Massachusetts sales tax: common and unusual exemptions

We’re not in “Taxachusetts” anymore — interesting tax facts about Massachusetts

The Commonwealth of Massachusetts is perhaps best known for its historic landmarks and universities as well as its vacation-friendly seaside villages and local cuisine. It’s also home to some of the best hospitals in the world and several Fortune 500 companies, including Liberty Mutual, Raytheon, Staples, TJX, Dell EMC, and Boston Scientific.

And do we even need to mention the New England Patriots? Many of us here at Avalara headquarters in Seattle are still smarting over the Seahawks’ Super Bowl loss to Tom Brady and Co. just a few years ago.

Another thing Massachusetts has long been known for is its tax climate — and not necessarily in a positive way. (Unless you think the nickname “Taxachusetts” was coined out of love, that is.)

A more friendly approach

Thanks to several rounds of tax reforms, however, things have shifted: Massachusetts is considered relatively business-friendly. In recent years, Boston has welcomed startup firms and several major companies to the Seaport District, including GE.

The state even had a sales tax holiday in 2018 for the first time in a couple of years — something that apparently will become an annual tradition for the foreseeable future.

Although Massachusetts still levies a 6.25 percent sales tax on most tangible items, there are quite a few exemptions, including food, healthcare items, and more. Below are some of the more interesting ones we’ve found.

• Clothing: Most items that cost less than $175 are exempt from sales tax, including everyday shoes and even shoelaces (items such as athletic cleats and ski boots, however, are taxable). And for items that cost more than $175, only the amount above $175 is taxed. Note that clothing designed primarily to protect from injury, including helmets, are subject to sales tax.

• Personal or professional services: As in several other states, accounting, legal, and medical services are among those exempt from tax. But car repairs are as well, which can be a big savings for consumers.

• Periodicals: No sales tax is charged on newspapers and magazines, which is not all that unusual. But comic books? Those are also exempt.

• Costumes: There’s no tax on any type of costume, including adult and child novelty costumes.

• U.S. flags: Need a new flag to display outside your home or business? That’s tax-free — but only if it’s a U.S. flag. You’ll have to pay sales tax if you want a different one.

Additionally, certain groups such as nonprofit organizations, government agencies, and school districts also benefit from sales tax exemptions when purchasing or selling specific items.

When do you need to charge sales tax?

If you’re an ecommerce business that doesn’t have nexus in Massachusetts, you don’t need to collect sales tax from Massachusetts customers; rather, it’s the responsibility of the customer to remit sales taxes for out-of-state purchases. If you do have nexus in the Bay State, you’re required to register your business and collect sales tax on taxable items.

Keep in mind that even if your business is located outside of Massachusetts, you still could have nexus if you sell online to customers there. The state maintains that large internet vendors have a physical presence in the state through the software and cookies they place on customers’ in-state computers and communication devices to facilitate sales.

There’s good news for small sellers, though: The threshold requiring out-of-state online vendors to collect sales tax is pretty significant. Under Massachusetts Department of Revenue Directive 17-1, vendors must collect tax if:

• The vendor makes more than $500,000 in sales to Massachusetts consumers; and

• The vendor makes at least 100 taxable sales transactions for delivery into Massachusetts.

Want to learn more about tax obligations in Massachusetts? Our Massachusetts Sales Tax Guide can help. And when you’re ready to explore ways to make the sales tax process easier — wherever you may have nexus — be sure to check out how Avalara solutions support businesses of all sizes.