How Granting Cert in New Hampshire v. Massachusetts Could Impact Pennsylvania and Philadelphia

The U.S. Supreme Court is considering granting cert on a case that could impact Pennsylvania’s ability to collect income taxes from non-residents and the city of Philadelphia’s ability to continue to apply its “requirement of employment” rule for the city’s wage tax. The Court has asked the acting solicitor general to weigh in on New Hampshire v. Massachusetts, a case in which New Hampshire is challenging Massachusetts’ practice of taxing nonresidents who previously worked in-state but now work remotely from home in New Hampshire.

The main issue is whether Massachusetts’ rule violates the Dormant Commerce and Due Process Clauses of the U.S. Constitution. New Hampshire argues that a state has no authority to “tax value earned outside its borders” and that income earned by a nonresident cannot constitutionally be taxed by any state other than the state of their residence.

How does this impact Pennsylvania? Five states, including Pennsylvania, tax non-residents on income earned while working out-of-state. Pennsylvania taxes those nonresidents, unless the non-resident’s employer obligates the individual to work out-of-state. Furthermore, in light of Covid, the Pennsylvania Department of Revenue, consistent with Massachusetts’s approach, stated that non-residents working remotely would continue to have Pennsylvania source income for tax purposes. Thus, if the Supreme Court were to grant cert in New Hampshire v. Massachusetts, the decision could have a direct impact on Pennsylvania’s ability to tax non-residents working remotely.

However, the immediate affect would not be staggering because Pennsylvania maintains reciprocity agreements with a number of its neighboring states. In fact, it’s possible that a decision in favor of New Hampshire could actually benefit Pennsylvania. Because there is no reciprocity between Delaware and Pennsylvania, a Pennsylvania resident working for a Delaware employer will pay both Pennsylvania and Delaware state tax. Pennsylvania, the state of residence, grants a credit against the Pennsylvania tax for the tax paid to Delaware on those wages. Since Delaware’s tax rate is higher, Pennsylvania does not receive any income tax from those individuals. This means Pennsylvania could receive positive tax revenue from that resident if Delaware cannot tax their wages while working remotely from Pennsylvania. However, as remote working becomes more normalized, individuals may start moving to more distant states with which Pennsylvania does not have reciprocity agreements. Such a change in working habits coupled with an adverse decision in New Hampshire v. Massachusetts could impact Pennsylvania’s ability to collect tax in those situations.

But, the potential impact of the case stretches further within Pennsylvania since the outcome of the case may also affect the city of Philadelphia, which utilizes a “requirement of employment” test to determine whether a non-resident is subject to the city’s wage tax. If a non-resident employee is required to work from home by their employer, that individual is not subject to the city’s wage tax. However, if that same employee merely chooses to work from home, they are subject to the tax. Similar to Pennsylvania, a decision in favor of New Hampshire may negatively impact the city’s policy of taxing non-residents working remotely for their convenience. If the court determines that a state or locality cannot tax work performed outside of its jurisdiction, Philadelphia stands to lose significant tax revenues.

In today’s age, these “requirement of employment” positions have become a relic—blind to the shifting remote atmosphere and its resultant constitutional quandaries. If the issue is not resolved in New Hampshire v. Massachusetts, it is only a matter of time before it resurfaces.

The full version of the article may be found here.

Jennifer Karpchuk is the co-chair of the State and Local Tax (SALT) Controversy and Planning practice at Chamberlain Hrdlicka. She may be reached at

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