The University of Chicago Business Law Review

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Should telecommuters who work across states be taxed by the state that they are physically working in? By the state their office is located in? By both? This issue was raised in New Hampshire v. Massachusetts. There, New Hampshire challenged the taxing authority of a Massachusetts rule that taxed New Hampshire residents who had worked within a Massachusetts office prior to COVID-19 related restrictions but were telecommuting from New Hampshire. New Hampshire argued that the Massachusetts rule violated both the Due Process Clause and Commerce Clause. Since the Supreme Court had denied certiorari for this case, the constitutionality of the Massachusetts rule is in question and states continue to have their own tax treatment for interstate telecommuters.

After the 2018 case of South Dakota v. Wayfair, physical presence is no longer necessary for a state to subject an out-of-state business to state sales taxation. Yet there is no consensus regarding the extent of Wayfair’s holding to other taxes or how much physical presence should be relied upon as a basis for taxation. Without a principle to ground taxation, multiple states may exercise taxing authority over the same income, exposing taxpayers to burdensome double taxation. The issue of interstate telecommuting introduces a more fundamental issue for state taxation: should tax authority be based on physical presence or some form of economic presence?

This Comment will argue that the Massachusetts tax rule should be upheld under an economic presence analysis. The Comment will then argue that because of the taxing jurisdiction granted to the state where the telecommuter has an economic presence, the state of the telecommuters’ physical presence should generally not have taxing jurisdiction. Finally, this Comment will argue that an economic presence regime should be adopted to replace the outdated physical presence regime, ensuring that state tax regimes are grounded on principle rather than a desire for revenue.

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