Understanding Masschusetts Sales and Use Taxes
Understanding and complying with the sales tax requirements in the states in which you do business is absolutely essential. More states are taxing services, as well as retail sales, so no business owner can afford to be in the dark. In addition, you may find that you are liable for use taxes for products purchased out of state. This article answers some of the basic questions regarding sales tax in Massachusetts.
In Massachusetts, a 6.25 percent sales tax generally is imposed upon gross receipts from sales at retail, including meals, leases and rentals, by vendors. The tax is collected from the purchaser but is imposed on the vendor.
Leases are subject to sales and use tax at the same rate as if the item is sold. The rental or lease of tangible personal property is subject to tax because rentals and leases are included in the definition of "sale."
Small Businesses Eligible for Tax Breaks
Purchases of gas, steam, electricity, or heating by any business that has five or fewer employees are exempt from sales tax. Once a qualifying small business presents an exemption certificate (Form ST-13, Small Business Energy Exemption Certificate) to a vendor in a calendar year, it continues to be eligible for the exemption on subsequent purchases from that vendor during the year, even if the business thereafter employs more than five employees. The business must retain adequate weekly employee time and wage records to substantiate its eligibility for the exemption.
Responsibility for paying sales tax. Although the sales tax is imposed on a vendor's gross receipts, and the vendor is responsible for remitting the sales tax to the state, the vendor must add the tax to the sales price charged the purchaser. (There is an exception for motor vehicle sales: the buyer pays the sales tax directly to the state.) The tax constitutes a debt from the purchaser to the vendor and is recoverable at law in the same manner as other debts.
Absorbing Sales Tax Is Illegal
As a vendor you will be subject to criminal penalties if you advertise or hold out to the public that the sales or use tax:
- will be assumed or absorbed by the vendor
- will not be added to the sales price of the property or services sold, or
- will be refunded if it is added to the sales price
Tax Permits Are Required
If you are a vendor doing business within the state you must obtain a registration for each place of business. Certificates of registration are issued by the Commissioner upon applications submitted by vendors. Currently no fee is required when obtaining a sales tax permit. Certificates may be issued for specified terms of not less than three years.
Many Sales May Be Tax Exempt
Massachusetts includes many specific items that are exempt from sales tax — for example, certain prescription medications and food for human consumption are exempt. You'll want to check to see if you are exempt from the tax.
All sales are presumed taxable unless the seller takes from the purchaser a resale certificate or a certificate stating that the property will be used in an exempt manner. Such exempt use certificates are required for sales of materials used as a component in a manufactured product or used in agricultural production, etc. Exempt use certificates also are required from contractors making purchases of materials for use in certain public works contracts and purchasers claiming exemption as a nonprofit organization.
Sales for Resale Are Exempt from Tax
Sales for resale are not subject to sales tax, because the definition of "retail sale" expressly excludes a sale of tangible personal property for resale in the regular course of business.
Resale exemption certificate requirements. A Massachusetts resale certificate must contain the purchaser's name, address, and registration number and must identify the type of property sold by the purchaser in the regular course of business.
Blanket resale certificates are permitted. Certificate holders regularly engaged in making tax exempt purchases may furnish a certificate to the seller specifying that all tangible personal property subsequently purchased will be for the purpose shown on the certificate. This blanket certificate will relieve the burden of executing a separate certificate for each individual tax exempt purchase as long as there is no significant change in the operations. A blanket certificate describes the general nature of the property purchased for resale. Massachusetts does not have a prescribed form that needs to be completed for a blanket certificate.
Physical Presence Triggers Tax Liability
Massachusetts has a statute that taxes all sales, without an exemption for out-of-state mail order and catalogue sellers. However, you will be responsible for paying this tax only if you have a physical presence within Massachusetts. To determine if you have physical presence, ask yourself the following:
- Do I have retail facilities, a warehouse or any office space in Massachusetts? Maintaining retail or warehouse facilities will give you physical presence. Also, having an office for employees, even for business activities unrelated to mail order sales, will give you physical presence.
- Do my employees or I enter Massachusetts for purposes of taking and transmitting orders from Massachusetts? If your employee or independent contractor goes into Massachusetts to take or transmit orders your business may have physical presence in Massachusetts. However, contracting with a common carrier to deliver mail order goods does not constitute physical presence.
- Do my delivery vehicles frequently enter Massachusetts for purposes of delivering property? Frequent deliveries in Massachusetts by your trucks will give you physical presence in Massachusetts.
Filing Claim Is Necessary to Receive Tax Refunds
As a vendor you may apply in writing for a refund of sales tax. However, a sales or use tax will not be refunded to a vendor requesting abatement until the vendor establishes that the tax was repaid or credited to the purchaser.
Massachusetts Imposes Use Tax on Out-of-State Sales
Use tax is a tax on the storage, use, or consumption of tangible personal property, including transfers of possession by lease or rental, in the state. Use tax does not apply when the state's sales tax was paid.
The liability for the use tax is imposed on the person storing, using, or otherwise consuming a taxable property or service in the state. However, if the property or service is purchased from a vendor engaged in business in the state, the vendor is responsible for collecting the use tax from the purchaser and remitting the tax to the state.