New Jersey officials filed suit in the U.S. Supreme Court to end the practice of so-called “double taxation,” as hundreds of thousands of state residents and millions of Americans find themselves telecommuting but paying income tax to another state amid the pandemic.
The amicus brief, filed with the U.S. Supreme Court on Dec. 22, seeks to stop the ability for states to tax workers who may have previously commuted to offices within their own borders, but now spend the majority of the week telecommuting amid the COVID-19 pandemic.
Amid stay-at-home and telecommuting orders in place since the start of the pandemic in March, over 400,000 New Jerseyans who’ve commuted to New York have instead worked from home, but still paid income tax to New York.
“In the course of this once-in-a-century pandemic, hundreds of thousands of New Jersey residents who typically commute to New York and pay New York taxes have been working from home for the last nine months,” Gov. Phil Murphy said in a Tuesday statement, estimating that the state could reap upwards of $1.2 billion by capturing those tax dollars.
The 25-page ruling suggests that this budgetary practice has a “staggering” impact on the finances of states such as New Jersey.
“The taxes here do not reasonably reflect in-state activity,” the brief reads. “Just the opposite: they tax employee labor done at home—i.e., activity performed entirely in the Home State.”
New Jerseyans crossing states lines into New York to pay taxes are on the hook for their income tax in that state. In New Jersey, they pay tax credits for the taxes they pay to New York.
Those credits amounted to $3.4 billion in 2016, according to the State Treasury.
Representatives from New York Gov. Andrew Cuomo’s office and the Office of New York Attorney General Letitia James did not immediately return requests for comment.
Tuesday’s brief by New Jersey Attorney General Gurbir Grewal was filed in support of New Hampshire in a similar legal battle with neighboring Massachusetts, filed with the U.S. Supreme Court in October.
In that instance, while New Hampshire has no income tax, residents commuting into Massachusetts still pay taxes to that state, even with most of them working at home because of the pandemic.
Grewal described the practice of “taxing our residents when they work from home in our state” as “unfair and unconstitutional.”
“This case has a major impact for our state’s bottom line, especially during a pandemic, when unprecedented numbers of employees have been working from home.”
New Jersey lawmakers meanwhile are also curious about how much tax dollars the state is missing out on, because their taxes are going to New York.
A proposal which the state Senate approved in October would require the New Jersey Treasury Department to report the amount of credits paid each year between 2011 and 2020 to its residents who commuted to New York.
The treasury would have to look at how those dollars can be recaptured for New Jersey, and what steps are being taken.
“The transition of New Jersey workers to telecommuting is something we’ve been watching for a long time,” one of the bill’s sponsors, Sen. Paul Sarlo, D-36th District, said in an October statement.
“It’s clear that the state of New Jersey can no longer afford to ignore the substantial tax implications of this shift, which has been supercharged as a result of COVID-19