- I. Introduction
- II. Current Landscape of Remote Work in the United States
- III. Taxing Remote Workers Could Be Unconstitutional
- IV. Potential Solutions
- V. Conclusion
Imagine that you have secured the perfect job: it exceeds your salary expectations, offers flexible vacation, includes great employee benefits, and provides a work–life balance you could only dream of before. While the office is in Manhattan, over 200 miles from your residence in New Hampshire, you are not required to be physically present in the office and instead can work entirely from home. You happily accept the new job and spend the next two weeks working blissfully from your home office without ever needing to set foot in the state of New York. But when payday arrives, you find the deposit is for less than you anticipated. Confident that it is just a mix-up, you contact the Human Resources department. However, Human Resources informs you that this is not a mix-up, and your check has been reduced because New York taxes have been withheld. Still, you think there must be some mistake; you don’t live or work in New York, how could you possibly owe taxes there?
You frantically search for an answer on the frequently asked questions page of the New York government website, where you find the answer: “If you are a nonresident whose primary office is in New York State, your days telecommuting . . . are considered days worked in the state unless your employer has established a bona fide employer office at your telecommuting location.” Suddenly, you realize your perfect job has a glaring flaw: while you thought your income was subject to only federal income taxes, your income is actually subject to federal and New York income taxes. As a single taxpayer making $100,000 a year, this could mean a nearly $9,000 difference in your take-home pay. Unfortunately, you are not alone; many Americans have likely been plagued by similar tax laws. Moreover, the occurrence of this scenario is likely to increase as technology and connectivity continue to improve. Further, because a substantial portion of these remote workers consists of high earners, state legislatures have an incentive to attempt to tax these individuals. Indeed, states with large revenue shortfalls are looking to increase taxes for high earners to make up for lost revenue.
However, the attempt by states to tax individuals outside of their borders on income earned remotely is unconstitutional. The Due Process Clause “requires some definite link, some minimum connection, between a state and the person, property or transaction it seeks to tax.” However, many remote workers who are taxed by these states’ policies never set foot inside the state or receive any benefit from state resources. Further, the Commerce Clause prohibits state regulations from discriminating or imposing undue burdens on interstate commerce. This Comment argues that these state taxes do discriminate and impose an undue burden on interstate commerce. Therefore, the U.S. Supreme Court or federal lawmakers should address this issue to ensure the constitutional apportionment of state income taxes.
This Comment proceeds in three parts. Part II surveys the current landscape of remote work in the United States and examines state legislatures’ incentives to tax out-of-state remote workers. Part III considers the Commerce and Due Process Clauses of the Constitution and the Supreme Court’s holdings on state taxation of nonresident businesses. Part III will also appraise the constitutionality of state taxation of remote workers under these Clauses and precedents. Finally, Part IV will analyze potential solutions to this issue through the Supreme Court, Congress, and state legislatures.
II. Current Landscape of Remote Work in the United States
A. Remote Work Trends
In 2020, the COVID-19 pandemic drastically changed the way Americans worked. Surprisingly, however, 24% of employed persons fully or partially worked at home even before the pandemic. Also before the pandemic, another trend was beginning to emerge: the rise of the “super-commuter.” A super‑commuter is someone who lives outside of the metropolitan area in which their employer is located and commutes long distances to get to work. Advances in technology and communications have allowed these super-commuters to take advantage of big-city salaries, while living in areas with a low cost of living.
The COVID-19 pandemic accelerated these trends. Companies were forced to find some way to allow their employees to work from home in order to maintain social distancing. In June of 2020, 42% of the U.S. labor force was working from home full time. Because of the lack of physical presence required in the office, many workers moved to a new location, including many who worked outside of their home state or country.
As the country returns to normal, work from home arrangements are here to stay and will likely continue to grow. As one survey found, “94% of organizations . . . expect remote work to be normalized in their organizations in a post-vaccine environment.” Further, “76% believe that full-time remote work will be normalized in their organizations.”
Around 50% of employees have indicated that they would accept up to a 5% pay cut for the ability to work remotely. Moreover, about 25% of workers surveyed also said that they would quit their jobs if they were unable to work from home. Additionally, as technological advances continue in high-speed internet, virtual private networks, and video conferencing, the need for employees to be physically present in the office to work has been drastically reduced.
Work from home arrangements have also proven to be profitable for employers. Further, as employers compete for talent, flexible work from home options are likely one way employers will attempt to entice employees in a hot labor market. In August of 2021, job openings were up almost 70%, while job applications increased only 2% since January of that year. Additionally, as of July 2021, one in five of these job applicants were applying for out‑of‑state jobs.
However, not everyone has the ability to work from home. Those working from home are more likely to be highly educated, higher earning employees, with work-from-home professionals making 28% more on average than traditional workers. This is because those able to work from home are primarily “managers, professionals, and financial workers who can easily carry out their jobs” utilizing the technology discussed above. Another source of income inequality in this area is the rise of platforms that allow for a reduced staff to reach exponentially more customers. For example, in 2020, Peloton’s four million fitness members attended virtual classes led by instructors who could teach from any location they liked. These “Peloton instructors earned more than $500,000 [in 2020,] more than twelve times the median salary” for a fitness instructor. This high-earning potential provides an obvious incentive for state legislatures to keep these workers in the state’s tax base.
B. State Taxation of Remote Workers
Prior to the COVID-19 pandemic, six states—Arkansas, Connecticut, Delaware, Nebraska, New York, and Pennsylvania—utilized a special sourcing rule that based income taxes on where an employer’s office is located, regardless of the individual’s physical working location. This special sourcing rule is referred to as the “convenience-of-the-employer” rule. Under this rule, an employee’s income is sourced to the state of the employer “if the employee work[s] remotely for their own convenience rather than as a requirement of their employer.” While the issue was previously limited to these six states, more states may be tempted to implement these rules to mitigate declining revenues as workers relocate.
The flight of high-earning individuals out of the cities where they are employed and into lower cost of living areas could have depressive impacts on those cities’ economies. Further, the pandemic has already had a tremendous effect on state governments’ revenues because of declines in sales and other taxes and fees from reduced consumption. The combination of high‑earning individuals potentially leaving the state income tax base and the removal of their spending from the state’s economy has incentivized state legislatures to attempt to tax these individuals at all costs. State governments are expected to face budget shortfalls for many years and will likely cut spending now to prepare. These cutbacks on spending could substantially hamper the state’s abilities to provide needed public services and promote economic recovery.
Many states have already issued guidance acknowledging the impact of remote work during the pandemic on their budgets. New York issued guidance stating that for nonresidents whose primary office is located in New York, days spent “telecommuting during the pandemic are [still] considered days worked in the state.” Arkansas’s revenue legal counsel took a similar stance, stating that nonresident telecommuters are subject to state income tax. But this incentive became most visible when Massachusetts—a state that did not previously have a convenience-of-the-employer rule—issued its new income-sourcing rule. In October of 2020, Massachusetts issued a regulation providing that “compensation received for services performed by a telecommuting nonresident who worked in Massachusetts prior to the COVID-19 state of emergency declaration, and who is now working outside the state due to the pandemic, will continue to be” subject to Massachusetts personal income tax during the emergency declaration.
While the guidance coming from these states purports to be only a response to the pandemic, even allowing these schemes to be put in place temporarily could have troubling consequences. This precedent would allow states—which have strong incentives to tax remote workers—to implement similar taxation schemes if their actions are “temporary” and in response to an “emergency.” Further, once these tax schemes are in place, there is reason to believe they will not be repealed. However, constitutional limits on government power continue to apply even during emergencies. Indeed, the constitutional limits of the Due Process and Commerce Clauses apply here, and these tax schemes should be invalidated as unconstitutional.
III. Taxing Remote Workers Could Be Unconstitutional
A. Taxing Remote Workers Violates the Due Process Clause
First, the Due Process Clause limits a state taxing nonresidents to income earned within the taxing state’s boundaries. Additionally, under the Due Process Clause, a state may not arbitrarily tax income that is earned outside that state’s borders. Instead, the tax imposed must be related to the public services the taxpayer receives, such as roads, hospitals, and law enforcement. In limiting state taxation on nonresidents, the Due Process Clause “requires some definite link, some minimum connection, between a state and the person, property or transaction it seeks to tax.”
The Supreme Court has explained that the “minimum connection” required between a state and the subject it seeks to tax is equivalent to the “minimum contacts” requirement the Due Process Clause imposes on states under the personal jurisdiction doctrine. Indeed, the Court consistently relies on the Due Process personal jurisdiction precedents in cases involving extraterritorial state taxes.
Where individuals have held employment in a state but not otherwise availed themselves of that state’s resources, the Court has held that minimum contacts are lacking. In Shaffer v. Heitner, the Court held that a Delaware court could not exercise jurisdiction over nonresident defendants in a stockholder’s derivative action based on their “positions as officers and directors of a [Delaware] corporation.” In its reasoning, the Court explained that “accepting positions as officers and directors of a Delaware corporation” does not establish that the nonresidents “have ‘purposefully avail[ed themselves] of the privilege of conducting activities within the forum State.’”
Southeastern Legal Foundation argues that the Court’s reasoning in Shaffer “applies even more forcefully” in the case of remote workers. In Shaffer, the Court found minimum contacts were lacking even where the “individuals actively accepted and participated in decisionmaking [sic] roles.” If actively managing a state corporation does not establish the required contacts in the state, it seems inconsistent to hold that simply being employed by the same corporation would establish this minimum connection. Accordingly, a tax on those remote workers who live outside of their state of employment and never otherwise purposefully avail themselves of the forum state violates the Due Process Clause.
Massachusetts argues that the minimum contacts required to impose a tax on nonresidents do exist. To support this assertion, Massachusetts cites its support of “major urban centers that offer employment opportunities.” Further, Massachusetts points to its “protections benefiting employees regardless of their state of residence,” such as its minimum wage, sick time laws, and unemployment benefits. Finally, Massachusetts asserts that nonresidents “enjoy greater job security as a result of the public services provided by Massachusetts that support and promote the businesses in which those non-residents are employed, including Massachusetts’s legal system, its roads and infrastructure, and its police and fire protection of Massachusetts workplaces.”
However, these examples fall short of establishing the required minimum connection under Shaffer. As New Hampshire points out, “[a] State cannot manufacture the required ‘minimum connection’ by extending its laws to cover individuals outside its borders.” Additionally, as noted above, an individual holding employment is insufficient to establish the required minimum connection. Further, in addition to the Due Process Clause, these state taxes must comport with the Commerce Clause.
B. Taxing Remote Workers Violates the Dormant Commerce Clause
The Commerce Clause expresses a grant of authority to Congress to achieve the free movement of workers, products, and capital. When Congress does not enact legislation on certain areas of commerce, the Supreme Court will enforce this purpose through the Dormant Commerce Clause. The Dormant Commerce Clause doctrine provides the presumption that even in the absence of congressional action, a state may not discriminate against or burden interstate commerce. The Commerce Clause requires that a state tax only the portion of interstate commerce properly apportioned to that state. In Complete Auto Transit, Inc., the Court laid out a four-prong test to assess the constitutionality of a state tax under the Dormant Commerce Clause. Under this test, a state tax survives a Dormant Commerce Clause challenge only when (1) the tax is on an activity with a substantial nexus with the state, (2) is fairly apportioned, (3) does not discriminate against interstate commerce, and (4) is fairly related to the state services provided.
First, a taxing state has no substantial nexus to income from work performed entirely out of state by a nonresident. “Substantial nexus” requires a state tax to have a connection to the income activity itself, not just a connection to the individual it intends to tax. In a remote work arrangement, the income activity potentially occurs entirely outside of the state’s borders. When a state leaps beyond its borders to tax these activities it does so based on a connection to the individual’s employer. As one amicus curiae argues, “the substantial nexus test would be toothless” “[i]f an employer’s presence in a [s]tate is sufficient to” subject any of its employees to the state’s tax. Therefore, state tax policies taxing nonresident remote workers should fail the substantial nexus test.
The fair apportionment requirement prevents a state from taxing more than its fair share of an interstate transaction. In Oklahoma Tax Commission v. Jefferson Lines, Inc., the Court concluded that a state exceeds this fair share when there is a possibility of double taxation. As noted above, states utilizing the convenience-of-the-employer rule apportion all income earned from telecommuting to the taxing state. Currently, forty-three states impose an income tax on their residents. This means residents of these states would be subject to potential double taxation on wages earned from working remotely for an employer located in a convenience of the employer state. Massachusetts argues that this double taxation is avoided by offering a credit for income taxes paid to other jurisdictions. However, this credit does not cure the possibility of double taxation because of the complicated income‑sourcing rules of states.
Further, as the Attorney General for New Jersey points out, when one state is forced to protect its residents from another state’s impermissible taxation by providing a credit for taxes paid to other jurisdictions to its residents, the home state of the resident is paying the price of the credit, thus diverting revenues the home state would otherwise receive. This is particularly concerning because the home state is the one providing services to remote workers—such as roads, hospitals, and law enforcement—without collecting any tax to offset the cost. Thus, the potential for double taxation remains and tax policies taxing nonresident remote workers tax more than their fair share of interstate transactions.
Similarly, under the third prong of Complete Auto Transit, Inc.'s interstate commerce test, a tax scheme is unconstitutional if it could potentially result in double taxation and create a powerful incentive to participate in intrastate rather than interstate activity. In its reasoning in Comptroller of the Treasury of Maryland v. Wynne, the Court applied the “internal consistency” Commerce Clause test to invalidate Maryland’s taxation of individuals and S corporations that earned income in other states and paid tax on that income to those states. The internal consistency test “looks to the structure of the tax at issue to see whether its identical application by every State in the Union would place interstate commerce at a disadvantage as compared with commerce intrastate.”
If every state were to tax nonresident remote workers like convenience-of-the-employer states currently do, an individual who lives and works in the same state would owe state income tax only to the individual’s residential state. However, this individual’s neighbor who works remotely for an out-of-state company would be subject to double taxation. This scenario would “place interstate commerce at a disadvantage as compared with commerce intrastate.” Further, others contend that if every state passed such an income tax law, “the free movement of workers, goods, and services across state borders would suffer, as individuals would be less inclined to move between States or accept flexible working assignments.” Because a potential effect of these state taxes is to place interstate commerce at a disadvantage compared to intrastate commerce, these taxes should also fail the third prong of the test.
Finally, the fourth prong of the Complete Auto Transit, Inc. test requires the state tax to be “fairly related to the services provided by the State.” This prong again ensures that the tax imposed is related to resources that benefit the taxpayer. The Massachusetts and New York tax systems potentially tax individuals who have no physical presence in the state and whose work is performed entirely outside of the state. This is hard to reconcile with the fact that the governors of both states issued executive orders prohibiting all non-essential employees from working in their physical offices during the COVID-19 pandemic. If an individual never sets foot in the state of their employer, they also receive no benefit from the state’s roads, hospitals, law enforcement, or other public services. In this case, the individual never receives any benefit from the state’s expenditures on public services. Therefore, any amount of tax is not “reasonably related to the extent of the contact.” Accordingly, these taxes should also fail the fourth prong of the Complete Auto Transit, Inc. test.
Because a state tax on nonresident remote workers should fail all four prongs of the test set out in Complete Auto Transit, Inc., these state taxes should not survive a Dormant Commerce Clause challenge and should be held unconstitutional. The question, then, is: how can the Supreme Court, Congress, or state legislatures correct the situation?
IV. Potential Solutions
Aggressive state tax schemes that aim to tax activity taking place outside the state’s borders are not a new concept. However, with the rise in remote working arrangements, states will face greater temptation to impose or continue to enforce these schemes. Therefore, these unconstitutional schemes will persist. Clarification is needed as to how states may tax remote workers. This clarification could come from the Supreme Court or Congress. Additionally, state legislatures may have reason to attempt to remedy the problem on their own.
A. Supreme Court
The Court has recently taken up cases defining the limits of state power over nonresident businesses in the context of our modern digital economy. This matter is of similar importance and should be taken up by the Court to enforce the constitutionality of state income taxes and to further define the limits of state taxation over nonresidents in our modern economy. This issue was recently brought before the Court in New Hampshire v. Massachusetts. In this case, New Hampshire sought to enjoin Massachusetts from enforcing its COVID Sourcing Regulation on New Hampshire residents. On June 28, 2021, the Court declined to hear the case, thus leaving open the issue of how states may tax remote workers. The Court did not explain its reasoning for declining to hear the case, but it “was likely influenced by the acting U.S. Solicitor General’s amicus brief arguing against the Supreme Court taking up the case.” The Solicitor General’s argument raised two main points: (1) the Massachusetts policy causes no direct injury to New Hampshire; and (2) “an adequate forum [exists] for residents to resolve the issue in Massachusetts courts.” From this it would seem that getting the matter in front of the Court could be accomplished in either of two ways: (1) a state with a more direct injury could sue another state with a convenience-of-the-employer rule; or (2) an impacted employee could challenge the rule in the state court where their employer is located.
1. State vs. State
One of the problems the Solicitor General raised with New Hampshire’s suit was the issue of direct injury. Because New Hampshire does not have an income tax of its own, it is difficult to point to a measurable injury to the state itself. In contrast, states like New Jersey do have an income tax and provide residents with credits for taxes paid to states with convenience‑of‑the‑employer rules. Therefore, states like New Jersey can show a measurable direct injury to the state by presenting tax revenue that is lost because of the credit. For this reason, a state offering an income tax credit similar to New Jersey may have a better chance of getting the case to the Supreme Court. Because of the time and money involved with an individual challenging the tax, this method would be the most practical way of solving the issue.
2. Employee Challenge
The next issue raised by the Solicitor General was that New Hampshire residents impacted by the regulation should be the ones to raise the issue rather than the state itself. However, this method of resolution is unlikely primarily because of the Tax Injunction Act and the high cost for most individual taxpayers of challenging state taxes. The Tax Injunction Act prevents an individual challenging a state tax from using federal courts. Instead, the individual must seek relief through the taxing state’s own administrative procedures. These state procedures are often costly and unsympathetic to nonresidents and their constitutional rights. Further, if these procedures ultimately prove unsuccessful—as they often do—the individual must then take the challenge to the state courts. These state courts are also costly and often unfriendly to nonresidents. While the amount of money involved in these disputes is likely important to the individuals seeking to challenge them, it is still too low to justify this cost of litigation. Alternatively, a group of taxpayers could be established to better justify these costs. Still, this process will likely take years before the case ever reaches the Supreme Court and the Court may still not even grant certiorari. Therefore, this issue would be better resolved by having a state with an income tax credit challenge a convenience-of-the-employer rule itself.
Alternatively, Congress could intervene. One bill introduced by Senate Democrats, the Multi-State Worker Tax Fairness Act, would prohibit states from taxing nonresident remote workers. The bill specifically provides that a nonresident may not be taxed by a state for wages earned while the nonresident is physically present in another state. This bill would offer the simplest and most long-term solution to remote worker tax schemes.
Senate Republicans have also introduced their own bill addressing the problem, the Health, Economic Assistance, Liability Protection and Schools (HEALS) Act. This bill includes a provision that would temporarily relieve some of the uncertainty faced by remote workers. Under this provision—which would expire in 2024—a remote worker’s wages would only be taxable in the worker’s state of residence and “any state where they work for more than 90 days.” The benefit of this provision is the clarification it would provide by establishing a single minimum threshold before a state could tax a nonresident worker. However, once this threshold is reached, confusion would still apply. This is because once the remote worker meets this ninety‑day threshold, states will likely attempt to tax any further income earned, even if it is performed entirely out of state. This would mean remote workers would once again be subject to double taxation. Further, while a short-term solution could be valuable during the pandemic, a more powerful long-term solution is necessary as remote work arrangements are here to stay. Therefore, a permanent bright-line rule such as the Multi-State Worker Tax Fairness Act would be better suited for this situation and “well within Congress’s Commerce Clause powers.” Even in the case where the Supreme Court and Congress fail to correct this issue, there may yet be hope from state legislatures themselves.
C. State Legislatures
In an increasingly remote employment climate, states utilizing convenience-of-the-employer rules make themselves exceedingly unpalatable. As businesses compete for talented employees, remote work arrangements are an increasingly valuable recruiting tool. However, the value of this recruiting tool is reduced if remote work arrangements subject employees to double taxation. This becomes an incentive to locate a business in a state more tax friendly for its employees. State legislatures may take this opportunity to further tempt businesses as well as remote workers to move within its state borders. Louisiana and West Virginia have already provided examples by enacting laws exempting nonresidents from state income taxes when they work less than a minimum number of days within the state. Further, Louisiana’s law provides a two-year 50% tax exemption of wages up to $150,000 to qualifying remote workers who establish residency in the state. State legislatures may continue to provide favorable tax schemes for remote employment if they find the cost of losing businesses and residents exceeds the revenues from taxing remote workers. However, some argue that there is little reason to put faith in the legislative process to solve this issue. Therefore, this issue would best be resolved by the Supreme Court.
Remote work is here to stay. This Comment argues that much of the current landscape of remote employee taxation violates both the Due Process and Commerce Clauses of the Constitution. This unconstitutional tax policy should be remedied by the Supreme Court or Congress. Additionally, states may find it in their own best interests to provide more favorable tax policies to remote work arrangements.
These unconstitutional schemes offer no relation between the government services and the taxes raised. Instead, these states tax individuals who do not live, work, or play within the taxing state, thus receiving no benefit of the state’s resources. This issue should be addressed to enforce constitutionally apportioned and fair income taxation.
Most people want to find a job that pays well, offers paid time off, and provides a satisfying work–life balance. Quentin Fottrell, The ‘Best Job in America’ Pays Up to $125,000 a Year—and Has 10,000 Job Openings, MarketWatch (Jan. 17, 2022, 11:12 AM), https://www.marketwatch.com/story/the-best-job-in-america-pays-up-to-125-000-a-year-and-has-10-000-job-openings-11641384094 [https://perma.cc/GU72-Z2T3]; Stephen Miller, Better Pay and Benefits Loom Large in Job Satisfaction, Soc’y Hum. Res. Mgmt., https://www.shrm.org/resourcesandtools/hr-topics/compensation/pages/pay-benefits-satisfaction.aspx [https://perma.cc/8GU2-9XFD] (last visited July 11, 2022).
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“[A] growing number of people  have started jobs and left them without having once met their colleagues in person” due to never setting foot in their employer’s office. Kellen Browning & Erin Griffith, If You Never Met Your Co-Workers in Person, Did You Even Work There?, N.Y. Times (Oct. 29, 2021), https://www.nytimes.com/2021/09/08/business/remote-office-co-workers-working-from-home.html [https://perma.cc/F7F6-YT54].
Employers maintaining an office within New York must withhold personal income tax for “New York State nonresidents being paid wages for services performed within the state.” Withholding Tax Requirements, N.Y. State Dep’t Tax’n & Fin., https://www.tax.ny.gov/bus/wt/whtax_require.htm [https://perma.cc/32LR-36GT] (Apr. 21, 2022).
Frequently Asked Questions About Filing Requirements, Residency, and Telecommuting for New York State Personal Income Tax, N.Y. State Dep’t Tax’n & Fin. (June 30, 2021) [hereinafter Frequently Asked Questions], https://www.tax.ny.gov/pit/file/nonresident-faqs.htm [https://perma.cc/K8K3-2GW9]. While this question references the COVID‑19 pandemic, the answer references an Office of Tax Policy Analysis from the New York Technical Services Division from May 2006, indicating that New York asserts this policy should always apply. New York Tax Treatment of Nonresidents and Part-Year Residents Application of the Convenience of the Employer Test to Telecommuters and Others, N.Y. State Dep’t Tax’n & Fin. (May 15, 2006), https://www.tax.ny.gov/pdf/memos/income/m06_5i.pdf [https://perma.cc/Z5JS-CCZS].
I.R.C. § 61(a) (“[G]ross income means all income . . . including (but not limited to) the following items: (1) Compensation for services . . . .”); I.R.C. § 63(a) (“‘[T]axable income’ means gross income . . . .”); Taxpayer Assistance – Overview of New Hampshire Taxes, N.H. Dep’t Revenue Admin., https://www.revenue.nh.gov/assistance/tax-overview.htm [https://perma.cc/9UZD-24J7] (last visited Aug. 8, 2022) (“The State of New Hampshire does not have an income tax on an individual’s reported W-2 wages.”).
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A single taxpayer making $100,000 in 2021 has a take-home pay of approximately $77,341 after federal income taxes are assessed and a take-home pay of approximately $68,602 after federal and New York income taxes are assessed. Federal Income Tax Calculator, SmartAsset, https://smartasset.com/taxes/income-taxes [https://perma.cc/7DZ4-ZPVW] (last visited July 19, 2022) (enter $100,000 as Household Income; New York, NY as Location; and Single as Filing Status).
See infra Part II.
See infra Section II.A.
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State laws that discriminate against interstate commerce face a virtually per se rule of invalidity. Pike v. Bruce Church, Inc., 397 U.S. 137, 145 (1970).
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Martha C. White, That Home Office Might Be Here to Stay: Workers Are Flexing Their Pandemic-Era Right to Flexibility, NBC News (Sept. 2, 2021, 3:42 PM), https://www.nbcnews.com/business/business-news/home-office-might-be-here-stay-workers-are-flexing-their-n1278395 [https://perma.cc/9KUR-6LQK]. While working from home numbers may drop as the pandemic comes to an end and employers begin to request employees return to the office, it is likely that remote work arrangements will continue to rise from pre‑pandemic levels. See Vasel, supra note 17 (noting that some companies will want employees back in the office, but post-pandemic, “remote work will no longer be considered a special perk”); Christopher Mims, Remote Work Isn’t Just for White-Collar Jobs Anymore, Wall St. J. (Oct. 22, 2020, 9:03 AM), https://www.wsj.com/articles/remote-work-isnt-just-for-white-collar-jobs-anymore-11603371826 [https://perma.cc/YG43-58AN] (“[A] host of jobs, including storekeeper and field engineer, that seemed out of reach of remote work are likely to be firmly in the remote‑work orbit within the next 10 years.”).
Cecilia Amador de San José, Future of Work: Tech Companies Are Rethinking Workplace Density, AllWork (Oct. 23, 2020), https://allwork.space/2020/10/future-of-work-tech-companies-are-rethinking-workplace-density/ [https://perma.cc/82JK-DF4N].
Terry Collins, Work Remote After COVID? Nearly 50% of US Workers Would Take a Pay Cut for It, Survey Says, USA Today (Nov. 11, 2021, 12:25 PM)., https://www.usatoday.com/story/money/2021/11/11/workplace-survey-remote-pay-cut-covid/6367601001/ [https://perma.cc/FBK7-KDDK].
In 2019, 73% of Americans had broadband internet service at home, including 93% of those with bachelor’s degrees or more. See Monica Anderson, Mobile Technology and Home Broadband 2019, Pew Rsch. Ctr. (June 13, 2019), https://www.pewresearch.org/internet/2019/06/13/mobile-technology-and-home-broadband-2019/ [https://perma.cc/2RLR-E9GT].
Ken Schachter, Cybersecurity at the Kitchen Table, Newsday (Mar. 22, 2020), https://www.associatedhcm.com/wp-content/uploads/2020/03/Tips-for-making-telecommuting-work-CEO-Rob-Basso-gives-his-input.pdf [https://perma.cc/7MGP-YEP9]; Terry Slattery, The Future of VPNs in a Post-Pandemic World, TechTarget, https://www.techtarget.com/searchnetworking/tip/The-future-of-VPNs-in-a-post-pandemic-world [https://perma.cc/A8YD-JU4B] (last visited Aug. 23, 2022).
America’s Hottest Brands, Advert. Age (July 13, 2020), https://www.proquest.com/docview/2424147796 [https://perma.cc/M9J2-4HG5] (“Zoom went from hosting 10 million daily meeting participants in December  to 300 million by April  and from 100 billion annualized meeting minutes to 2 trillion.”).
Uri Berliner, Get a Comfortable Chair: Permanent Work from Home Is Coming, NPR (June 22, 2020, 12:26 PM), https://www.npr.org/2020/06/22/870029658/get-a-comfortable-chair-permanent-work-from-home-is-coming [https://perma.cc/3KQL-546R] (“[A] typical employer can save about $11,000 [a] year for every person who works remotely half of the time.”).
See White, supra note 20.
Bloom, supra note 18.
In 2021, “[a]mong workers age 25 and over . . . 67% of those with an advanced degree performed some work at home on days worked, compared to 19% of those with a high school diploma and no college.” American Time Use Survey, supra note 14.
Aly J. Yale, Remote Workers and ‘Super’ Commuters Are More Likely to Own a Home, Forbes (Mar. 14, 2019, 2:55 PM), https://www.forbes.com/sites/alyyale/2019/03/14/work-from-home-americans-super-commuters-are-more-likely-to-own-a-home/?sh=360a7fe51ee5 [https://perma.cc/NDG7-S2LN].
Bloom, supra note 18.
Dror Poleg, The Winners of Remote Work, N.Y. Times (Sept. 4, 2021), https://www.nytimes.com/2021/08/31/upshot/remote-work.html [https://perma.cc/VAK9-DF9M].
Id. Similar dynamics can be seen on other platforms such as online learning platforms like Udemy and Outschool. Id.
“In 2018, around 434,000 New Jersey residents paid $3.7 billion in New York income taxes . . . . Almost 87,000 Connecticut residents paid New York an additional $1.3 billion in 2018; those two states’ residents account for about 10% of all the income tax New York collected that year.” Jimmy Vielkind, States Square Off Over Taxing Remote Workers’ Income, Wall St. J. (Dec. 23, 2020, 10:00 AM), https://www.wsj.com/articles/states-square-off-over-taxing-remote-workers-income-11608735600 [https://perma.cc/XR7M-9RGT].
Jared Walczak, Teleworking Employees Face Double Taxation Due to Aggressive “Convenience Rule” Policies in Seven States, Tax Found. (Aug. 13, 2020), https://taxfoundation.org/remote-work-from-home-teleworking/ [https://perma.cc/782P-78XC].
Matthew D. Melinson et al., Tax Challenges Expected from Widespread Remote Work, Grant Thornton (July 29, 2021), https://www.grantthornton.com/library/alerts/tax/2021/SALT/general/tax-challenges-expected-from-widespread-remote-work-07-29 [https://perma.cc/SR6V-G9H2]. For example, a technician servicing a New York company’s products in New Hampshire could not do his job in New York. But the technician’s neighbor who works remotely as an accountant for the same New York company could theoretically perform his duties in New York. These states would not tax the income of the technician but would tax the income of the accountant. See, e.g., N.Y. Comp. Codes R. & Regs., tit. 20, § 132.18(a) (2007).
Walczak, supra note 40.
Nicholas Bloom estimates this flight “could remove from city centers up to 50% of total daily spending in bars, restaurants, and shops.” Bloom, supra note 18.
Louise Sheiner & Sophia Campbell, How Much Is COVID-19 Hurting State and Local Revenues?, Brookings (Sept. 24, 2020), https://www.brookings.edu/blog/up-front/2020/09/24/how-much-is-covid-19-hurting-state-and-local-revenues/ [https://perma.cc/KGC5-C4FA].
See Walczak, supra note 40 (“Companies’ unplanned experiment in telework may yield a long-term shift in how we conceptualize the workplace. If so, these rules, which treat an employee as if they worked out of their company’s office even if they never actually did so, could become increasingly popular as a short-term revenue option for states facing an exodus of increasingly teleworking employees.”).
See Sheiner & Campbell, supra note 45.
Frequently Asked Questions, supra note 5. New York has also been particularly aggressive in its enforcement of its income sourcing rules since the start of the pandemic. Donna Borak, New York Blitzes $100,000 Earners with Remote-Worker Tax Audits, Bloomberg (Aug. 11, 2021, 6:02 AM), https://www.bloomberg.com/news/articles/2021-08-11/new-york-blitzes-100-000-earners-with-remote-worker-tax-audits [https://perma.cc/QPE5-WZ55] (“New York tax authorities are targeting individuals earning as little as $100,000 a year who claim to have left the state during the Covid-19 pandemic, part of an unprecedented effort to recoup lost income-tax revenue.”).
See Ark. Dep’t Fin. & Admin., Legal Op. No. 20200203 (Feb. 20, 2020), https://www.ark.org/dfa-act896/index.php/api/document/download/20200203.pdf [https://perma.cc/HA6M-PT44] (“Your client is carrying on an occupation in the state of Arkansas, albeit from an out-of-state location. Although your client performs her work duties in Washington state, those activities impact computer systems and computer users in Arkansas at the [redacted]. Those activities constitute the conduct of an occupation in this state.”).
Matthew D. Melinson et al., COVID-19 Impact on Remote Work and State Tax Policy, Grant Thornton (Nov. 30, 2020), https://www.grantthornton.com/insights/alerts/tax/2020/salt/general/COVID-19-impact-remote-work-state-tax-policy-11-30 [https://perma.cc/3739-3NFE].
This is one of the arguments Massachusetts made in its brief in opposition of New Hampshire’s motion for leave to file suit against Massachusetts’s nonresident taxation. “This putative case concerns only a temporary emergency rule maintaining the status quo on sourcing income for non-resident employees who are suddenly telecommuting to their Massachusetts jobs from elsewhere amidst the COVID-19 pandemic.” Brief in Opposition to Motion for Leave to File Complaint at 13, New Hampshire v. Massachusetts, No. 154 (Dec. 11, 2020), motion denied, 141 S. Ct. 2848 (2021). Indeed, the Massachusetts Department of Revenue issued guidance indicating the sourcing rules would cease to be in effect as of September 13, 2021, but not before extending the “temporary” rule three times after its expiration date. Richard C. Call & Elle Kaiser, Massachusetts Department of Revenue Stops Applying COVID-19 Telecommuting Policy, Returns to Location of Work Performed, Inside SALT (Sept. 24, 2021), https://www.insidesalt.com/2021/09/massachusetts-department-of-revenue-stops-applying-covid-19-telecommuting-policy-returns-to-location-of-work-performed/ [https://perma.cc/97LC-ZCJ7]; Supplemental Brief in Support of Motion for Leave to File Bill of Complaint at 6, New Hampshire v. Massachusetts, No. 22O154 (June 15, 2021), motion denied, 141 S. Ct. 2848 (2021).
Brief for Nat’l Taxpayers Union Found. et al. as Amici Curiae Supporting Movant at 15, 19–20, New Hampshire v. Massachusetts, No. 22O154 (Dec. 22, 2020) (“Letting Massachusetts’s action stand will encourage other states to follow its lead in creating just such a risk of multiple taxation with its ‘once nexus, always nexus’ standard.”), motion denied, 141 S. Ct. 2848 (2021).
See Vielkind, supra note 39 (noting that a ruling on the Massachusetts sourcing rule “could set a precedent on taxing remote workers that endures past the coronavirus crisis”).
Elaine S. Povich, Remote Work Boom Complicates State Income Taxes, PEW (Oct. 2, 2020), https://www.pewtrusts.org/en/research-and-analysis/blogs/stateline/2020/10/02/remote-work-boom-complicates-state-income-taxes [https://perma.cc/K24F-NYN8].
Roman Cath. Diocese v. Cuomo, 141 S. Ct. 63, 68 (2020) (“[E]ven in a pandemic, the Constitution cannot be put away and forgotten.”); Home Bldg. & Loan Ass’n v. Blaisdell, 290 U.S. 398, 425 (1934) (“Emergency does not create power. Emergency does not increase granted power or remove or diminish the restrictions imposed upon power granted or reserved.”).
See infra Part III.
Okla. Tax Comm’n v. Chickasaw Nation, 515 U.S. 450, 463 n.11 (1995) (“For nonresidents, in contrast, jurisdictions generally may tax only income earned within the jurisdiction.”); id. (“[A]s to residents, a State ‘may, and does, exert its taxing power over their income from all sources’; as to nonresidents, ‘the tax is only on such income as is derived from . . . sources [within the State].’” (quoting Shaffer v. Carter, 252 U.S. 37, 57 (1920) (alteration in original)).
Allied-Signal, Inc. v. Dir., Div. of Tax’n, 504 U.S. 768, 777 (1992) (citing Miller Bros. Co. v. Maryland, 347 U.S. 340, 344–45 (1954)).
See Wisconsin v. J.C. Penney Co., 311 U.S. 435, 444 (1940) (stating that the tax imposed must “bear fiscal relation to protection, opportunities and benefits given by the state”); see also United States v. City of New Orleans, 98 U.S. 381, 393 (1878) (stating that state residents pay taxes “to provide for the preservation of peace, good order, and health, and the execution of such measures as conduce to the general good of [the state’s] citizens”).
Miller Bros. Co., 347 U.S. at 344–45.
Quill Corp. v. North Dakota, 504 U.S. 298, 324 (1992) (White, J., concurring in part and dissenting in part) (discussing Nat’l Geographic Soc’y v. Cal. Bd. of Equalization, 430 U.S. 551, 561 (1977)).
See, e.g., Quill Corp., 504 U.S. at 307–08 (first discussing Int’l Shoe Co. v. Washington, 326 U.S. 310 (1945); then discussing Shaffer v. Heitner, 433 U.S. 186 (1977); and then discussing Burger King Corp. v. Rudzewicz, 471 U.S. 462 (1985)) (describing the “minimum connection” requirement for state taxation as employing “[c]omparable reasoning” to the “minimum contacts” requirement the Due Process Clause places on states under the doctrine of personal jurisdiction); South Dakota v. Wayfair, Inc., 138 S. Ct. 2080, 2093 (2018) (citing Burger King Corp., 471 U.S. at 476).
See Shaffer, 433 U.S. at 216.
Id. at 213–14.
Id. at 215–16 (quoting Hanson v. Denckla, 357 U.S. 235, 253 (1958)) (alteration in original).
Brief for Se. Legal Found. as Amici Curiae in Support of Movant at 9, New Hampshire v. Massachusetts, No. 22O154, (Dec. 17, 2020), motion denied, 141 S. Ct. 2848 (2021).
Brief in Opposition to Motion for Leave to File Complaint, supra note 51, at 36.
Id. at 30–32.
Id. at 31.
Reply Brief in Support of Motion for Leave to File Bill of Complaint at 13, New Hampshire v. Massachusetts, No. 22O154 (Dec. 22, 2020) (citing South Dakota v. Wayfair, Inc., 138 S. Ct. 2080, 2099 (2018)), motion denied, 141 S. Ct. 2848 (2021).
See Shaffer v. Heitner, 433 U.S. 186, 216 (1977).
Morgan L. Holcomb, Tax My Ride: Taxing Commuters in Our National Economy, 8 Fla. Tax Rev. 885, 899 (2008) (“The Commerce Clause ‘embodied a grant of authority to Congress that created the conditions for the free movement of people, transport of products and capital, and uniform institutions that, together, proved crucial to establishing a national market.’” (quoting Cathy Matson, The Revolution, the Constitution, and the New Nation, in 1 Cambridge Economic History of the United States: The Colonial Era 363, 377 (Stanley L. Eugerman & Robert E. Gellman, eds., 1996))).
Okla. Tax Comm’n v. Jefferson Lines, Inc., 514 U.S. 175, 179–80 (1995) (noting that the Commerce Clause has also been read to “contain a further, negative command, known as the dormant Commerce Clause, prohibiting state taxation even when Congress has failed to legislate on the subject”).
MeadWestvaco Corp. v. Ill. Dep’t of Revenue, 553 U.S. 16, 24 (2008) (“The Commerce Clause forbids the States to levy . . . unfairly apportioned taxation.”); see also Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279 (1977) (noting that state taxes do not violate the Commerce Clause when they are, among other things, “fairly apportioned” to the taxing state).
Complete Auto Transit, Inc., 430 U.S. at 279.
Allied-Signal, Inc. v. Dir., Div. of Tax’n, 504 U.S. 768, 777–78 (1992).
Id. at 778 (“[T]here must be a connection to the activity itself, rather than a connection only to the actor the State seeks to tax . . . .”).
See supra Section II.A.
Brief for Buckeye Inst. as Amici Curiae in Support of Plaintiff’s Motion for Leave to File Bill of Complaint at 14, New Hampshire v. Massachusetts, No. 22O154 (Dec. 18, 2020) (“The Tax Rule relies solely on the employer’s location to establish any sort of jurisdictional basis.”), motion denied, 141 S. Ct. 2848 (2021).
Id. at 13–14.
Goldberg v. Sweet, 488 U.S. 252, 260–61 (1989), abrogated on other grounds by Comptroller of Treasury of Md. v. Wynne, 575 U.S. 542 (2015) (“[T]he central purpose behind the apportionment requirement is to ensure that each State taxes only its fair share of an interstate transaction.”).
Okla. Tax Comm’n v. Jefferson Lines, Inc., 514 U.S. 175, 184–85 (1995).
See supra Section II.B.
Katherine Loughead, State Individual Income Tax Rates and Brackets for 2020, Tax Found. (Feb. 4, 2020), https://taxfoundation.org/state-individual-income-tax-rates-and-brackets-for-2020/ [https://perma.cc/LLZ3-FGBJ].
Brief in Opposition to Motion for Leave to File Complaint, supra note 51, at 32–33.
For example, consider the credit for a Vermont resident working for a New York employer:
When that work is physically performed in New York, everything operates normally: New York taxes the income and so does Vermont, but Vermont offsets liability with a credit for taxes paid on income earned in New York. But if that work is now being performed in Vermont as people work from home, then Vermont no longer regards that work as being performed in New York—for the rather obvious reason that it is not.
Walczak, supra note 40.
Brief for States of New Jersey et al. as Amici Curiae in Support of Plaintiff at 8, New Hampshire v. Massachusetts, No. 22O154 (Dec. 22, 2020) [hereinafter New Jersey Brief], motion denied, 141 S. Ct. 2828 (2021).
Comptroller of Treasury of Md. v. Wynne, 575 U.S. 542, 547, 561 (2015).
Id. at 546–47, 567.
Id. at 562 (quoting Okla. Tax Comm’n v. Jefferson Lines, Inc., 514 U.S. 175, 185 (1995)). The Court in Wynne specifically noted that “Maryland’s income tax scheme fails the internal consistency test because if every State adopted Maryland’s tax structure, interstate commerce would be taxed at a higher rate than intrastate commerce.” Id. at 543.
See Walczak, supra note 40.
Jefferson Lines, 514 U.S. at 185; see also Robert Verbruggen, Supreme Court Could Decide: Who Gets to Tax Remote Workers?, Nat’l Rev. (Jan. 27, 2021, 5:50 PM), https://www.nationalreview.com/2021/01/supreme-court-could-decide-who-gets-to-tax-remote-workers/ [https://perma.cc/DXY4-DKCQ] (“There’s discrimination against interstate commerce because people who work in New Hampshire are taxed more heavily if their employers happen to be in Massachusetts.”).
Brief for Buckeye Inst. as Amici Curiae in Support of Plaintiff’s Motion for Leave to File Bill of Complaint, supra note 83, at 16.
Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279 (1977). The fourth prong of the test requires that “the measure of the tax must be reasonably related to the extent of the contact, since it is the activities or presence of the taxpayer in the State that may properly be made to bear a ‘just share of state tax burden.’” Commonwealth Edison Co. v. Montana, 453 U.S. 609, 626 (1981) (quoting W. Live Stock v. Bureau of Revenue, 303 U.S. 250, 254 (1938)).
Commonwealth Edison, 453 U.S. at 625 (quoting General Motors Corp. v. Washington, 377 U.S. 436, 440–41 (1964)).
Walczak, supra note 40.
Off. of the Governor, Commonwealth of Mass., COVID-19 Order No. 13 (Mar. 23, 2020), https://www.mass.gov/doc/march-23-2020-essential-services-and-revised-gatherings-order/download [https://perma.cc/7NKL-D5BY]; Governor Cuomo Signs the ‘New York State on PAUSE’ Executive Order, N.Y. State (Mar. 20, 2020), https://www.governor.ny.gov/news/governor-cuomo-signs-new-york-state-pause-executive-order [https://perma.cc/3HA9-X84Q].
Commonwealth Edison, 453 U.S. at 626.
Supra Section II.B.
Supra Section II.B.
See South Dakota v. Wayfair, Inc., 138 S. Ct. 2080, 2087–88, 2095 (2018) (relating to the remittance of sales taxes for sellers without a physical presence in the state); Bristol‑Myers Squibb Co. v. Superior Court of Cal., 137 S. Ct. 1773, 1777–79, 1783–84 (2017) (discussing California’s specific jurisdiction over a national corporation).
Brief for Professor Edward A. Zelinsky as Amicus Curiae in Support of Plaintiff’s Motion for Leave to File Bill of Complaint at 17–18, 20, 22, New Hampshire v. Massachusetts, No. 22O154 (Dec. 10, 2020) [hereinafter Zelinsky Brief], motion denied, 141 S. Ct. 2824 (2021).
Mike Shaikh et al., The Sun Has Set on New Hampshire v. Massachusetts, SALT Savvy (Aug. 16, 2021), https://www.saltsavvy.com/2021/08/16/the-sun-has-set-on-new-hampshire-v-massachusetts/ [https://perma.cc/A5Q9-YEAP].
Id. “[A]ccording to [its] Order, Justices Clarence Thomas and Samuel A. Alito Jr. would have granted New Hampshire’s motion.” Id.
Jennifer Karpchuk, SCOTUS Declines to Hear New Hampshire v. Massachusetts, Chamberlain Hrdlicka SALT Blawg (June 29, 2021), https://www.chamberlainlaw.com/salt-blawg/scotus-declines-to-hear-new-hampshire-v-mass [https://perma.cc/Z6KS-AM8E].
See N.J. Off. Revenue & Econ. Analysis, Estimating the Impact on New Jersey’s Gross Income Tax of Other States’ Taxes on New Jersey Residents Working from Home (Dec. 11, 2020), https://www.state.nj.us/treasury/economics/documents/pdf/reports/workingfromhome.pdf [https://perma.cc/LPY8-6WHU] (estimating that in 2019 around $100 million to $400 million of credits paid to residents was for work performed at home for nonresident employers).
See Karpchuk, supra note 113.
Shaikh et al., supra note 109.
Zelinsky Brief, supra note 108, at 18–19.
28 U.S.C. § 1341. While the Tax Injunction Act does not apply when a state’s courts do not provide a plain, speedy, and efficient remedy, a taxpayer is unlikely to succeed in arguing for this exception. Clark R. Calhoun & Timothy L. Fallaw, Avoiding the TIA: Not Impossible, but Close, Tax Analysts Audit + Beyond, Nov. 8, 2010, at 425, https://www.alston.com/-/media/files/insights/publications/2010/11/avoiding-the-tia-not-impossible-but-close-istate-t/files/calhoun--stn-avoiding-tia/fileattachment/calhoun--stn-avoiding-tia.pdf [https://perma.cc/JA53-FHWA].
Zelinsky Brief, supra note 108, at 18.
Id. at 18–19.
Id. at 18.
Id. at 19–20.
Karpchuk, supra note 113.
Id. (“The Court of Appeals in New York has repeatedly rejected appeals brought by Connecticut and New Jersey residents working remotely for New York employers, and SCOTUS has denied cert on each one.”).
Walczak, supra note 40.
S. 1887, 117th Cong. (2021).
Walczak, supra note 40.
Edward Buchholz, Key Tax Provisions of the Proposed HEALS Act, Thompson Coburn LLP (Aug. 3, 2020), https://www.thompsoncoburn.com/insights/publications/item/2020-08-03/key-tax-provisions-of-the-proposed-heals-act [https://perma.cc/5MPF-C92V].
Walczak, supra note 40.
See supra Section II.A.
Walczak, supra note 40.
Louisiana Law Gives Income Tax Relief to Short-Term Business Travelers and Tax Incentives to Teleworkers Moving to the State, Ernst & Young (July 13, 2021) [hereinafter Louisiana Law], https://taxnews.ey.com/news/2021-1346-louisiana-law-gives-income-tax-relief-to-short-term-business-travelers-and-tax-incentives-to-teleworkers-moving-to-the-state [https://perma.cc/82YL-8FWD]; West Virginia Law Eases Income Tax Burden for Employees Working Temporarily in the State, Ernst & Young (Apr. 19, 2021), https://taxnews.ey.com/news/2021-0799-west-virginia-law-eases-income-tax-burden-for-employees-working-temporarily-in-the-state [https://perma.cc/PD5A-LWTX].
Louisiana Law, supra note 145.
See Zelinsky Brief, supra note 108, at 20–21; New Jersey Brief, supra note 91, at 16 (“[P]olitical resolution is practically impossible.”).