State Versus State on Taxes for Working From Home

Joining me is Michael Gratz, professor at Columbia Law School. It's the due process clause at the commerce clause. What's the legal issue here? Well, there were really two legal issues. I mean, one is it really has to do with

whether the Court will take the case. That is, the Article three of the Constitution creates an automatic hearing in the Supreme Court to resolve a controversy between two or more states, and if this is in fact that then the Court would have to take the case, although I don't believe that it falls within Article three of the Constitution, So I think the Court has discretions to whether we'll

hear this case. If it does. Here the case, the issue is really a commerce cause issue and a burden on interstate travel or interstate commerce, and usually they come up as commerce clause cases. You can find other places in the Constitution that are this case from, and nobody's yet really briefed it, so you know, it may be a privilege and immunities case under the fourteenth Amendment, but I think it's it's really a converse clause case. That's likely the way the Court will hear it. Let's talk

first about the original jurisdiction of the Supreme Court. So just explain what it means that the Supreme Court has original jurisdiction cases between states. Well, the classic example, going back a long way, would be if one state it says that along the border, this piece of land or this much of a river is within that state's boundaries, and another state says, oh no, it's our land or river.

Then that would be a classic case where the Supreme Court would have to resolve with its fute between the states.

But here what we're really talking about is a problem of taxation, which is claimed by individuals that one state is over taxing or even though the states themselves after the case is claiming that it's going to lose a lot of revenue as a result of this because it gives a credit for the Massachusetts taxes, or in the case of the tri state area, we would be talking about New Jersey and Connecticut complaining that they're giving credits

for New York taxes and New York is overreaching. But whether that's really within the original jurisdiction under Article three, I think there's some doubt about that. And so under Article three, if it were a dispute between the states, and obviously New Hamphire's claiming it's dispute between the states, the court would have to hear the case, but the

court gets to decide it's interpretation of Article three. And if the court doesn't want to take the case, I think it has a basis for saying that this is not an Article three case, but instead it's a dispute between taxpayers and two states and who should be collecting their taxes, and that's the case that the taxpayers need to bring in it, and it's a case that the court may or may not want to hear, or the court may decide that because of the revenue units at state,

New Hampshire has a right to be heard on the case and maybe a party, although I think that may be a stretch, But it's not an original jurisdiction case under under Article three. So the first question is will this case get to the court, Will the Court take this case? And that I think is a matter of for for some doubt, the Court refused the case where Texas was suing Pennsylvania over the elections. How difficult is it to get the court to get involved in states disputes

right away in an original jurisdiction setting. Well, the Court doesn't like to be told that it must take a case, and so it often asks whether this is really a case of original jurisdiction, and it wants to limit those

kinds of cases. The lawsuit that was filed by the Texas Attorney General about voting in Pennsylvania really presents, I think the clearest example of the kind of case that was the Preme Court certainly doesn't want to take and absolutely doesn't want to say they have to take under

Article three. So I mean that's a good example of a case where the Supreme Court really didn't want to hear it, and just because it was by Texas against Pennsylvania, doesn't mean that it's a genuine conflict between the states. Was just claiming the Pennsylvania got its voting system wrong, And here New Hampshire is just claiming that Massachusetts is its tax system wrong, it is being unconstitutional and its

exercise of its tax empower. So I think this is a case that the court can duck if it wants to. It could also say it's not original jurisdiction case, but we're going to hear it. We're going to grant the sarciary and take the case in this case because New Hampshire, the court would say, is a proper party to such a suit, and it makes sense to go ahead and

hear it sooner or rather than later. A taxpayer to bring the case to the court, which is the normal in which these state tax cases get to the court. But this is not a court I think that's going to be anxious to get to a decision earlier rather than later, or create a precedent where a state can be a party in the lawsuit that really involves a dispute between an individual and the two states that are imposing taxes on him her. So let's go back to

you said a commerce clause argument. What is New Hampshire's basic argument. Why is it suing Massachusetts. Well, it's basically suing on the ground that Massachusetts is imposing tax on New Hampshire residents who are not working in Massachusetts. They're doing their their work in New Hampshire. Now they may be doing it for an employer who's in Massachusetts, in which case New Hampshire is likely to lose that case

based on prior president But but that's the claim. The claim is that New Hampshire's residents are being discriminated against because Massachusetts is overreaching its tax claim. Well that's what sort of hit me is because it seems from reading this, these are employees who were working in Massachusetts and then because of COVID, you know, they started working from their homes in New Hampshire. So if they're working for a Massachusetts company, you think that Massachusetts has a better case.

I think Massachusetts has a pretty strong case. I mean, those those of us who live in the Tri state area know that New York certainly has for a long time taxed residents from New Jersey or Connecticut on the income they earned on New York employers, and New York certainly will come into this case on the side of Massachusetts, if if, if the court takes the case. Now, Massachusetts

made this argument basically, this is an emergency measure. Let's just do this until we see what shakes out with COVID. Is that a good argument, Well, it depends on whose side you're on. Massachusetts is obviously concerned that at a time when the economy is struggling, people are able now to work for Massachusetts employers outside of Massachusetts of New Hampshire, a lot of people live across the border in their hand ture to avoid income taxes on on their other

income and other taxes, and they're hipers. Notoriously a light taxation state, and Massachusetts back in the old days, used to be called tax a Chusets. They have a reputation of the higher and they are a higher tax state. So Massachusetts is concerned that all these people are now going to claim that they're not working in Massachusts are

coming to Massachusetts and therefore Massachusts can't tax them. And you know, the usual rule is that the states have is that you're treated as being taxable as a statutory resident of the state that you're there more than a

hundred eighty three days more than half a year. And here people who may have been routinely there in Massachusetts more than half the year are finding themselves spending little or no time in Massachusetts because they've left and are not coming back until the COVID emergency is behind us. It's just some ways in the future. And massachusettsbviously concerned that they may lose a lot of revenue the two or three years that that's going to take to get

people back to work. And of course the other problem is that that given the fact that people like working at home, at least the ones who don't have young children are not in school, you know, may mean that more and more companies find it profitable to have people work from home rather than leasing or owning office rights in Massachusetts. So this pandemic is a long term threat to longstanding work relationships. Can a chord take into account?

I mean, let's say, for example, New Jersey estimates it will credit as much as one point two billion dollars to its residents for income taxes paid to New York in the twelve months starting in March. Can the court take into account in any way the billions of dollars that some of these states will be losing or is that peripheral. Well, I don't know. I mean, I haven't looked at the numbers, and so I don't know whether New Jersey is telling if that's the total credit. I

wonder what they've been crediting before the pandemic. There are a lot of New Jersey residents who are working in New York, as we all know well, and New Jersey has been crediting New York taxes on salaries that people are in New York for a very long time. So I don't know whether this is an additional at one point two billion, or whether it's what they've been where it includes what they've been doing all along. But but

I'm sure the numbers are large. Um, But I think that you know, at least in the Tri state area and the Massachusetts New Hampshire border, the area surrounding the District of Columbia, it's quite common for people to work in one jurisdiction and live and another jurisdiction. And so

that's not a new problem. And there are some Supreme Court jurisprudence on that, and the basic rule is that you can't treat the out of state or worse than you treat the in state or the doctor is that the state can't be internally inconsistent between in state and out in state. President, But I would say that New York would say, what, we're taxing our in state residents on your salaries, so we're not discriminating against out of states.

So ignoring the jurisdiction question and just looking at the substantive issue, which state has the better argument, I'd rather answer the question which state is more likely to win um if the court takes the case, and I think Massachusetts is more likely to win just based on the precedence of the Supreme Court in allowing states a lot of flexibility about taxing income that the state regards as having been earned in their state because the employers in

that state. So I think it's a long shot for the residents of New Hampshire to win this case. But it's even it's difficult to think that a resident of Hampshire is going to have to wherewithal to take a case like this to the federal courts and bring it up through the district core. It's a colored court can get to the Supreme Court, even if they thought the Supreme Court would take it. It's a very expensive litigation proposition, so this may be the only way it's going to

get to the Supreme Court. And if the Supreme Court doesn't decide this, you know, then everybody's going to be in a bit of a mess. Congress is not going to do it. Congress can obviously step in and do this not to the commerce causing power, but they're not going to enter into this. And all you have to do is think about the political fight that there would be between the states where people are residing in the states where they're working. Why did the Supreme Court do

you think ask the Solicitor General for her opinion. Well, I think what they'd like to hear from the Solicitor General is that this is not an Article three case of original jurisdiction which the Court must hear um and that would then bolster decision not to hear the case.

And the Solicitor General's office historically is thought to be thought for and take into account institutional kinds of concerns, and so I think they're looking for an opinion from this of Ocester General and brief from the Sycester General saying this is not a case of a rich mo jorisdiction. Under Article three, you get to choose it or not conceivable. But let's listener. General would also argue that case needs to be brought by the taxpayer, not by the state.

Thanks Michael, that's Michael Grat's of Columbia Law School. Leticia James is the first woman in the first black person elected to be the Attorney General of New York State. As Attorney General, James has filed or joined lawsuits against the Trump administration on issues such as immigrants rights and housing discrimination. She's also investigating the former president and his real estate business, in addition to leading a group of

states in an anti trust suit against Facebook. Joining me is Eric Larson, Bloomberg legal reporter, who recently spoke to James about her tenure as a g Leticia James and the Attorney General of California, vir Be Sarah, are the two ages who have been in the lead on lawsuits against the Trump administration. Is that because they represent the biggest blue states or is it because they're aggressive? Well,

I think it's a combination of both. Really, I mean the the as the Attorney General James says it, California and New York a kind of like the book ends of what she described as the resistance that the Blue state ages had against the Trump administration. I mean, these are two states with huge populations and obviously a lot of lawyers. In New York, for example, she has a team of seven hundred lawyers and over a thousand additional staff. Um,

so they are working on there. They have the resources to be able to put together these huge lawsuits that a lot of other states join, or they do on their own, or they do in cooperation. So it really isn't a matter of those resources. Her lawsuits against Trump as president, where do they stand? Well? Those lawsuits of mostly been resolved, and she says that she filed I think about sixty five or so lawsuits against the Trump

administration California. I remember they filed over a hundred and and Tis James says that she succeeded in about eighty five percent of those cases. So really, most of those cases that we've all been covering in the past several years are for the most part a sort of done, and the few that may still remain, it's it's likely that the Biden administration is going to take a different task on those but the big ones we already saw with like the the U. S. Census and the question

about citizenship, that sort of thing. Um, those those who are already resolved. Much attention has been given to her investigation against Trump the Trump organization. First of all, describe what that investigation is concerned with. So the New York

Attorney General is investigating the Trump organizations based in New York. UM. She opened the investigation after Trump's former lawyer, victor of Michael Cohen, gave the testimony in Congress outlining what he described as fraudulent conduct involving the valuation of assets that essentially gave financial benefits through taxes or bank loans to UH to the company. So she opened the investigation in

two thousand nineteen in response to those remarks. Something she couldn't, you know, really ignore um and that that investigation was going along very quietly but wasn't really a public investigation, the civil investigation, and it sort of blew up into the public again because she had to file lawsuits to enforce some subpoenas in that case, which she won. But at any rate, the investigation is still ongoing. It's it's

still at a fairly early stage. Is there any hint that she might let up on it because he's no longer president? Oh? Absolutely not. When I spoke with her, she said she fully intends to uh follow this investigation where where it goes. Um, you know there. Of course, she acknowledges that that President Biden and other some other Democrats have said that we want to move ahead and sort of have this unity and and let some some things go. That's not how she sees it in in

any way. Um, And I think that if there is a case when their investigation is done, I don't think she's gonna have any problem bringing in Let's talk about the latest suit that drew a lot of attention, the n r A suit. What's that about? So when Si James was running for a g she had was very critical of the n r A. At one point she even called it a terrorist organization. Uh, so it wasn't too surprising that she has really looked into the organization.

Uh the n r A of course, playing that all this attention is politically motivated, but her lawsuit really does stem from some internal dispute that blew up at the n r A came out into the public about allegations of financial shenanigans. So was their own internal uh fighting that sort of resulted in this lawsuit rather than something political on Tis James's part. That's the way she described it. So, Um, yes, they clearly are are very much opposed to they have

very different views about guns. But the way that Tish Strange describes it, this is a purely following the law case. Um, it's a New York based charity organization that is suspected of violating charity laws by enriching pop executive. So she just says she's following the law and that it was the organization's own internal fighting that brought it to her attention.

Has she gotten any blowback from Second Amendment activists about taking away their guns or anything like that when she filed this, Well, that's certainly what the n r A says, But she described the lawsuit is being filed on behalf of n r A members, people who have donated money to protect the Second Amendment, only to allege to see millions of those dollars end up going to luxury items and expenses for our top n r A executives, like vacations and yachts and things like this, trips all over

the place for families and and whatnot. So Fish James has very different views about guns and these n r A members, but she says she's filed this lawsuit to protect them and to enforce New York laws protecting charities and donations. Eric or the Google and Facebook cases antitrust lawsuits. Yeah, you know, she's leading the Facebook UM lawsuits. It's been filed where she's one of many other states who has joined uh TO to Google. So they're two separate, two

separate cases. UM. In the Facebook case that she's been leading, UM, it accuses the social media company of running a you know, monopolistic behavior by snapping up what it viewed as potential rivals like Instagram and what's that back when they were a lot smaller, you know, throwing huge amounts of money at them to get them on board, but basically just to stop them from becoming competitors. And the complaints alleges that that was in violation of federal anti trust law.

And one of the potential things that they're speaking in the case is breaking up Facebook, which would be pretty remarkable. So that's UM a big apport she's got underway for this year. When you say they're leading the case, new York is leading the case. Does that basically mean that New York does all the work on it and the other states just joined in? Well, I think that it's it's sort of different for every UM, every multi state case.

I'm not really sure exactly how they divide up the resources, but my understanding is that when when one of the states is leading it, that they are putting in most of you know, most of the the uh resources, financial and people or that sort of thing. So, UM, that's my understanding of how they break it up. What is she looking for? If Facebook came to her and said we'll do this, what would she want them to do in order to drop the suit? She would want to

see the monopolists if the alleged the monopolistic behavior corrected. UM. As far as what options might be on the table for that to happen, I think it's too early to say. But that is why we we point to one of the the potential solutions that they outlined, which is to force Facebook to divest Instagram and what's that. UM. As far as what other possible measures they could come up with down the road, UH, it's pretty unclear at this point, did she handed any lawsuits she might be filing. No,

that's definitely not her style. She does never ever do that. Being Attorney General is looked at as a stepping stone to being governor. Does she have those political ambitions? You know, that is something she does not talk about. When I first asked her about that, she just kind of laughed, you know, when I when I pressed her on the question, she said it's too early for her to make a decision like that. She acknowledged that the a G role in New York has been a setting stone for others

to become governor, but she doesn't. She said that she doesn't know for sure if that's her path. Um. She said, for right now, she's going to be focusing on all of these lawsuits and investigations and that for now that's

enough for her. Politicians don't usually want to talk about running for another office, but New York's current governor, Andrew Cuomo was the New York Attorney General before he ran for governor, and New York's former governor, Elliot Spitzer was the New York Attorney General before that, so there was a clear path from the Attorney General's office to the Governor's Office. Thanks for being on the show. Eric. That's

Bloomberg Legal reporter Eric Larson. And that's it for this edition of the Bloomberg Lawn Podcast Best I'm June Grasso. Thanks so much for listening, and remember you can always get the latest legal news on our Bloomberg Launp podcast. You can find them on Apple Podcasts, Spotify, and wherever you get your favorite podcasts. You're listening to Bloomberg