Before the days of online shopping, it was much easier to determine the applicability of local sales tax requirements. Now that purchasing over the internet is ubiquitous, a more careful analysis is required to determine if your business is subject to Massachusetts sales tax. The sales tax requirements apply to both domestic and foreign companies. Failure to comply with state sales tax requirements can have serious consequences for your business.
What is the sales tax nexus?
Sales tax nexus laws determine when a retailer is required to collect and remit sales tax to the state. This obligation can be triggered even if the retailer does not have a physical presence in the state. In Massachusetts, nexus is created through physical or economic activity in the state.
Any of the following in the state of Massachusetts create a physical nexus:
- Office, place of business, or any owned property in the state
- The physical presence of an employee for more than two days per year
- Storing goods in a warehouse
- Maintaining a sample or display area in the state such as a trade show exhibit
- Delivery of property or performance of a service in the state
If your business made more than $100,000 in sales from the state of Massachusetts in the preceding calendar year, an economic nexus exists.
Are my products taxable?
Sales tax nexus is only relevant if the goods your business is selling are subject to sales tax. The provision of services is generally not subject to sales tax unless the service results in the creation of a product. Massachusetts also some exceptions for goods including:
- Clothing that costs less than $175
- Most non-restaurant food and groceries
- Some healthcare and sanitation products
- Prescription medical devices
- Utilities and heating fuel
- Admission tickets
What is required when sales tax nexus exists?
If your sales tax nexus exists for your business in Massachusetts and you are selling taxable products, you must (1) apply for a state sales tax permit; and (2) charge the Massachusetts sales tax rate of 6.25% for your products. You can register for a permit online. You will need to provide your business’s name and address, the type of business, names of owners and a description of the business activities.
Contact an experienced tax attorney if you are concerned about compliance with sales tax requirements in Massachusetts or any other state.