Massachusetts and sales tax! If you’re reading this blog post – then Massachusetts sales tax is likely a state that you have questions about, need help with or are simply interested in.
As a Massachusetts based State and Local Tax (SALT) consultant, I can tell you it’s a state that can seem intimidating – after all, Massachusetts is often jokingly referred to “Taxachusetts.”
But for all the worries you might have about Massachusetts’ complex tax laws or aggressive audit process, in some ways Massachusetts keeps things simple when it comes to sales tax.
So in this post I’ll highlight five things you should know about Massachusetts sales tax. While many of the ones I mention below deserve their own “Massachusetts Sales Tax” post (and I promise you, I’ll revisit some of these topics in much more detail in the future), for today, here’s a snippet of five relevant Massachusetts sales tax facts.
1. If You’re Selling (or Purchasing) a Taxable Product or Service in Massachusetts, There’s Only One Rate That Applies - the State’s 6.25% Sales Tax Rate
Many tend to think Massachusetts sales tax is complex, but when it comes to its sales tax rate structure, it’s about as easy as it can get. Massachusetts imposes a flat state rate of 6.25% on the sales or rental of tangible personal property and one category of services (more on that in a bit). The use tax, which folks are supposed to self-assess and pay to the state on those “tax-free” internet, mail-order and phone purchases, is also 6.25%. Massachusetts’ local jurisdictions – cities, towns, and counties – do not impose a separate local jurisdiction sales tax (however local jurisdictions do have the option of imposing a local option meals tax). So if you’re selling (or purchasing) a taxable product or service in Massachusetts the only rate that applies is the 6.25% state sales tax rate.
2. There’s Only One Type of Service That’s Subject to Massachusetts Sales Tax
While many states tax a whole variety of services, there’s only one type of service that is taxable in Massachusetts – telecommunications services. That’s right – in general, services are not taxable in Massachusetts. And if history stands, that’s likely not to change. You see, back in the summer of 2013, Massachusetts enacted a law that expanded the sales tax base to computer system design and software modification services. And what a ”tech-tax” fiasco that caused! Needless to say, the unpopular law was retroactively repealed less than two months after it was enacted leaving telecommunications to remain the sole taxable service in Massachusetts. But Massachusetts defines “telecommunications services” fairly broadly. How broadly? Well, that’s a topic for a future post.
3. Pre-written Software is Subject to Massachusetts Sales Tax Regardless of How Delivered
Now here’s a very interesting topic – how Massachusetts taxes software. Things are pretty straightforward when it comes to pre-written (also known as canned or ‘off-the-shelf’) software. It’s taxable in Massachusetts regardless of how it’s delivered - via tangible medium, e.g., CD or disk, or via download. But what about pre-written software obtained via a license? Or the transfer of the right to use software installed on a remote server? Or pre-written software upgrades? According to the Massachusetts Computer Industry Services and Products regulation, these are all subject to sales tax. And here’s one more - the transfer of pre-written software bundled with a non-taxable service? Whoa – now we’re really talking a topic deserving of its own post! (So check back soon!)
4. Massachusetts is Not a Member of the Streamlined Sales and Use Tax Agreement (SSUTA)
I’m often asked by clients if Massachusetts is a Streamlined Sales Tax (SST) state – that is, whether Massachusetts is one of the 24 states that are members of the Streamlined Sales and Use Tax Agreement (SSUTA). The answer is “no” - Massachusetts is not an SST state and here are a few reasons why this is important: 1) A taxpayer with sales tax nexus to Massachusetts can’t register through the SST’s Central Registration portal, 2) Massachusetts will not accept an SST exemption certificate, and 3) if federal remote seller legislation, such as the Marketplace Fairness Act (MFA), passes, it will be a while before Massachusetts would be entitled to “collection authority” since Massachusetts would need to adopt and implement the MFA’s alternative simplification requisites. (Want to read more about the MFA and Internet Sales Tax developments? I invite you read my Internet Tax/e-Commerce posts at SalesTaxSupport’s “Issues” blog.)
5. Massachusetts Does Not Have a “Click-Through” Nexus Law
While it may seem surprising to some (given the “Taxachusetts” perception), Massachusetts has not enacted a “click-through” nexus provision. That is, Massachusetts does not have a provision in its law which attributes nexus to an out-of-state seller that contracts with an in-state marketing affiliate that refers customers to the out-of-state seller’s site via a web-link. Yes, there have been “click-through” nexus proposals introduced in Massachusetts, including several a few years back, which along with Amazon’s “expansion” in Massachusetts had many confused about whether a ”click-through” nexus provision had been or would be enacted in Massachusetts. (For a little more background on this, see my prior post, “Amazon Sales Tax Nexus in Massachusetts? (Absolutely Not!)”) That’s not to say that Massachusetts does not have an aggressive nexus policy, it’s just to say that are far as a “click-through” nexus provision goes – there isn’t one on the Massachusetts books as of yet! (For more on “click-through nexus and Amazon Laws, see my prior post, “Amazon Laws Are Not All Created Equal”)
So there you have it – five things to know about Massachusetts sales tax. I think you’ll agree, there’s certainly a lot more to know. So if Massachusetts sales tax issues and developments are your thing, then come on back – I’ll be sharing my insights as a Massachusetts SALT consultant and reporting on Massachusetts sales tax developments.
Finally, if you have questions, comments or ideas for future “Massachusetts Sales Tax” posts, I invite you to post a comment below.
Other recent “Massachusetts (MA)” posts by Sylvia F. Dion, CPA:
- Massachusetts Expands Sales Tax Nexus Policy for Internet Vendors
- The Massachusetts DOR Website - A Great (Sales) Tax Resource
- MassTaxConnect - 5 Things Massachusetts Sales Tax Filers Should Know
- Massachusetts Sales Tax Holiday Is Consumer Perk – But Retailer Pain
- Massachusetts Exemption Certificates for Drop-Ship: A Catch-22