AGGLOMERATION AND STATE PERSONAL INCOME TAXES: TIME TO APPORTION (WITH CRITICAL COMMENTARY ON NEW HAMPSHIRE'S COMPLAINT AGAINST MASSACHUSETTS).

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Author: Darien Shanske
Date: Apr. 2021
From: Fordham Urban Law Journal(Vol. 48, Issue 4)
Publisher: Fordham Urban Law Journal
Document Type: Article
Length: 7,176 words
Lexile Measure: 1580L

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Introduction 949 I. Background 950 A. The Lawsuit: New Hampshire v. Massachusetts 950 B. Agglomeration Economics 951 C. Doctrine 954 II. Mistaken Contentions of New Hampshire and Its Amici 958 III. Constitutional Does Not Mean Optimal: Other Options 961 Conclusion: The Court Should Not Dictate a Rule 964

INTRODUCTION

Sometimes easy cases make bad law--or at least might make bad law. The Supreme Court is currently considering granting certiorari in New Hampshire v. Massachusetts. (1) At issue is the State of New Hampshire's (and its amici's) claim that Massachusetts's insistence on applying its income tax to residents of New Hampshire, who once commuted to work for businesses in Massachusetts but now remotely work for those businesses in New Hampshire because of the COVID-19 pandemic, violates the Due Process Clause and dormant Commerce Clause. (2) The claim is simple and seductive: if these New Hampshire residents barely leave their own homes, much less their state, how can it accord with due process for Massachusetts to tax them?

This simple analysis, however, should be rejected because it would be applying an old economy heuristic (you earn where you physically are) to a new economy problem (work can happen in many places). If the Supreme Court agrees to hear this case (and I think it should not), and if it were to hold in favor of New Hampshire (and I argue in this Essay that it should not), it would deal a severe and almost comically mistimed blow to the modern urban economy by undermining the ability of central urban areas to impose income taxes on an increasingly mobile workforce. (3)

This Essay proceeds in three parts. Part I provides background about the current lawsuit as well as the policy and doctrinal issues it raises. Part II argues why Massachusetts's arguments against the taxation of remote workers are incorrect as a matter of constitutional law. Part III acknowledges that current state law regarding the sourcing of employee income is not ideal from a policy perspective and suggests an old solution to this relatively new problem: apportionment by formula. In this context, apportionment means achieving a reasonable division as to a matter in which there is no clear right answer. In the case of a remote employee living in one state but working remotely in an agglomeration of talent made possible by another state, this Part argues that the right answer is that both states have some reasonable claim to a portion of that worker's income.

I. BACKGROUND

A. The Lawsuit: New Hampshire v. Massachusetts

As of the time of writing this Essay, New Hampshire has asked the Supreme Court to exercise original jurisdiction over its claim that Massachusetts regulators' choice to treat no-longer commuting New Hampshire residents as Massachusetts employees violates the Due Process Clause and dormant Commerce Clause. (4) The Supreme Court has called for the U.S. Solicitor General's view on the matter. (5)

On a procedural level, the case faces many challenges, including whether New Hampshire has standing and whether this...

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Gale Document Number: GALE|A663050695