Should you collect sales tax in Massachusetts?
In Massachusetts, sales tax is imposed on retail selling tangible personal property, including leasing or renting. However, you will collect the sales tax if you form a sales tax nexus in Massachusetts. A nexus is a presence that is formed physically or economically.
You will create a physical nexus in the state when your business has a store, warehouse, or office in Massachusetts. An economic nexus is created when you come across the threshold limits as already stipulated by the state. These thresholds are based on revenue.
Let’s explore if your business has a Physical nexus in Massachusetts.
A physical nexus is integrated when your business is engaged in the following in Massachusetts:
- Selling tangible personal property in Massachusetts.
- Maintaining, occupying, or using a place of business or an office in Massachusetts.
- You have a stock of goods in Massachusetts.
- Employing or retaining any contractor, including an agent, representative, or salesman, by whatever name called, engaged in activities relating to selling, delivering, installing, or taking business orders.
You may also refer to the Massachusetts Revenue Department advisory to know more about business activities that may create a physical nexus within the state.
Constituting an Economic Nexus in Massachusetts?
When your business sales in Massachusetts exceed $100,000 during the current or previous calendar year, and you are a remote seller (i.e., one who doesn’t have a physical presence in the state), you must comply with and register under sales tax rules.
Click here for more detailed guidance.
How can you Register for Sales tax in Massachusetts?
To get a sales tax permit in Massachusetts, you must apply online at the Massachusetts online portal (i.e., MassTaxConnect).
Additionally, before applying for a new tax account number, make the following information is handy to you:
- FEIN and Social Security numbers of all officers, partners, or owners.
- Address details (physical and mailing).
- Business incorporation dates in Massachusetts.
- Contact information.
- Nature of business.
Is your product or services liable to Sales tax in Massachusetts?
Tangible Property: Sales tax is imposed primarily on the retail sale of tangible personal property, such as Furniture, giftware, toys, etc.
Services: In Massachusetts, sales tax is mainly charged on telecommunications services, and other services are generally tax-exempt. Refer here for more details.
Digital Product: Massachusetts doesn’t charge sales tax on digital products. Accordingly, the selling of digital products, such as software, streaming services, e-books, etc., would require collecting the sales tax. Please see the Massachusetts Taxation Department advisory on digital transactions.
SAAS: SAAS is software that allows users to connect to the cloud and use it over an internet connection. It is taxable in Massachusetts. Click here for the guidance issued by the state.
There are certain exemptions provided by the state for the sales tax levy, such as food for home consumption, prescription drugs, manufacturing equipment, etc. Please click here to see what exemptions are covered.
How should you collect and calculate state taxes in Massachusetts?
Computing and collecting accurate sales tax may involve stratospheric efforts, especially when you are not Massachusetts-based. There is a destination-based sales tax in Massachusetts, which means you must collect taxes on tangible property sold to your Massachusetts-based buyers.
Complexities are involved where you have a business nexus, even if you are not in the state. Any default may lead to severe concerns, penalties, or fines by the state. That is what TaxDo is here for you! Our specialized sales tax calculator and professional services will simplify your job and lighten your compliance burden.
Massachusetts has a base sales tax rate of 6.25% and no local tax rates.
Below is the simple formula you can use to calculate your sales tax collection on each merchandise sold:
Sales Tax collectible = Sale value * (6.25%)
Do you need to collect sales tax on Shipping Charges?
There can be shipping charges separately stated in the sale invoice issued to the customer or dissipated within the selling price of the items sold. If they are separately stated on the invoice, there will be no tax applicability; however, you must collect the tax on the total sales price, including shipping charges, if not stated separately. For official guidance, click here.
How should you file sales tax in Massachusetts?
E-file: You can e-file your return using MaxTaxConnect.
Paper return: Complete and mail the form ST-9.
Payments and returns are also to be remitted. MaxTaxConnect is used to make online payments. The state accepts payments through checks, EFT, credit cards, etc. Visit the Massachusetts Revenue Department website for more information, or contact us with any doubts.
Even if your sales tax liability is zero, you must file the return to avoid penalty or interest.
Filing frequencies and due dates
The state assigns you a filing frequency, which can be Monthly, Quarterly, or Yearly based on your reported sales tax or estimated taxable sales. When your annual sales tax collections are $101 to $1,200, a quarterly frequency is assigned to you. You can file annually when your sales tax collections are below $100. In all other cases, you must file monthly.
Based on your filing frequency, the due date for filing sales tax would be the 30th Day of the month following the relevant reporting period.
Note: If the due date is a holiday or weekend, the next business day will be considered the final due date. Use the Massachusetts official website link to learn about due dates and filing frequencies.
Are there any fines or penalties for default when filing or paying sales tax?
The state levies a penalty of 1% of sales tax for each month of default in payment or filing the return. The maximum penalty imposed will be 25% of the tax due. You will also be charged interest on unpaid tax at the federal short-term rate plus 4%. Please check the comprehensive guide of penalties and interest issues by the Massachusetts Department of Revenue.
However, assigning your tax burden to TaxDo would not result in you paying any penalty or interest. We will adhere to the due dates.
Sales tax holiday in Massachusetts
The sales tax holiday in Massachusetts applies to tangible personal property costing $2,500 or less. For 2024, it will start on 10 August (12:01 a.m.) and end on 11 August (11:59 p.m.). For detailed information on the sales tax holiday, refer to the Massachusetts Revenue Department advisory here.