Massachusetts Sales and Use Tax

Guidance Provided for Nonresident Contractors

In order to secure payment of Massachusetts sales and use tax on any tangible personal property used in carrying out a construction contract, nonresident contractors that undertake a construction contract in the state must provide the Department of Revenue with a deposit or surety bond in an amount equal to 5% of the total amount to be paid under the contract. If the contractor uses a nonresident subcontractor, this amount may be reduced by any amount of a deposit or surety bond posted by the subcontractor.

When the required deposit or bond is received, the Department provides the contractor with a certificate of compliance. The contractor must provide the person who hired the contractor with a copy of the certificate. If the contractor does not furnish a copy of the certificate, the hiring person must deduct an amount equal to 5% of the total amount payable to the contractor and remit this amount to the Department or furnish a surety bond for the equivalent amount. A person who does not receive a certificate from the contractor and who does not deduct and remit the required amount or post a bond is personally liable for the tax due with respect to tangible personal property used by the contractor in the carrying out of the contract. The liability is based on the sales and use tax due on the tangible personal property used in Massachusetts. When the exact amount of liability cannot be determined, the person's liability will be determined based on the best information available.

Nonresident contractors are not required to make a deposit or post a bond for a construction project where the contract is for $20,000 or less. This exception to the deposit or bond requirement does not exempt the contractor from paying the tax on the items the contractor purchased for use on Massachusetts' jobs. In addition, a nonresident contractor will generally not be required to make a deposit or submit a bond if the owner of the real estate being constructed, reconstructed, altered, remodeled or repaired is a tax-exempt organization. A bond or deposit is also not required if the contract is for labor only and the nonresident contractor supplies no materials. However, the contractor must register with the Department to obtain a determination that the project qualifies for this treatment.

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In determining whether an entity such as a general partnership, limited liability partnership, limited liability company (LLC), or joint venture is a nonresident contractor, the Department will look to whether that entity has a regular place of business in Massachusetts. If it does not, then it will be considered a nonresident contractor.

Detailed information for nonresident contractors, including how to register with the Department and how to obtain a bond and file it with the Department, is contained on the Department's website at: http://www.dor.state.ma.us/business/outstate/outofstatecontractors.htm.

In some instances, instead of providing a bond for each contract, a nonresident contractor may be given the option of providing a single bond based on the aggregate amount of the contractor's Massachusetts contracts for the prior year and/or sales and use taxes paid by the contractor in the prior tax year. Nonresident contractors interested in this option should contact the Department's Audit Division. Written inquiries may be directed to the Massachusetts Department of Revenue, Audit Division, Out of State Contractors Unit, 200 Arlington Street, Room 4300, Chelsea, Massachusetts 02150.

Department of Revenue Sales and Use Tax Directive 05-3, Massachusetts Department of Revenue, August 16, 2005

In order to secure payment of Massachusetts sales and use tax on any tangible personal property used in carrying out a construction contract, nonresident contractors that undertake a construction contract in the state must provide the Department of Revenue with a deposit or surety bond in an amount equal to 5% of the total amount to be paid under the contract. If the contractor uses a nonresident subcontractor, this amount may be reduced by any amount of a deposit or surety bond posted by the subcontractor.

When the required deposit or bond is received, the Department provides the contractor with a certificate of compliance. The contractor must provide the person who hired the contractor with a copy of the certificate. If the contractor does not furnish a copy of the certificate, the hiring person must deduct an amount equal to 5% of the total amount payable to the contractor and remit this amount to the Department or furnish a surety bond for the equivalent amount. A person who does not receive a certificate from the contractor and who does not deduct and remit the required amount or post a bond is personally liable for the tax due with respect to tangible personal property used by the contractor in the carrying out of the contract. The liability is based on the sales and use tax due on the tangible personal property used in Massachusetts. When the exact amount of liability cannot be determined, the person's liability will be determined based on the best information available.

Nonresident contractors are not required to make a deposit or post a bond for a construction project where the contract is for $20,000 or less. This exception to the deposit or bond requirement does not exempt the contractor from paying the tax on the items the contractor purchased for use on Massachusetts' jobs. In addition, a nonresident contractor will generally not be required to make a deposit or submit a bond if the owner of the real estate being constructed, reconstructed, altered, remodeled or repaired is a tax-exempt organization. A bond or deposit is also not required if the contract is for labor only and the nonresident contractor supplies no materials. However, the contractor must register with the Department to obtain a determination that the project qualifies for this treatment.

In determining whether an entity such as a general partnership, limited liability partnership, limited liability company (LLC), or joint venture is a nonresident contractor, the Department will look to whether that entity has a regular place of business in Massachusetts. If it does not, then it will be considered a nonresident contractor.

Detailed information for nonresident contractors, including how to register with the Department and how to obtain a bond and file it with the Department, is contained on the Department's website at: http://www.dor.state.ma.us/business/outstate/outofstatecontractors.htm.

In some instances, instead of providing a bond for each contract, a nonresident contractor may be given the option of providing a single bond based on the aggregate amount of the contractor's Massachusetts contracts for the prior year and/or sales and use taxes paid by the contractor in the prior tax year. Nonresident contractors interested in this option should contact the Department's Audit Division. Written inquiries may be directed to the Massachusetts Department of Revenue, Audit Division, Out of State Contractors Unit, 200 Arlington Street, Room 4300, Chelsea, Massachusetts 02150.

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