CONSTRUCTION Accounting Article -
Potential Tax Liability of Hiring a Non-Mass. Construction Contractor
Target Audience: General Contractors, Construction Business Owners in the Commonwealth, Non-Massachusetts Contractors, Construction Companies
Any individual or business that enters into an agreement with a Non-Massachusetts Contractor to perform construction services in Massachusetts has a potential liability for any unpaid sales/use tax on that project.
MGL 64H (sec 30A) and 64I (sec 31A) set forth bonding requirements for Non-Massachusetts Contractor when performing construction services in the Commonwealth. In the event that the Non-Massachusetts Contractor does not comply with the state's requirement, the enforcement passes to the person entering into the contract. The "person who let the contract" becomes personally liable unless they follow the procedures outlined in the statute.
How can you avoid exposure for unpaid sales/use tax?
- 1. At the beginning of the job, obtain a copy of the certificate the contractor received from the Commonwealth of Massachusetts. Do not accept a letter from the contractor (even if on their letterhead) stating that they "promise to pay all sales/use taxes due to the Commonwealth of Massachusetts" Upon audit by the Mass DOR, this will not be accepted by the agent. It's easier for the DOR to assess unpaid sales/use tax to a Massachusetts's resident or a company with a Massachusetts location.
- If a copy of the certificate is not obtained, you can either
a. withholding 5% of the total contract price and remit it to the Commonwealth or
b. furnish a guarantee bond.
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