More than 100,000 Connecticut residents would avoid millions in double taxation under proposal

More than 80,000 Connecticut residents with pre-pandemic daily commutes to New York and another 30,000 with jobs in Massachusetts are still being taxed by those states — though the coronavirus has kept them working remotely at home. A new proposal would put a stop to the double taxation.

The taxes are substantial with $440 million going to New York and $60 million to Massachusetts, said Rep. Sean Scanlon, the new co-chairman of the legislature’s finance committee.

Scanlon is strongly backing a proposal by Gov. Ned Lamont and his tax commissioner, Mark Boughton, to prevent double taxation for Connecticut residents during the 2020 tax year.

“We have to defend the Connecticut taxpayers from an assault that is being rendered on them by the state of New York and the state of Massachusetts — a very naked power play on their part, simply to grab a bunch of revenue that they have no business grabbing considering that all those 110,000 have not been working in office buildings in New York” and Massachusetts, Scanlon said.

The income taxes are being collected in the other states under the so-called “convenience rule” that officials say is being misinterpreted regarding stay-at-home workers.

“Nobody is working at home right now out of convenience,” Scanlon said. “They are working from home because of necessity.”

He said the states are making “a very ridiculous interpretation of the law.”

The U.S. Supreme Court will likely decide who is correct, but a decision might not be made until June 2022. Connecticut and New Jersey have both filed amicus briefs in the case, which pits New Hampshire against Massachusetts. New Hampshire filed the suit in October because Massachusetts adopted a rule that it would continue collecting income taxes on workers who live in New Hampshire and other out-of-state residents — even though the employees were working remotely and no longer commuting to the Bay State.

Lamont said he agrees the courts will decide the nuances of taxation, saying it should not be an all-or-nothing situation.

“If you were in New York half the time and in Connecticut half the time, you paid half and half,” Lamont said.

Darien first selectman Jayme Stevenson, a Republican, said she expects the trend to continue in the coming months as the pandemic continues.

“Many of my community members, while they traditionally work in Manhattan and use Metro-North to get to and from work, have been working remotely,” she told the finance committee during a public hearing Tuesday. “From what I understand, most people will continue to work remotely for the foreseeable future, even when their businesses are open in the city.”

While financial workers commuting from lower Fairfield County to Wall Street traditionally pay the largest amount of taxes, Scanlon said the taxation covers a wide range of workers who cross the borders for their employment. Half of the workers crossing into Massachusetts earn less than $100,000 per year, and that includes employees heading to the MGM Resorts International casino in Springfield and offices of the MassMutual insurance giant, he said.

Those headed to New York include janitors working in offices in places like Rye and Yonkers in Westchester County. Overall, one third of the workers going to New York earn less than $100,000 per year, he said.

If the bill passes, none of the workers will need to worry about double taxation on their income tax.

“You would not owe any of that money to the state of Connecticut,” Scanlon said. “You will still owe the tax to New York and Massachusetts.”

In the short term, the issue will not cause a budget hole because Connecticut officials never expected to receive full income taxes from the commuters who are now working at home.

“We never had the money in the first place,” Scanlon said. “We should have it now because these people are working at home in Enfield and New Fairfield and all those places, but it’s not like this is a hit to us because we were never factoring the money in.”

The commuter issue is part of a larger, multipronged bill that also includes increasing state payments to municipalities under the payment-in-lieu-of-taxes program, known as PILOT.

The measure, sponsored by Senate President Pro Tem Martin Looney of New Haven, would offer the largest increases to major cities that have large amounts of tax-exempt properties held by major entities like colleges, hospitals, and the state government.

While multiple towns would benefit, the two biggest winners would be New Haven with an additional $43.6 million per year and Hartford with an additional $22.8 million per year. It is unfair, Looney says, that the state currently pays the same reimbursement rate for tax-exempt hospitals in all 169 cities and towns. As a result, Greenwich receives the same percentage for Greenwich Hospital property as New Haven receives for Yale-New Haven Hospital and Hartford receives for Hartford Hospital.

“I can’t even fund a librarian in every school in New Haven,” the city’s mayor, Justin Elicker, told the finance committee Tuesday.

Under the restructuring proposal that would create a tiered system of payments, Bridgeport would receive an additional $5.85 million, while New Britain, the home of Central Connecticut State University, would gain $3.8 million. Mansfield, which is home to UConn’s Storrs campus, would collect an extra $3.7 million, while Middletown, home of Wesleyan University, would receive an additional $3.6 million.

“There have been many needs over the years, and now it’s time to jump on this one,” Looney told the committee.

Christopher Keating can be reached at ckeating@courant.com.

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