Nexus Rules for the State of Massachusetts

By Eugene Nayyer

03 Mar, 2023
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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.

Nexus in the State of Massachusetts

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).

Engaging in business in Massachusetts

It is important to understand the meaning of the term “engaging in business” in Massachusetts. Defining the term as follows:

Having a business location within the commonwealth.
Regularly or systematically soliciting orders for the sale of services to be performed within the commonwealth or for the sale of tangible personal property for delivery to destinations in the commonwealth.
Otherwise exploiting the retail sales market within the commonwealth through any means whatsoever, including, but not limited to, (a) salespeople, solicitors or representatives within the commonwealth, (b) catalogs or other solicitation materials sent through the mails or otherwise, (c) billboards, advertising or solicitations in newspapers, magazines, radio or television broadcasts, (d) computer networks or in any other communications medium, including through the means of an Internet website, software or cookies distributed or otherwise placed on customers’ computers or other communications devices, or a downloaded application.
Regularly engaged in the delivery of property or the performance of services within the commonwealth.
Otherwise availing oneself of the substantial privilege of carrying on business within the commonwealth, including through virtual or economic contacts. (MGL Chapter 64H, Sec.1)

Activities creating nexus

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:

Is incorporated or organized in the state.
Is headquartered or commercially domiciled in the state.
Owns real or tangible personal property in the state, including property that is possessed, held or used by another person pursuant to a lease, license, consignment or other arrangement.
Uses real or tangible personal property that it does not own in the state, including property that it possesses or holds pursuant to a lease, license, consignment or other arrangement.
Has a full or part-time employee acting on its behalf in the state, irrespective of the nature of the employment.
Has an independent contractor or other non-employee representative acting or operating on its behalf in the state for the purpose of selling, delivering, installing, assembling, maintaining or repairing the corporation’s products, or taking orders for or otherwise establishing or maintaining a market for the corporation’s products and/or services in the state.
Owns or uses intangible property in the state where the intangible property generates or is otherwise a source of gross receipts within the state for the corporation, including through a license, sublicense or franchise; and the activity through which the corporation obtains such gross receipts from the intangible property is purposeful (e.g., a contract, license or sublicense).
Has in-state sales derived through either economic or virtual contacts in excess of $500,000. (Massachusetts Reg. 830 CMR 63.39.1)

Public Law 86-272

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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Author

Eugene Nayyer

State & Local Tax Consultant