While Massachusetts has long been known to overreach in search of tax dollars, the recent decision in Sakowski v. Commissioner of Revenue, Docket No. C347594 (App. Tax Bd. July 8, 2024) solidifies the State’s nickname as Taxachusetts. At issue in Sakowski was whether a nonresident could be required to allocate income to the State for days worked outside of the State.

Mr. Sakowski was a New Hampshire resident who worked for a federal agency. While his office was in Massachusetts, his work related to prosecuting federal fisheries violations that occurred offshore between Maine and North Carolina. In 2020, Mr. Sakowski was required to work from home in New Hampshire due to the pandemic. Initially, he filed a 2020 nonresident Massachusetts return that asserted 260 days worked in the State. He later amended his return to report 54 days worked in Massachusetts for the year.

Due to the pandemic, the Commissioner promulgated an aggressive regulation that, in essence, required employees of Massachusetts businesses to report income to the State as if those employees continued to work in the State. Mr. Sakowski challenged the regulation.

On review, the Appellate Tax Board (the “Board”) determined that the regulation was constitutional. Specifically, the Board found that because Mr. Sakowski chose to continue his employment with the federal agency, “such a purposeful choice is decisive of a finding of nexus.” In the midst of a global pandemic, it is hard to understand why choosing to remain employed is a concession of nexus with Massachusetts. Additionally, the Board pointed to New York’s dubious Convenience of the Employer test as support, as well as the fact the Mr. Sakowski’s employer did not change his withholding.

At best, the Board’s support for its finding seems flimsy, going so far as to assert that the fire and police services provided in Massachusetts “enhanced the employees’ work security[.]” Surprisingly, there is no explanation as to how the employee’s job security with a federal agency was increased as a result of fire and police services in Massachusetts.

Even the Ohio Court of Common Pleas recognized that the Ohio General Assembly cannot create jurisdiction to tax by legislation when the employee’s work was performed outside of the State. Morsy v. Dumas, Case No. CV-21-946057 (Oh. Ct. Comm. Pleas Sept. 26, 2022). In Sakowski, it was not even the legislature of Massachusetts that enacted the offending provision, like in Morsy. Instead, it was the Commissioner who forced nexus over income earned outside of the State.

The dissent in Sakowski correctly finds that the Commissioner exceeded his authority in promulgating the regulation at issue. In addition, the dissent finds that the regulation does not apply because the federal agency is not an “in-state business” under the regulation.

While the world has emerged from the pandemic, unfortunate legislative and administrative rulings issued during that time continue to have a lasting impact on taxpayers nationwide. Unfortunately, the effects are not something that can be vaccinated against and taxpayers should be prepared.