Whether you’re opening a business in Massachusetts, or you’re thinking of expanding your service area to include the Commonwealth, you need to know about the structure of the state’s sales tax laws to ensure you abide by them. This includes understanding what rate to charge your in-state customers, whether you have a sales tax nexus, and whether what you’re selling is even taxable in Massachusetts.
Unlike most states, Massachusetts does not allow the addition of local sales tax rates, making the state rate of 6.25% applicable for all of your in-state sales. This makes calculating sales tax on items shipped to customers in Massachusetts especially convenient, as many other states require the sales tax on shipped items to be collected at the rate in force at their final destination.
You only have to collect sales tax on purchases made by Massachusetts customers if you have a nexus, or significant presence, in the state. Massachusetts outlines conditions that can trigger a nexus for your company, including:
There is an Amazon fulfillment center in Massachusetts, and that can create a nexus for sellers who use fulfillment by Amazon to complete their orders.
Massachusetts also recently passed Directive 17-1 that would have required sellers who reached a certain designated threshold denoting significant online sales in the state, but no physical presence, to collect sales tax. The Directive was revoked before it could go into effect, however, due to a court challenge. The state has not given up on passing some sort of legislation to compel large online sellers without a physical nexus to collect and remit sales tax, and another similar bill can be expected in the near future.
In general, sales of tangible personal property are subject to sales tax in Massachusetts, as are some telecommunications services. There are notable exceptions to this, however, particularly one for the furnishing of telecommunications services to residential customers. Other exceptions include:
Over-the-counter medication purchased without a prescription is taxable, as are all charges related to shipping and handling as long as the product itself is taxable. Personal and professional services are generally not taxable. Purchases of items of clothing costing more than $175 only require the collection of sales tax on the amount over $175.
Certain organizations and businesses are exempt from sales tax in Massachusetts, and they must present a valid exemption certificate at the time of sale. These include agencies of both the Federal and state governments, as well as certain religious, charitable, educational, and scientific organizations. Some exemption certificates are broadly applicable, while others stipulate only certain types of purchases that trigger tax-exempt status.
Before you begin making taxable sales in Massachusetts, you must obtain a sales tax certificate by registering with the state. This can be done online through the MassTaxConnect portal, and you’ll receive one registration certificate for each business location you enter. These certificates must be on display in a conspicuous location at all times during normal business operation.
Even if you don’t have a sales tax nexus in Massachusetts, you can voluntarily register to collect and remit sales tax on any purchases made by in-state customers. There is no fee to register, and you will receive a temporary permit to use until your permanent document arrives in the mail in 7-10 days. You do not have to renew your permit, but you must file a return for every period while you hold an active permit, even if you made no taxable sales during that time.
Your filing frequency will be determined by the amount of tax you expect to collect. The requirements are as follows:
New businesses and those with a combined annual withholding, sales and use tax liability, and room occupancy excise liability of $5,000 or more must file returns and make payments electronically. Once you have reached that threshold for one year, you must file and pay online in all subsequent years.
All sales tax returns and payments in Massachusetts are due on the 20th of the month following the close of the applicable period. For annual filers, this means returns and payments are due by January 20th of the next calendar year.
|January – March (Q1)||April 20|
|April – June (Q2)||July 20|
|July – September (Q3)||October 20|
|October – December (Q4)||January 20|
Electronic returns are considered received when they are submitted as long as all information in accurate. To be considered timely, paper returns must be received on or before the due date, or they must be postmarked at least two days before the due date.
Both late filing and late payment incur a penalty of 1% of the total tax due per month, up to a maximum of 25%. Interest also accrues on these unpaid balances at four percentage points over the federal short-term rate, and it is compounded daily. The state reserves the right to impose more severe penalties for deliberate underpayment or evasion.
Whether you only sell in Massachusetts or your service area encompasses many states, it’s essential that you stay on top of all of the registration and filing requirements for the state. You also need to keep abreast of any changes in Massachusetts sales tax regulations to ensure you always remain compliant and that your business remains in good standing. Of course, there are plenty of other areas you’d likely prefer to devote your attention to, and that’s why TaxTools can be such a wonderful resource for your company.
TaxTools combines advanced tracking and record-keeping software to manage all of your sales tax obligations smoothly and efficiently. It can produce up-to-date reports complete with location information, and it will periodically check for any applicable changes to state sales tax laws that may impact your business. TaxTools also integrates smoothly with all ecommerce platforms, so no matter how you reach your customers, this software can help streamline your sales tax tracking and filing procedures.
So if you’re ready to see how TaxTools can benefit you, click here to sign up for a free trial today.