In a directive issued Friday, the Massachusetts Department of Revenue said that nonresident employees who used to apportion their income to the state must continue to do so. Employees who telecommuted from outside Massachusetts prior to the coronavirus state of emergency are eligible for Massachusetts credits for other state taxes paid, the department said.
Nonresidents must determine the amount of wages to apportion to Massachusetts based on the percentage of days spent working in Massachusetts between Jan. 1 and Feb. 29, 2020, or the percentage of wages from the same employer that constituted Massachusetts income on their 2019 income tax returns, according to the department.
The department also said days spent in Massachusetts in 2020 due to pandemic circumstances by individuals who have a permanent abode in the state count toward the 183-day threshold for establishing residency in the state.
The directive is largely the same as the proposed draft issued in February and outlines the pandemic-related nexus and income-sourcing rules finalized by the department in March.
The rule is effective until 90 days after the governor gives notice that the emergency is over. It also explains parallel treatment the state will give resident employees with income tax liabilities in other states that have adopted similar sourcing rules, according to the rule.
Michael Fatale, deputy general counsel for the Massachusetts Department of Revenue, said at a tax conference in March that the rule keeps things as they were pre-pandemic both for Massachusetts residents and for nonresidents
The department's rules have attracted significant attention and controversy. In October, New Hampshire asked the U.S. Supreme Court to strike down the rule in an application for original jurisdiction. New Hampshire claimed the rule violates the U.S. Constitution's due process clause and commerce clause by imposing income tax on workers who stopped commuting to the state during the spread of COVID-19, the respiratory illness caused by the coronavirus.
Massachusetts responded on Dec. 11 that New Hampshire is wrong on all counts, essentially arguing the reverse of what New Hampshire argued.
In January, the Supreme Court invited the solicitor general to consider whether it should hear the case as a matter of original jurisdiction. The solicitor general has not yet responded.
The justices have already heard the views of several states besides New Hampshire and Massachusetts. Two amicus briefs, signed by state attorneys general of both parties, have pleaded with the court that it must decide whether states can tax other states' residents in this manner.
If the high court takes the case and rules against Massachusetts, it could have a broader effect on states with similar income sourcing rules, especially New York.
In its directive, the department noted that it anticipates issuing further guidance on how telecommuting workers should prepare their 2021 personal income tax returns.
Naysa Woomer, a spokesperson for the department, said in an email to Law360 that the special rules do not apply to a nonresident who started a new job on or after March 10, 2020, the day the COVID-19 state of emergency was declared in Massachusetts. Instead, those wages earned while telecommuting from outside Massachusetts may be apportioned based on actual days in and out of Massachusetts, Woomer said.
The offices of the Massachusetts and New Hampshire attorneys general did not immediately respond to requests for comment on Monday.
--Additional reporting by James Nani, Paul Williams and Maria Koklanaris. Editing by Neil Cohen.
For a reprint of this article, please contact reprints@law360.com.