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Sales & Use Tax Considerations for Service Companies

February 2, 2017 Uncategorized Comments Off on Sales & Use Tax Considerations for Service Companies

We want to make you aware that the Massachusetts Department of Revenue may be increasing its efforts in auditing service businesses for sales and use tax filings.

Within the state of Massachusetts, service activity is primarily not subject to sales tax. However, if your service business has a component of selling tangible goods, you could be subject to sales tax on that portion of your sales. We recommend specifically delineating on your invoices service activity vs. product activity. If you do resell products and are not taxed on the purchase of the items you should fill out a reseller certificate to give to your vendors. You should also register for sales tax and file for the sales tax on any tangible property sold in your trade or business. If you are required to submit a reseller certificate – Form ST-4 you can find a copy at

 http://www.mass.gov/dor/docs/dor/forms/wage-rpt/pdfs/st-4.pdf

This certificate is to be used when the vendor intends to resell tangible property in the regular course of business.

During an audit, the Massachusetts Department of Revenue typically reviews purchases made for your business from other states and via the internet. This is considered “use tax” and is a highly audited area currently, as an easy revenue raise. If you do not pay sales tax at the point of purchase on tangible property, you are obligated to pay “use tax” on those purchases. The “use tax” rate is identical to the Massachusetts sales tax rate.

Therefore, if you have a service business and do not sell tangible personal property as part of your business, we recommend registering for sales tax and paying in any use tax, if applicable. Should you have no sales or use tax owed, we recommend filing a zero dollar return each year.  By filing a zero annual return you avoid leaving the statute open and the clock begins on the three year statute. If you have open periods of non-filed returns, the state can come back at any time in the future as the three year statute would not have commenced.

A vendor should register to collect sales/use tax by following these steps:

  1. The vendor must register to collect Massachusetts sales or use tax by navigating to the Massachusetts DOR’s “MassTaxConnect” application.

https://mtc.dor.state.ma.us/mtc/

  1. Following registration, the DOR will issue a “Sales and Use Tax Registration Certificate (Form ST-1)” for each location of the business. The vendor must display the corresponding certificate at each location in a conspicuous location, visible to customers.
  2. For out-of-state vendors that do not meet the definitions listed in the previous section, those vendors can still register to voluntarily collect sales/use tax as a convenience for customers so that customers do not need to remit this tax themselves.

Although most services in Massachusetts are not currently taxable, there are certain exceptions:

  • Printing services;
  • Services sold as part of the sale of a tangible good, where the value of the services are not broken out separately on the invoice; and
  • Services that include tangible goods as part of the service provided, where the tangible good value is not separately stated on the invoice

Please contact us if you have any questions or would like a more in-depth analysis of your sales or use tax filing requirements.

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