A ruling would have significant budget implications for states that billions in tax revenue during the pandemic and will have huge implications in the “new economy” as remote working becomes the norm (e.g. Dropbox and Facebook which are apparently transitioning to permanent work-from-home models).

“The Massachusetts v. New Hampshire issue is no isolated border skirmish between those states. It raises a fundamental national issue that has been festering for decades,” said Edward Zelinsky, who teaches tax law at Yeshiva University’s Cardozo Law School in New York City.

Federal courts have held that states may tax the income of nonresidents so long as employees have a substantial link to the taxing state, the taxes are fairly related to services provided by that state, and a tax is apportioned fairly and doesn’t discriminate against interstate commerce.

Massachusetts normally apportions the amount of income it taxes based on the number of days commuters are working in the state, predominantly at firms in and around Boston, it said in a court filing. But the commonwealth issued a rule earlier this year stating it would treat income paid to nonresidents who have stopped traveling to the state because of the pandemic as though they were still commuting.

New Hampshire, which has no income tax, said in its petition that Massachusetts’ rule infringed on its sovereignty, as well as undermined “an incentive for businesses to locate capital and jobs in New Hampshire, a motivation for families to relocate to New Hampshire’s communities, and the State’s ability to pay for public services by reducing economic growth.”

The WSJ article explores a rule (“the convenience rule”) applied by New York, where work for a New York-based company performed remotely is still taxable in New York if the telecommuting took place for the convenience of the employee. That means someone who does research and writing from his home in Connecticut one or two days a week during the year, is taxed by New York state on his entire salary if the employer/company is located in Manhattan.

The fiscal implications of changing the taxation rules run in the billions of dollars, according to budget officials from several states. In 2018, around 434,000 New Jersey residents paid $3.7 billion in New York income taxes, according to the New York State Department of Taxation and Finance. Almost 87,000 Connecticut residents paid New York an additional $1.3 billion in 2018; those two states’ residents account for about 10% of all the income tax New York collected that year.

—Jess Bravin, Richard Rubin and Laura Saunders contributed to the WSJ article.