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Massachusetts: Don't Break the Law over Use Tax


"Surprise! Your online seller doesn't collect sales tax, but that doesn't mean you don't owe it."

That's the catchy title of a recent Department of Revenue. Anyone who follows sales and use tax news will recognize the theme: a state reminds residents to pay use tax on purchases if sales tax wasn't paid at the time of purchase. 

This is not a new issue for Massachusetts, although it has undoubtedly grown with the number of online retailers. Just north of Massachusetts is the small state of New Hampshire, where there is no sales tax, and many Massachusetts residents cross the state line to shop tax free. Thanks to the internet, Massachusetts residents may now shop tax free from the comfort of their living rooms, saving on gas as well as sales tax.

That will soon change. Amazon will start collecting sales tax in Massachusetts in November of this year. The world's largest online retailer now has a physical presence in Massachusetts, and therefore a clear case of nexus. Yet other online retailers are still not required to collect sales tax in the Bay State, and Massachusetts wants that revenue. Thus the Department of Revenue's recent blog post on use tax.

The DOR gets right to the heart of the matter in the first paragraph:

"Whether it's a retailer on the Web or a brick and mortar business across the state line, if the product or service you buy from them is considered a taxable good in the Commonwealth, chances are you could be breaking the law by not paying state taxes on these purchases."

Breaking the law. Yikes.

Most shoppers probably don't think they're breaking the law when they have a shopping spree in New Hampshire or fill their virtual shopping carts on Amazon. Yet, as the Massachusetts DOR reminds, they are breaking the law if they don't pay sales tax on taxable purchases.

The blog explains:

"[I]f the remote seller you buy from doesn't collect the full MA sales tax on any covered item, and you use the product in Massachusetts, the law says you are responsible for paying the tax directly to the state."

More than 58,000 Massachusetts taxpayers paid approximately $5.5 million in use tax last year. However, an estimated "$192 million in Internet sales taxes" were not paid.

As the DOR notes, "Tax collection in the United States is based on the honor system." Shoppers who have thus far avoided paying use tax probably don't need to worry about being hauled off to jail for their offense. Nonetheless, there is an increasing chance that they will be audited and found owing.

"Find Us Before We Find You."

If it sounds like a threat, it probably is.

The department's blog speaks of data mining and new statistical methodology and modeling. It is, it says, "not unreasonable to expect that third-party information about remote seller transactions will be developed in the future…."

Safe Harbor

For over a decade, the Massachusetts state income tax return has included a line to report use tax on items purchased out-of-state, online, and by mail and phone order. Yet the department recognizes that many people "couldn't be bothered tracking down receipts…." Ouch.

For such (lazy?) people, "DOR has created a 'safe harbor' amount of use tax you can report that's based on your Massachusetts adjusted gross income." Even better, "DOR's online filing system, WebFile for Income, will even calculate it for you (as will most tax preparation software)."

If you use safe harbor, "DOR can't assess you more after an audit than the amount of use tax you paid under the safe harbor schedule." The amount is not crippling. Folks with an adjusted gross income of $40,001 to $60,000 would pay $31 in use tax liability for the year.

"Not a lot to pay for peace of mind."

As the DOR blog concludes, that's not a lot to pay for peace of mind.

How does your business handle use tax?

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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.