Post-Pandemic State Taxation Of Nonresident Telecommuter Wages

Michael T. Fatale (Massachusetts Department of Revenue, Boston College), Post-Pandemic State Taxation of Nonresident Telecommuter Wages, 64 B.C. L. Rev. 1859 (2023):

Increased remote work has become a phenomenon in the aftermath of the COVID-19 pandemic. This has raised questions about the constitutional limitations that apply, or the congressional restrictions that should be applied, to state laws imposing an income tax on nonresident employees who telecommute from another state for an in-state employer. The state laws that tax nonresident teleworkers vary, leading to the prospect that some such employees could be double taxed by both the state of their employer and the state in which they are physically working, or taxed by their employer state when the state in which they are physically working does not itself impose a tax. Most outstanding scholarship has argued in favor of intervention by the Supreme Court or Congress to prevent states from imposing tax on employees who are physically working from another state. 

The Supreme Court has not considered the constitutionality of these taxes and denied a petition for certiorari of New Hampshire v. Massachusetts, a 2020 case that would have raised this issue. The Court’s precedent, however, makes clear that such state taxes should be upheld as constitutional. Two congressional bills proposed in 2020 and 2021 would have preempted state laws imposing a tax on employees physically working in another state, but these bills were not enacted. The decision to not enact the bills was appropriate because, if passed, such legislation would have created significant administrative issues, represented poor tax policy, and likely been found unconstitutional. The questions that have been raised by the state taxation of nonresident employees who telework from a state that is different from the state of their employer are complex and cannot be adequately addressed by either the Supreme Court or Congress—such questions are best left to the states’ political processes.