Please note that the Massachusetts sales/use tax rate was increased to 6.25% effective August 1, 2009.
This Technical Information Release (TIR) explains: (1) the scope, application and purpose of the Massachusetts use tax; (2) the general rule exempting items from use tax to the extent that a similar tax on such items was paid to another U.S. state or local jurisdiction; and (3) some specific limitations to this exemption based on some states’ reciprocal treatment of sales and use taxes paid to Massachusetts.
This TIR applies to the sale of motor vehicles and the sale of all other tangible personal property with the exception of boats and airplanes. It revokes and replaces TIR 91-7.
II. Massachusetts Use Tax
Massachusetts law imposes a use tax on tangible personal property purchased or leased outside Massachusetts for use, consumption or storage in Massachusetts if no Massachusetts sales tax was collected at the time of sale or lease. G.L. c. 64I, §§ 2 and 7(a). The sales tax and the use tax were designed to serve as “complementary components of a unitary taxing program created to reach all transactions (unless specifically exempted . . .) in which tangible personal property is sold inside or outside the Commonwealth for storage, use or other consumption within the Commonwealth.” Boston Tow Boat Co. v. State Tax Commission, 366 Mass. 474, 476-77 (1974). Without the use tax, out-of-state sales of items purchased for use in Massachusetts would escape tax altogether.
If tangible personal property purchased outside Massachusetts is brought in state within six months of its purchase, it is presumed to have been purchased for use in the Commonwealth, and is subject to the Massachusetts use tax unless the taxpayer meets the burden of proving the contrary. See G.L. c. 64I § 8(f); DD 87-3.
In contrast to the Massachusetts sales tax, which is usually collected by and paid to the Department of Revenue by the vendor who sells the tangible personal property, the purchaser generally pays the Massachusetts use tax directly to the Department of Revenue. The use tax is 5% of the sales price of the tangible personal property.
III. Credit for Taxes Paid to Other Jurisdictions
A taxpayer who has paid sales tax to another U.S. state or territory on purchases of items for use, storage, or other consumption in Massachusetts, is allowed a credit against any Massachusetts use tax otherwise due if (1) the other state or territory allows a corresponding credit with respect to sales or use tax paid to Massachusetts on property brought into the other jurisdiction; (2) a sales or similar tax was actually paid to another reciprocal state or (in some cases) local jurisdiction; and (3) the tax paid to the other jurisdiction was legally due without any right to a refund or credit. See G.L. c. 64I, § 7(c). If the amount paid the other jurisdiction is equal to or greater than 5%, no use tax is owed Massachusetts; where the tax is less than 5%, the tax due is the difference between the amount of Massachusetts use tax that would otherwise be owed and the amount of sales tax already paid. The tax due may not be reduced below zero. Note: There is no corresponding credit available for similar taxes that may have been paid to any foreign country or one of its political subdivisions.
A. A Massachusetts resident made a $10,000 out-of-state purchase in a state with a 4% sales tax, and paid sales tax of $400 to the vendor. The Massachusetts use tax on such a purchase would be $500 (.05 x $10,000). A credit is allowed for the $400 already paid. The Massachusetts use tax owed is therefore $100.
B. A Massachusetts resident made a $10,000 out-of-state purchase in a state with a 6% sales tax, and paid $600 in sales tax to the vendor. The Massachusetts use tax on such a purchase would be $500 (.05 x $10,000). A credit is allowed for the $600 already paid, which reduces the Massachusetts use tax liability to zero. No refund is made to the taxpayer, as the tax may not be reduced below zero.
C. A Massachusetts resident made a $10,000 out-of-state purchase in a state with no sales tax. As nothing was paid in the other jurisdiction, the full amount of the Massachusetts use tax —$500 — is due and must be paid over to the Commissioner.
V. Reciprocity with Other Jurisdictions
A. The following jurisdictions have a credit similar to that provided in G.L. c. 64I, § 7(c) for all state taxes lawfully required by, and actually paid in, other states, and the applicable tax rates in these states equal, or exceed 5%. Accordingly, except as otherwise noted, Massachusetts use tax is not due on any item on which a sales or use tax or its equivalent was required to be paid and actually was paid without any right to a refund or credit in:
- District of Columbia
- New Jersey
- North Dakota
- Rhode Island
- South Carolina
B. The following jurisdictions have a credit similar to that provided in G.L. c. 64I, § 7(c) for all corresponding state taxes lawfully required by, and actually paid to, such states; but these states’ applicable sales, use, or motor vehicle excise tax rates do not equal or exceed 5%. Massachusetts use tax will therefore be due to the extent of the difference between the Massachusetts and other jurisdiction’s tax rates in:
- Delaware – Delaware has no state sales or use tax. With respect to motor vehicles, Delaware has a limited credit for taxes paid elsewhere. Accordingly Massachusetts will grant a credit only when an owner registers his motor vehicle in the Commonwealth within ninety days after paying Delaware’s 2.75% registration fee on the vehicle.
- Georgia –The credit is limited to the 4% sales tax paid to the State of Georgia.
- Hawaii – The credit is limited to the 4% sales tax paid to the State of Hawaii.
- New Mexico –The state 5% sales tax does not apply to motor vehicles. New Mexico imposes a Motor Vehicle Excise Tax at 3% or 4.5% of the sales price.
- North Carolina – With respect to motor vehicles, Massachusetts will grant a credit only when an owner registers his motor vehicle in the Commonwealth within ninety days after paying North Carolina’s 3% Highway Use Tax on that same vehicle. With respect to all other types of personal property, a Massachusetts credit is available only for sales tax paid to the State of North Carolina and is not available for sales tax paid to any local jurisdiction in that state.
- South Dakota – Massachusetts will grant a credit for the 4% state sales tax paid on most tangible personal property; the credit is limited to 3% for motor vehicles.
- Virginia – Most tangible personal property is taxed at 3.5%, but motor vehicles are assessed at 3%; the credit for any sales tax paid to Virginia cannot reduce the Massachusetts use tax liability below $35 per vehicle.
C. The following jurisdictions have a credit similar to that provided in G.L. c. 64I, § 7(c) for all corresponding state and local taxes lawfully required by, and actually paid to, other jurisdictions, but the combined tax rate may not always equal, or exceed the Massachusetts 5% rate. The amount of use tax (if any) owed Massachusetts is determined by comparing the Massachusetts tax rate with the combined state and local tax rates in:
- Alabama – Tangible personal property is generally subject to a 4% state sales/use tax; the state taxes most motorized vehicles at 2%.
- Alaska – Alaska has no statewide sales tax, but has more than 100 local jurisdictions applying nine different sales tax rates (from no tax to 7%). Massachusetts will give credit for any sales taxes actually paid these jurisdictions.
- Illinois – No use tax be will be due Massachusetts on most sales of tangible personal property which are subject to a 6.25% state sales tax. Taxes on casual and isolated sales of used vehicles range from $25 to $1,500.
- New York
D. The following jurisdictions either (1) have no sales tax; or (2) the provision of state law that is most analogous to G.L. c. 64I, § 7(c) allows no credit for taxes paid to other states on specific types of property such as motor vehicles.
1. States without a sales tax include:
- New Hampshire
2. States with significant limitations on their tax credit include:
- Arkansas – Arkansas denies any credit for sales taxes paid to other states on motor vehicles, trailers, and semi-trailers that the purchaser first registers in Arkansas. Hence, the Commonwealth will not credit any taxes similarly paid to Arkansas whenever Massachusetts is the first state of registration for that purchaser. With respect to all other tangible personal property, Arkansas grants a corresponding exemption.
- Oklahoma – There is no reciprocal credit on motor vehicles; with respect to all other tangible personal property, any Massachusetts credit is limited to the 4.5% state sales tax.
- Mississippi – Mississippi allows a corresponding credit for individuals only if the sale and the first use of taxable property both occur in the same state that collected the tax. Credit is also not allowed for any tax paid on most motorized vehicles if the vehicles are first used in Mississippi. Massachusetts will accordingly mirror these exceptions in crediting any sales tax paid to Mississippi.
- West Virginia – West Virginia grants a corresponding credit with respect to all tangible personal property except motor vehicles.
VI. Payment of Use Tax
A. Taxable Personal Property Other Than Motor Vehicles and Trailers
1. Individual, Non-business Taxpayers
Individual non-business taxpayers may file an annual use tax return, Form ST-11, and pay in full all of the tax due on out-of-state purchases made during the calendar year. The use tax return and payment are due no later than April 15 of the year following the calendar year the purchases were made. G.L. c. 62C, § 16(i); 830 CMR 62C.16.2(5)(e). Alternatively, beginning with purchases made during calendar year 2002, individual, non-business taxpayers may pay their use tax on out-of-state purchases by completing a line item on Form 1, the Massachusetts Resident Income Tax Return, or Form 1-NR/PY, the Nonresident/Part-Year Resident Individual Income Tax Return. See TIR 03-3.
2. All Other Taxpayers
Registered vendors must report their use tax obligations on their sales and use tax returns and pay any use tax due according to the reporting schedule set forth in regulation 830 CMR 62C.16.2 (5). Business purchasers who are not required to be registered vendors must file an annual use tax return, Form ST-10, and pay any tax due in full no later than April 15 of the year following the calendar year of purchase. See 830 CMR 62C.16.2(5)(f).
B. Taxable Motor Vehicles and Trailers
Unless otherwise exempt, all motor vehicle and trailer sales or use in Massachusetts create either a sales or use tax obligation for the purchaser or user. For non-exempt vehicles that are not required to be registered or titled in Massachusetts, the purchaser must pay the sales tax in full and file a completed Form ST-7R with the Department of Revenue or Registry of Motor Vehicles by the twentieth day of the month following the month of sale. For non-exempt vehicles that are required to be registered or titled in Massachusetts, the owner must pay the sales or use tax in full and file Form RMV-1 with the Registry of Motor Vehicles within ten days after the sale, transfer or use of such vehicle within Massachusetts. See 830 CMR 64H.25.1(4).
Commissioner of Revenue
February 19, 2003