Dem lawmakers introduce bill to prevent states from taxing nonresident teleworkers

How do state taxes impact remote workers?

Gene Marks on filing taxes remotely in a different state.

Lawmakers are taking their battle over a Massachusetts tax law into their own hands after the Supreme Court said this week it would not weigh in.

Reps. Chris Pappas, D-N.H., Jim Himes, D-Conn., Annie Kuster, D-N.H., and Jahana Hayes, D-Conn., introduced the Multi-State Worker Tax Fairness Act this week, which aims to prevent the "over taxation" of individuals who telework in one state for a company located in another.

The bill creates a uniform standard based on physical presence and thereby prohibits a state from levying income taxes on a nonresident worker’s earnings when the worker is not physically present in that state.

Pappas noted that a patchwork of state tax laws discourages teleworking, which has been on the rise throughout recent years and surged during the pandemic.

SUPREME COURT DECLINES TO HEAR NEW HAMPSHIRE’S LAWSUIT AGAINST MASSACHUSETTS' REMOTE WORK 'TAX GRAB'

At the heart of the issue is an intra-pandemic measure imposed by Massachusetts that essentially maintains the income tax status quo – meaning if a New Hampshire resident would otherwise be in a Massachusetts office if not for the virus outbreak, that individual would have taxes withheld as though he or she were earning income in the state even if they did not step foot there.

"The ability of Massachusetts or any other state to tax you should stop at the state line, and that’s what this legislation will ensure," Pappas said in a statement. "For the nearly one in five Granite Staters employed by companies out of state, every dollar they can keep in their pockets makes a difference, especially as we recover from the pandemic."

As previously reported by FOX Business, the Supreme Court said on Monday it would not hear the lawsuit brought by New Hampshire.

It was not clear why the justices denied the case, but Justices Clarence Thomas and Samuel Alito would have granted the motions, according to the filing.

The case could have had widespread implications for other states that have similar, permanent, tax policies like New York.

"If you wake up every morning in Connecticut, and walk downstairs to your home office in Connecticut, it only makes sense that you should be paying taxes to Connecticut, not to New York or whatever state your company’s headquarters happens to be in," Himes said in a statement.

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Unlike Massachusetts, New Hampshire does not levy an income tax on wages, which officials say helps boost its economy by attracting businesses and residents, creating jobs and generating higher per capita income.

Those economic benefits, the lawsuit argued, were jeopardized by Massachusetts' decision to impose an income tax "within New Hampshire."

Massachusetts, which taxes earned income at 5.05%, issued the guidance in April, but the policy was retroactive to March. The policy was scheduled to expire 90 days after Massachusetts lifted its state of emergency, which occurred on June 15.

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