John Biello, Connecticut Department of Revenue Services acting commissioner, said he and officials from other states were discussing weighing in on the suit dividing the New England region. Biello's comments came in response to a question posed by Law360 at a teleconference hosted by the Connecticut Society of Certified Public Accountants.
The lawsuit, filed by New Hampshire, takes aim at a regulation the Massachusetts Department of Revenue finalized in October, declaring that nonresident income received for services performed outside the state would be subject to Massachusetts income tax. New Hampshire asked the nation's highest court to permanently enjoin Massachusetts from enforcing the rule and to require the state to issue refunds, plus interest, of any tax it collected from nonresidents.
"I've had conversations with my counterparts in other states," Biello said. "What I can say is that it's under discussion and under consideration."
Biello said he could not yet commit to what option Connecticut would pursue regarding the case, calling the taxation of telework "the hottest issue right now in state tax administration."
The rule ended Massachusetts' COVID-19 pandemic-related nexus and income-sourcing relief by resuming sourcing income to Massachusetts even if the employee relocated because of the pandemic and clarified the options for source income apportionment for nonresident workers who telecommuted.
Dana Ackerman, the taxpayer advocate for the Massachusetts Department of Revenue, said at the conference that the initial relief provided by the state was an attempt to maintain a pre-pandemic status quo and that under the new rule, relief would likely stop at the end of the year.
"Employers have to reevaluate: Have their employees established a new place of work and what does that mean for withholding and what does that mean for nexus?" Ackerman said.
She added that while it was understandable why New Hampshire would not like the rule, the department would continue to enforce its policy.
Other panelists expressed concerns about the changing role of nexus rules for employees into and after the pandemic. Michael Canole, assistant tax administrator for the Rhode Island Division of Taxation, said the nexus rules implemented during the pandemic may change if more workers who used to travel for work shift to working from home.
"I think this is going to be the new paradigm for people," Canole said. "I think there will be some powerful impacts on how folks are going to be paying their taxes."
The dispute between New Hampshire and Massachusetts has prompted discussions of a federal resolution — through litigation or legislation — to promote uniformity between states regarding their treatment of remote workers.
A spokesperson for the Rhode Island Department of Revenue said in a statement to Law360 that it had no comment on litigation and noted department guidance that advises employers to continue withholding state income tax for employees temporarily working out of state due to the pandemic.
Naysa Woomer, a spokesperson for the Massachusetts Department of Revenue, said in an email to Law360 that the department would not comment on pending lawsuits and reiterated previous statements that the rule was similar to income tax guidance other New England states have issued in response to the pandemic.
"The Vermont Department of Taxes is monitoring this litigation," Craig Bolio, commissioner for the department, said in an email to Law360, adding that the decision to participate would be up to the state attorney general.
The Massachusetts Office of Attorney General referred comment to the department.
Spokespeople for the New Hampshire Department of Revenue and state Office of Attorney General and the tax agencies for New York and Maine did not immediately respond to requests for comment.
--Additional reporting by James Nani and Paul Williams. Editing by Neil Cohen.
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