Entity Types Affecting Income Tax Collection Requirements
State and Local Tax includes many factors that play a major role in the determination of tax coll...
Business owners conducting business outside their home state should know they can create nexus or sufficient connection with other states. If nexus is established, then the company may have income and sales/use tax filings for that state. They also have a duty to collect and remit sales and use taxes, and income taxes to that applicable state.
The state of Massachusetts has nexus laws. With respect to sales tax, every vendor, including a remote retailer, engaged in business in the commonwealth and making sales of tangible personal property or services for storage, use or other consumption in the commonwealth, generally, shall at the time of making the sales, collect the tax from the purchaser. The tax collected by the vendor shall constitute a debt owed by the vendor to the Commonwealth (MGL Chapter 64I, Sec. 4).
It is important to understand the meaning of the term “engaging in business” in Massachusetts. Defining the term as follows:
The list of activities that create income tax nexus in Massachusetts is also quite long. A corporation will establish nexus in Massachusetts if such corporation:
Public Law 86-272 prohibits states from imposing a net income tax on income derived within that state from interstate commerce. This is if the only business activity within the state is the solicitation of orders for sales of tangible personal property filled by shipment or delivery from outside the state after orders are sent outside the state for approval or rejection.
The Public Law 86-272 does not preclude subjecting a corporation to the income measure of the corporate excise tax when the corporation sells services or licenses intangible property in the state. In addition, the statutory standard isn’t met if the in-state business activity by or on behalf of a corporation includes activity that isn’t entirely ancillary to the solicitation of orders of tangible personal property. (Massachusetts Reg. 830 CMR 63.39.1)
Every business who conducts or plans to conduct business activities in Massachusetts should be aware of these provisions. As it is important to ensure compliance with its state and tax obligation.
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