State tax telework developments

New Hampshire v Massachusetts
Last April, Massachusetts adopted a temporary emergency regulation (retroactive to March) stating that nonresidents who had, pre-COVID, worked in Massachusetts and had been working at home in another state since the start of the pandemic would be subject to Massachusetts income tax on income earned while working at home (outside of Massachusetts) during that time.

The temporary emergency regulation was extended in July and adopted as a final rule in October. It now is in effect until 90 days after the pandemic state of emergency has been lifted.

The regulation (830 CMR 62.5A.3) subjects non-residents to Massachusetts income tax by applying a sourcing rule to the income of non-residents who telecommute to Massachusetts because of the pandemic. It provides that all compensation received for services performed by a non-resident who, immediately prior to the Massachusetts COVID-19 state of emergency was an employee engaged in performing such services in Massachusetts, and who is performing services from a location outside Massachusetts due to a pandemic-related circumstance, will continue to be treated as Massachusetts source income subject to personal income tax.

The regulation provides that Massachusetts residents who previously worked in another state before the pandemic but now are required to work remotely in the state are eligible for a tax credit for taxes paid to another state under a similar sourcing law.

New Hampshire borders on Massachusetts and has many residents who pre-pandemic commuted to Massachusetts. New Hampshire does not impose a personal income tax.

The litigation

New Hampshire has now filed a motion with the Supreme Court for leave to hear its case arguing that the Massachusetts rule is an unconstitutional violation of the commerce and due process clauses because it taxes New Hampshire residents for work performed entirely in New Hampshire, and a direct attack on New Hampshire’s sovereign right to control its own tax and economic policies. (Motion for Leave to File Bill of Complaint, New Hampshire v. Massachusetts, No. 22O154 (filed Oct. 19, 2020)).

A number of states have filed amicus curiae briefs in support of New Hampshire’s motion. Nine states (Ohio, Arkansas, Indiana, Kentucky, Louisiana, Missouri, Nebraska, Oklahoma, Texas, and Utah) have filed in support of New Hampshire’s motion for leave to file the bill of complaint (i.e., that the Supreme Court should hear the case). As a preliminary issue, the case faces the question of whether the Supreme Court is required to hear a case brought by one state against another, or whether it can or should exercise discretion to hear the case.

Four other states (New Jersey, Connecticut, Hawaii, and Iowa) have filed a separate brief in support of New Hampshire’s substantive claim, arguing that Massachusetts’s assertion of taxing rights over New Hampshire residents’ income earned in New Hampshire is unconstitutional. These states argue on the merits that such types of taxes are unconstitutional because they are not fairly apportioned, a requirement intended to ensure that each state only taxes its fair share of a tax base.

The four states also argue that many of their residents pay unconstitutional taxes to states such as New York and Pennsylvania, and that the case has far reaching implications for which states will have the right to collect billions in revenue during the pandemic.

In response, Massachusetts has argued that the Supreme Court’s original jurisdiction is not appropriate in the case and that there are more appropriate remedies available to New Hampshire residents.

New York

New York has updated its guidance on when nonresidents are subject to New York state income tax, applicable to telecommuters. FAQs posted on the state tax website last October explain that a nonresident whose primary office is in New York State is considered to be working in the state on days the work is being done remotely during the pandemic, unless the individual’s employer has established a bona fide employer office at the remote work location (meeting the state’s 2006 convenience of the employer rule .

Under New York’s convenience of the employer rule, New York asserts taxing jurisdiction on income earned by an employee of a business, the principal office of which is located in New York state, even when the individual employee is performing all the work out-of-state, unless one of two alternative tests is met.

Under the first test – a primary, single factor test – an employee’s compensation is sourced to the state of residence if the employee’s job duties require them to use facilities near their home that are not available at the employer’s business location. The second test is a multifactor test that requires satisfying multiple factors, no single one of which is indicative.

Arkansas, Connecticut, Delaware, Nebraska and Pennsylvania had also implemented convenience of the employer rules similar to New York’s prior to the pandemic.


Pennsylvania, like New York, has issued specific guidance confirming that this principle extends to employees working remotely out of the state due to the pandemic. Pennsylvania’s guidance says that non-residents who were working in Pennsylvania before the pandemic, who are working from home temporarily due to the pandemic, remain subject to Pennsylvania income tax as Pennsylvania sourced income for all tax purposes, including employer withholding and three-factor business income apportionment purposes. Pennsylvania does provide, however, that for residents who were working out-of-state before the pandemic, their compensation remains sourced to the other state.


Maryland, which generally subjects non-residents receiving Maryland-sourced income to Maryland income tax (i.e., when the income is compensation for services performed in Maryland), subject to a reciprocity agreement with Virginia, Washington D.C., West Virginia, and Pennsylvania, has issued similar guidance. Its FAQs say that a business based in Delaware with an office in Maryland, with an employee resident in Delaware, who generally works in the Maryland office, but is working remotely in Delaware during the pandemic, is subject to Maryland withholding.

Mazars’ Insight

The litigation between the states of New Hampshire and Massachusetts has the potential to immediately impact the livelihoods of many employees – both in New Hampshire and other states – whose working lives were affected by the pandemic and state budgets. In the meantime, employers should be aware of withholding obligations for states that treat income as sourced within the state, even when all the work has been performed outside the state.  

Please contact your Mazars USA LLP professional for additional information.

This alert was produced in conjunction with Ivins, Phillips & Barker, Chtd.

Published on January 15, 2021

The information provided here is for general guidance only, and does not constitute the provision of tax advice, accounting services, investment advice, legal advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal or other competent advisers.