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Massachusetts v. New Hampshire Interstate Income Tax Suit

Massachusetts v. New Hampshire Interstate Income Tax Suit

by Paul Engel



  • Massachusetts adopted a regulation to collect income taxes from non-residents?
  • Does one state have the power to collect taxes from non-residents?
  • If one state cannot collect income taxes from non-residents, how can they force them to collect sales tax for them?
  • What should we tell those in our state governments to do in response to this suit?


New Hampshire actually sued Massachusetts back in October, 2020, but with all that has been going on, it didn’t float to the top of my list. Now, at this point, I thought it would be a good time to take a break from our regular government insanity and look at something a little closer to home. This is not just for those in New Hampshire though, because this case has implications for every small business owner in America.

When New Hampshire originally sued Massachusetts, it seemed it was only about collecting income tax from non-residents. After I looked at the complaint though, I think we should make the exact same argument about interstate sales taxes as well.

As with most cases, there is a lot of rhetoric and legal flourishes in this complaint. For our purposes, I will focus on the crux of the issue. Many people who work in Boston and the surrounding areas live in New Hampshire. Since these people physically worked in the Commonwealth of Massachusetts, the Commonwealth taxed the income they made within the state. When the Commonwealth locked down, they prevented these New Hampshire residents from traveling to their jobs in Massachusetts. Not surprisingly, those who could work from home, did, so I do not know what the economic impact was of these New Hampshire residents no longer working in Massachusetts. Apparently, it was significant enough for Massachusetts to attempt to do something to recoup their “losses”.

On April 21, 2020, Massachusetts adopted a temporary emergency regulation declaring (for the first time) that nonresident income received for services performed outside Massachusetts would be subject to the States income tax. This emergency regulation applied retroactively to March 10, 2020. Massachusetts extended this regulation on a temporary basis in July and, most recently, adopted it as a final rule, effective October 16, 2020 (the Tax Rule”).

New Hampshire v. Massachusetts Complaint

This bothered those in Concord, New Hampshire. Why? Because one of the reasons so many people who work in Massachusetts live in New Hampshire is because of their tax policy.

For decades, New Hampshire has made the deliberate policy choice to reject a broad-based personal earned income tax or a general sales tax. Not only does New Hampshire sit as an island among the New England States, but this choice differentiates New Hampshire from nearly every other State in the union.

New Hampshire v. Massachusetts Complaint

New Hampshire saw this not only as an illegal taxation of their citizens, but a violation of their sovereignty.

Through its unprecedented action, Massachusetts has unilaterally imposed an income tax within New Hampshire that New Hampshire, in its sovereign discretion, has deliberately chosen not to impose.

The Tax Rule is a direct attack on this New Hampshire Advantage. It disrespects New Hampshires sovereignty, it undermines an incentive for businesses to locate capital and jobs in New Hampshire, is a motivation for families to relocate to New Hampshires communities, and the States ability to pay for public services by reducing economic growth. It weakens efforts to recruit individuals to work for the state government. It endangers public health in New Hampshire by penalizing workers for following public health guidance and working from home rather than from their offices. And it undermines New Hampshires sovereign duty to protect the economic and commercial interests of its citizens.

New Hampshire v. Massachusetts Complaint

The Power to Tax

In the complaint, New Hampshire quoted several federal cases to prove their point. From N. Carolina Dept of Revenue v. The Kimberley Rice Kaestner Family Trust:

The power to tax may be essential to the very existence of government, but the legitimacy of that power requires drawing a line between taxation and mere unjustified confiscation.”

New Hampshire v. Massachusetts Complaint

Yes, states have an almost unlimited power to tax. They can tax your income, your property, and your sales. The question is, can they tax residents of other states?

This Court has long recognized that States have limited power to tax nonresidents. Both the Commerce Clause and the Due Process Clause prohibit the States from tax[ing] value earned outside [their] borders.” Allied-Signal, Inc. v. Director, Div. of Taxation

New Hampshire v. Massachusetts Complaint

In the Allied-Signal case New Hampshire referenced, the court opined that one state taxing value earned in another state was a violation of both the Commerce and Due Process Clauses.

To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;

U.S. Constituiton, Article I, Section 8, Clause 3

The states have delegated the power to regulate commerce between them to Congress. Therefore, no state has the authority to interfere with commerce that remains inside another state or between two or more states. What about the Due Process Clause(s)?

No person shall … be deprived of life, liberty, or property, without due process of law;

U.S Constitution, Amendment V

nor shall any State deprive any person of life, liberty, or property, without due process of law;

U.S. Constitution, Amendment XIV

Since Massachusetts is claiming the authority to deprive residents of New Hampshire of their property, namely their income, without showing cause or violation in a court of law, it seems it’s violating this right as well.

Interstate Sales Tax

It appears New Hampshire has a pretty good case against Massachusetts. There is no authority for one state to tax the value generated outside their state. Since the only entity that is authorized by the Constituiton to collect taxes on income from whatever source derived is Congress (Amendment XVI), the case seems pretty cut and dried. But what does that have to do with Interstate Sales Tax? Enter the Supreme Court case South Dakota v. Wayfair, Inc.

In the Wayfair case, the Supreme Court found that the rule it had established was unsound. The court had found that there had to be a physical presence within a State before the State could exercise their power. And until the South Dakota v. Wayfair case, that also meant that a state could not impose the requirement of collecting sales tax on an entity unless it had a physical presence within the state (referred to as “Nexus” in tax law). Then came the explosion of online shopping.

The Supreme Court erroneously found that not collecting sales tax from out of state vendors would “discriminate against interstate commerce” and “impose undue burdens on interstate commerce”. Personally, I found this laughable, since the reason the State of South Dakota filed the case against Wayfair was because of the explosion of interstate commerce and its impact on their sales tax revenue.

So what does that have to do with the New Hampshire v. Massachusetts case? In the New Hampshire v. Massachusetts case the physical presence rules would mean a person would need to have a physical presence in Massachusetts before the Commonwealth could exercise its power to tax them. As I argued when I reviewed the South Dakota v. Wayfair case, and repeat here, it’s a violation of state sovereignty for one state to exercise sovereign power over an entity outside of their jurisdiction. Which brings us to an interesting question: Will the court recognize the sovereign border of the state of New Hampshire or will it overrule the Constitution and allow Massachusetts to exercise its sovereign power over citizens of another state? History has shown that there’s no way to tell. The mercurial nature of the court leaves me some hope, but not very much. The case New Hampshire makes in their complaint is not only strong, but simple. However, less than three years ago, this court ignored the Constitution and the sovereignty of the states, and found that one state could exercise its power over people and businesses that have no physical presence within their borders. They used the complaint South Dakota filed as a pretense to diminish the powers of the state even further.


It would be a fool’s errand for me to attempt to predict what the court will do. Unless the Commonwealth of Massachusetts can come up with a better defense for their actions than “We need the money”, the court should quickly and easily find for New Hampshire. My hope in this outcome is bolstered by the recent case Texas v. Pennsylvania where the court said one state did not have a legal interest in how another state conducts their elections:

Texas has not demonstrated a judicially cognizable interest in the manner in which another State conducts its elections.

Texas v. Pennsylvania, et. al.

Still, as we saw in the South Dakota v. Wayfair case, a state’s love of money can easily blind the interest of justices of the court. I would hope that the citizens in the other 48 states would pressure their employees in their state houses to do two things: First, if we want our states to remain free, then they should file briefs on behalf of New Hampshire. If Massachusetts can tax residents of New Hampshire, then New York can tax residents of Massachusetts, California can tax residents of Nevada, and maybe even Alaska can find an excuse to tax residents of the State of Washington. Second, if the court finds in favor of New Hampshire, then each and every state interested in freedom, liberty, and the rule of law should sue any other state that attempts to force their residents to collect sales tax for them, using this case as a precedent. If Massachusetts cannot exercise its state power to collect income tax on citizens of other states, then neither should any state be allowed to exercise any of their powers on residents and businesses of other states. This would be a small, but important step to returning not only state sovereignty and federalism to the republic, but in protecting the rights of the citizens of the several states to live free.