Massachusetts extended relief for employees who relocated because of the pandemic to 90 days after the end of the state's state of emergency. (Nensuria)
"With pandemic-related teleworking arrangements expected to carry into 2021, the Department of Revenue has extended its temporary income-sourcing regulations until 90 days after the end of the state of emergency in order to minimize disruptions for employers and employees during the COVID-19 public health emergency," said Naysa Woomer, a Massachusetts Department of Revenue spokeswoman.
The regulation will end Massachusetts' COVID-19 income-sourcing relief by resuming sourcing income to Massachusetts even if the employee relocated because of the pandemic. The relief had applied to sourcing of wage income from March 10, 2020, through Dec. 31, 2020, or 90 days after the Massachusetts governor ends the COVID-19 state of emergency. Tuesday's changes strike the Dec. 31 date.
The new emergency and proposed COVID-19 regulations released on Tuesday were otherwise mostly identical to final regulations promulgated on Oct. 16. A public hearing has been scheduled on the regulations for 10 a.m. on Jan. 20, 2021.
Richard L. Jones, a partner with Sullivan & Worcester LLP, called the change a pretty big surprise, noting that at a conference last month DOR officials seemed to state firmly that the rules would go away on Dec. 31, even though it was already clear then that the COVD-19 emergency itself would continue well past that.
"There was no indication then that DOR was considering extending these tax rules past 12/31," Jones said.
Along with the regulations, the Department of Revenue also put out a Technical Information Release to clarify that nonresidents who worked in Massachusetts but are now working remotely due to a government order, medical guidance or a work policy related to COVID-19 will continue to pay Massachusetts state income taxes. The TIR also says Massachusetts residents who are currently working remotely in Massachusetts for a business in another state due to a government order, medical guidance or a work policy related to COVID-19 will continue to be eligible for a credit for taxes paid to that other state.
The TIR also says that while the regulations remain in effect, having employees working remotely in Massachusetts solely due to certain pandemic-related circumstances won't subject a business to a sales and use tax collection obligation, corporate excise or corporate apportionment adjustments based on that fact.
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, claiming it 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. The suit came after threats of litigation by New Hampshire Gov. Chris Sununu.
Massachusetts has yet to file a response to New Hampshire's complaint, but the Massachusetts Department of Revenue has defended the regulation by saying it's temporary and akin to those that other states have adopted to keep the status quo in place for wage sourcing during the pandemic. Some experts have urged the justices to take the case, while others have questioned whether New Hampshire has standing on the issue.
Jones called the department's change puzzling, noting the department has defended the rules as "status quo," temporary and needed because companies couldn't be expected to track employee's remote work locations, especially at the onset of the COVID-19 emergency, which caused a massive surge of newly remote workers. But he said the department also seemed to recognize that even after COVID-19 is over, many employees will continue to work remotely. Jones suspected the DOR wanted more time to work on guidance before pulling the plug on the COVID-19 status quo rules.
"Therefore, once the temporary COVID-19 rules expire, businesses, employees and DOR alike will have to prepare for and reckon with the state tax fallout from the new remote work economy," Jones said.
--Additional reporting by Abraham Gross, Paul Williams and Maria Koklanaris. Editing by Joyce Laskowski.
For a reprint of this article, please contact reprints@law360.com.