a statement. “I applaud Governor Sununu for quickly announcing a plan to file a lawsuit against this new rule and make it clear that New Hampshire will never accept an income tax in this state.”
Democratic U.S. Rep. Chris Pappas also attacked the ruling as unfair.
“This rule change by Massachusetts extends an outrageous cash grab targeting Granite Staters who are doing their part to stay home and stay safe during a pandemic,” Pappas said in a statement.
We’ll see you in court.
Disputes between states are not rare. The mechanism for settling such issues long baked into the Constitution? The Supreme Court handles it. Already, over ten states have joined New Hampshire as a friend of the court.
Brave New World
The heart of the issue is what tax policies can best help a state without foisting distortions (legal and economic) on revenue issues. Covid has accelerated the magnitude of this issue quickly without sober consideration of how far a state will go to secure tax money. Tax disputes like these now sprout up all over the country. The Center for Property Tax Reform (CPTR), and many other observers, place the responsibility for these disputes squarely on the (non) wisdom of relying upon mobile subjects of taxation (wages) and now-mobile practitioners of labor (workers returning home to conduct business).
Property and other local taxes represent vital revenue streams that support quality of life for residents and attract and keep businesses. All too often, however, these taxes can’t keep pace with development trends, funding needs, and tax payers’ changing expectations. This is where the CPTR comes in. We advocate for fair taxation and provide the data needed to offer up evidence-based recommendations.