Sales tax on invoices in Massachusetts

In Massachusetts, a contract to build, alter, remodel or repair real property carries no sales tax for your client, because you pay the tax on your materials when you buy them. Your invoice needs a tax line when you act as a retailer, such as by installing a complete standard unit, and the Massachusetts tax must then be stated separately.

Sales tax: your customer pays, you collect

Massachusetts sales tax is charged on the sales price or rental charge of tangible personal property, and the buyer pays it to the vendor on top of the purchase price. If you sell to Massachusetts customers and deliver, repair or install goods in the state, you’re a vendor: register with the Department of Revenue (DOR) and display its Sales and Use Tax Registration Certificate (Form ST-1) at each business location.

Real-property contracts: you’re the consumer of your materials

DOR lists installations completed under a contract for the construction, reconstruction, alteration, improvement, remodeling or repair of real property among transactions generally exempt from sales tax. As the contractor or subcontractor, you pay the tax when you buy the materials used to perform the contract.

The exception is a complete unit of a standard item that you install on real property and that needs nothing but installing, applying or connecting. For those items you’re acting as a retailer, and you must collect sales tax from your client.

Services: generally untaxed, with a 10% guideline for parts

Massachusetts generally doesn’t tax services. Items you sell along with a service are taxable and must be itemized separately on the bill, and a separately stated charge for installing tangible personal property isn’t taxed.

When you act as a service provider or vendor rather than as a contractor on a real-property contract, DOR points you to Regulation 830 CMR 64H.1.1. Its examples of service enterprises include plumbers and repairers of machinery, and as a general guideline it treats property you transfer as inconsequential when it’s worth less than 10% of the total charge:

• the real object is the service, and no property is transferred, or only inconsequential property not stated separately: the service isn’t taxed, and you pay tax when you buy the property;
• property charged separately from labor, whatever its value: collect tax on the property charge;
• property worth more than 10% of the total, not stated separately: collect tax on the total charge.

Your invoice: a separate tax line, or none

When you collect Massachusetts sales tax, state it and charge it separately on all invoices, bills, displays and contracts. On a real-property contract where you complete installations and paid tax on your materials, there’s no sales tax to charge your client, so leave the tax line off. Add one for the complete standard units you sell and install.

Plumbing, electrical and landscaping: contractor or vendor

DOR’s trade guides draw the same line: on real-property work you generally act as a contractor, but when you sell materials and install them for a separate price, you’re a vendor and collect tax on the materials’ price, not on separately stated installation.

• Plumbing: a replaced faucet priced separately is taxed on the faucet only; if its price isn’t stated separately, the whole charge is taxable when the faucet is more than 10% of it. A leak repaired for a lump sum, with materials not stated separately, carries no tax. If you don’t pay tax on taxable material when you buy it, self-assess use tax on its cost and send it to DOR.
• Electrical: on a lump-sum contract to replace a building’s wiring and light fixtures, you’re the consumer of all the material. When your customer’s real object is to acquire the material you furnish and install, you’re its vendor and collect tax on its price.
• Landscaping and lawn care: in DOR’s example, a landscaper paid $300 to furnish, install and care for a tree for a year pays tax on the $100 tree and charges no tax on the $300. A nursery that sells a tree and installs it without stating the tree’s price separately collects tax on the whole charge, because the tree is more than 10% of it. Lawn care, from spring and fall cleanup and mowing to seeding, sod, bark mulch, aerating and dethatching, isn’t taxable to the customer, and neither is snow removal billed as a lump sum.

Local tax and out-of-state contractors

Massachusetts cities and towns may adopt local taxes on meals, rooms and recreational marijuana.

An out-of-state contractor or subcontractor must always register with DOR and pay sales or use tax on project materials. On a project of $20,000 or more, materials included, it also files a guarantee bond or surety payment, set as a percentage of the total contract price, unless an exception on DOR’s page applies, such as a labor-only project. Before any project ends, it gives the hirer DOR’s Certificate of Compliance.