Author: Jonathan Hitter
Consumers who were once limited to their local storefronts to browse for goods are now able to shop and make purchases globally. Consumers aren’t the only ones benefitting from these digital shopping cart advancements. Businesses are now able to target a market well beyond their physical location, but these tempting multi-state customers come with challenges.
Sales tax is a common tax filing that requires a lot of attention when a business sells across state lines because tax rates vary from state to state and city to city. In this article we’ll explain a sales tax “nexus”, how to know when you’ve triggered it and what it means if you specifically do business in Massachusetts.
Sales Tax Nexus
Sales tax nexus laws differ by state but are triggered when a retailer passes a state’s economic threshold for total revenue or number of transactions in a state, even without a physical presence in the state. Retailers are then legally obligated to collect and remit sales tax to the state.
As mentioned, nexus laws differ by state. In Massachusetts, if a seller has any of the following they’re considered to have sales tax nexus:
• An office, place of business or an owned property
• An employee present for more than two days per year
• Goods in a warehouse
• Ownership of real or personal property
• A sample or display area
• Delivery of property or performance of service
• Economic nexus (vendors who make more than $500,000 in sales and more than 100 transactions in the state in the preceding calendar year)
Is What You’re Selling Even Taxable?
If you’re selling a product or service, you may need to be charging and collecting sales tax revenue. What’s taxable in Massachusetts? Tangible products are taxable, but most service offerings are not taxable, unless the service creates or manufactures a product.
Massachusetts does have a few exceptions including:
- Clothing costing less than $175
- Most non-restaurant food and groceries
- Several healthcare and sanitation items
- Prescribed medical devices
- Periodicals
I Have Nexus, Now What?
If you’ve met the state of Massachusetts’s requirements for reaching nexus and the goods you’re selling within the state are taxable, you must then apply for a Massachusetts sales tax permit. Next, you’ll need to determine the sales tax rate to apply to those purchases. There is no local tax, only a statewide tax rate, currently at 6.25%. Massachusetts happens to be a simple example, but if you’re selling in other states, it’s important to understand their nexus laws and all obligatory tax rates.
If you have questions about filing a sales tax return or need help with multi-state sales, contact one of our professionals!