The following categories of sales or types of transactions are generally exempted from the sales/use tax:
Food & clothing
Sales of food for human consumption (other than meals sold by a restaurant) and clothing costing $175 or less. For items that cost more than $175, sales tax is only due on the amount over $175 per item.
Periodicals
Sales of periodicals such as newspapers and magazines. Newsletters, however, are generally not treated as newspapers and may be taxable.
Admission tickets
Sales of tickets to activities such as sporting and amusement events.
Utilities and heating fuel
Sales of utilities (gas, steam, electricity) and heating fuel to:
- Residential users - Residential use includes use in any dwelling where people customarily reside on a long-term basis, whether or not they purchase the fuel, including: Residential users don't have to present exemption certificates.
- Apartment buildings
- Rooming houses
- Nursing homes
- Single family or multifamily homes (but generally doesn't include hotels)
- Small businesses - Businesses with 5 or fewer employees and gross income of less than $1 million. Businesses with multiple locations employing fewer than 5 people at any 1 location must use the total number of employees from all locations. To claim the exemption, present a Small Business Energy Exemption Certificate to the vendor.
- As of January 1, 2019, in order to make a tax free utility purchase, qualifying small businesses are required to register online through MassTaxConnect and obtain an SBE Certificate (Small Business Exemption), which must be presented to the vendor in order to obtain the exemption. See 830 CMR 64H.6.11 for more information on the qualifying small business energy exemption. The Certificate is effective for two years.
- Certain industrial users - Manufacturing facilities that use at least 75% of their energy in manufacturing or heating the manufacturing facility. Eligible industrial users must provide an Exempt Use Certificate (Form ST-12).
Telephone services to residential users
Sales of local residential telephone services billed on a recurring basis or for message unit charges (when provided to a residential purchaser), up to a total of $30 per month. This includes service provided to an individual for personal use at their residential address (including an individual dwelling unit such as an apartment).
For institutions where individuals reside (e.g., schools, nursing homes), telephone service is considered residential if it's provided to and paid for by an individual resident rather than by the institution. Telephone service provided to a business is not residential service even if the business is located in an individual's home.
If an otherwise residential telephone is used for business purposes, the business must file a Business Use Tax Return (Form ST-10) and pay tax on the service used.
Shipping and Transportation services
Shipping and transportation services are generally exempt. For example, a separately stated shipping charge by a common carrier is exempt if the shipping occurs after the property is sold. To be exempt, the shipping changes have to be reasonable and reflect the actual shipping and handling costs incurred in transporting the property. See more information about shipping and handling charges here.
Personal or professional services
Services such as:
- Accounting
- Insurance
- Legal and medical services
- Haircuts
- Car repairs
Items sold along with services (e.g., a bottle of shampoo from a salon, parts for a car repair), are taxable and must be itemized separately on the bill. Tax law treats some products as services and therefore exempts them, while others may have taxable and non-taxable elements. Although other products may be labeled custom or a service, they may not meet the legal definition for tax purposes.
In general, when determining the charges in a transaction that are taxable, the seller cannot exclude the cost of materials used, labor or service costs, or other expenses. However, charges for installing tangible personal property are not taxed as long as these charges separately stated from the charge for the tangible personal property.
If you're a service provider with questions about the taxability of your transactions, refer to the Services Enterprises regulation, 830 CMR 64H.1.1, or contact our Rulings and Regulations Bureau at rulesandregs@dor.state.ma.us.
Casual and isolated sales
Infrequent and nonrecurring transactions made by people or businesses that don't regularly make such sales. For example, sales of used appliances by a homeowner or sales at infrequent yard sales. Please note that generally, casual sales of cars, boats or trailers are taxable except for certain family transactions. See more detailed information on casual and isolated sales.
Resales
Sales where the purchaser is a registered vendor for sales tax purposes, and intends to resell the item or telecommunications services as part of business. The seller must be given a Sales Tax Resale Certificate (Form ST-4) and retain it as proof the sale was exempt for the reasons stated on the certificate. Vendors can confirm the validity of their customers' sales and use tax registration and resale certificates online through MassTaxConnect.
Sales Tax Resale Certificates are invalid for the sale or purchase of tobacco products.
Out-of-state sales and delivery
Sales where the purchaser accepts title to and possession of an item outside of Massachusetts. If a vendor must deliver to an out-of-state purchaser's address or an interstate common carrier, the sale is not taxable in Massachusetts. However, any taxable item brought into the state within 6 months of purchase for use, storage or consumption in Massachusetts is generally subject to the use tax.
Although a business with nexus in Massachusetts cannot accept a resale certificate from a customer that doesn’t have nexus in Massachusetts, it can instead accept a statement on the customer’s letterhead or with the customer’s business card attached. The statement must be signed under the pains and penalties of perjury. See Directive 89-10 for more information.
Drop shipments
A business with nexus in Massachusetts is required to collect tax when it ships goods to a consumer in Massachusetts on behalf of a retailer that is not required to collect the tax because it does not have nexus with Massachusetts. While the business with nexus in Massachusetts may not accept a resale certificate from its customer that doesn’t have nexus in Massachusetts, it may accept from its customer a notarized statement on the customer’s letterhead instead. See Letter Ruling 85-35 for more information. For a more detailed explanation of the rules regarding drop shipment transactions, please see TIR 04-26, Letter Ruling 85-60, and Directive 86-21.
Agricultural production
Sales of machinery, equipment and materials used directly and exclusively in agricultural production. See Directive 99-2 for more detailed information on these exemptions
Exempt organizations
Sales to organizations that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code (such as charitable and nonprofit organizations), as well as sales to agents of such organizations. To claim the exemption, the buyer or their agent must provide the vendor with:
- A signed copy of Sales Tax Exempt Purchaser Certificate (Form ST-5) or Contractor's Sales Tax Exempt Purchase Certificate (Form ST-5C), and
- A copy of the organization's Certificate of Exemption (Form ST-2) issued by DOR. The vendor must ensure that this form is complete and keep it to prove the sale was exempt. Otherwise, the vendor may have to pay the sales tax.
Eligible organizations wishing to apply for a Certificate of Exemption (Form ST-2), must apply via MassTaxConnect.
Although sales to exempt organizations are exempt from tax, retail sales made by exempt organizations are subject to sales tax, unless an exemption applies.
Government agencies
Sales made directly to federal and Massachusetts state or municipal government agencies or entities. To qualify, the agency must be a regular government department, or an entity wholly owned by the government, which exclusively performs governmental duties.
Additionally, sales of tangible personal property, including meals, to agents of governmental entities, are exempt, provided certain requirements are met. See Administrative Procedure 101: Organizations Exempt from Tax and Sales Tax on Meals for more information.
Contractors and subcontractors
Persons who complete installations as part of a contract for the construction, reconstruction, alteration, improvement, remodeling, or repair of real property. The construction contractor or subcontractor pays tax when they buy materials used to perform the contract.
If the contractor or subcontractor installs a complete unit of a standard item of tangible personal property on real property, and nothing other than installing, applying or connecting services are required, a different rule applies. Contractors in this situation are considered to be acting as retailers of tangible personal property, and they must collect sales tax from their clients on these items.
Sales of tangible personal property for use in fulfilling government public works projects to certain contractors and subcontractors acting as agents for governmental entities.
To claim the exemption, the contractor or subcontractor must provide the vendor with a signed copy of Contractor's Sales Tax Exempt Purchase Certificate (Form ST-5C), and a copy of the government agency's Certificate of Exemption (Form ST-2) issued by DOR. Contractors and subcontractors must indicate on Form ST-5C that they're claiming the exemption for property used to fulfill a contract to provide qualified services in a public project.
Selling materials, tools, fuel, machinery and replacement parts to contractors for one of the exempt uses described in G.L. c. 64H, § 6(r) and § 6(s) (e.g., manufacturing, research and development, agricultural production) are also exempt, regardless of whether the contractor is purchasing as an agent of the party that will use these items in the manner exempted by these provisions. Contractors claim the exemption by presenting an Exempt Use Certificate (Form ST-12) to their vendors upon purchase. Such contractors bear the burden of proof of showing on an audit that the items purchased are or will be used in an exempt way. If the items don't qualify for an exemption, a contractor will be liable for the tax.
The Department has published several guides, which provide more specific information detailing the sales tax compliance requirements for certain industries and types of contractors.
Visit Out of State Contractors and Subcontractors for more information.
Manufacturers
Sales of:
- Materials
- Tools
- Fuel
- Machinery, and
- Replacement parts
that will be used directly and exclusively in the actual manufacture, processing or conversion of the tangible personal property to be sold, including publishing a newspaper or operating a commercial radio broadcasting or television transmission.
Sales of the above items that are consumed and directly used in research and development by a manufacturing corporation or a research and development corporation generally are also exempt. See more information about the qualifications of a research and development corporation here, or e-mail our Rulings and Regulations Bureau at rulesandregs@dor.state.ma.us.
The vendor must get an Exempt Use Certificate (Form ST-12) from the purchaser and maintain proper records of these sales.
Contact
Since tax law is complex, the guidelines listed below may not apply to every transaction. To avoid interest or penalty charges on tax that was not collected properly, if you have any questions, call DOR's Contact Center at (617) 887-6367.