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Out-of-State Contractors and Subcontractors

Learn the Department of Revenue's (DOR's) registration requirements when working as an out-of-state contractor or subcontractor in Massachusetts.

Page updated: April 30, 2020.

Table of Contents

Overview and registration

A contractor or subcontractor is a person who works in the following activities relating to real property:

  • Construction
  • Reconstruction
  • Alteration
  • Remodeling
  • Repair.

Out-of-state contractors or subcontractors doing business in Massachusetts are responsible for:

  • Registering as an Out-of-State Contractor via DOR's MassTaxConnect to:
    • Submit/attach a Guarantee Bond Form or pay a surety deposit for any project valued at $20,000 or more (including materials).
    • Pay sales and or use tax on purchases of project materials. 
    • Register, file and pay for other applicable taxes.
  • Presenting a DOR Certificate of Compliance to the hirer before completion of a project.
    • DOR will issue a Certificate of Compliance to a contractor or subcontractor who has complied with the registration process, including filing and paying of all applicable taxes. 

As an out-of-state contractor or subcontractor, there are many advantages to registering your business with MassTaxConnect, including:

  • Faster online processing.
  • MassTaxConnect is available to you 24/7.
  • MassTaxConnect is secure and centralized: all forms and documents can be filled out or accessed online, at your convenience.
  • Ability to attach documents at any time.
  • Ability to make an electronic surety payment.
  • Ability to amend your project.
  • Ability to request a refund on your project where a surety payment was first submitted with MassTaxConnect.
  • Ability for contractors and sub contractors to track the status of all open contracts through their online Out-of-State Contractors account.
  • Ability to print your Certificate of Compliance, instead of waiting to receive through the mail.
  • Ability to send a secure e-message with your questions.
  • Saving money on postage.

Out-of-state contractors or subcontractors still have the option to register with DOR by mailing a paper Registration Form with a Guarantee Bond Form or certified (surety) check.

However, registering on paper is a longer process and out-of-state contractors or subcontractors would still have to register with MassTaxConnect to file and pay for other applicable taxes.

To learn more about Massachusetts taxes see:

Visit Directive 05-3: Nonresident Contractors for more information.
Please note that the sales and use tax rate is 6.25%.

Bond and deposit requirements

The amount of the bond or surety payment is 6.25% of the total price of the contract. The bond must be modified or an additional payment must be sent if the price of the contract increases during any part of the project.

If submitting a bond, the following applies:

  • Section 1 of the Guarantee Bond Form must be filled out accurately and completely.
  • Bond must be completed by bonding company and have valid signatures and seal.
  • Bonding Company must also include a power of attorney designating the bonding company as an agent for all matters pertaining to the job in Massachusetts.
  • Bond must remain in effect for at least 6 months after the completion date of the contract.
    • If a sales and use tax return is due, the bond must remain in effect from the start date of the contract to six months after the due date of the return.

Exemptions from bond and deposit requirements

Out-of-state contractors and subcontractors are always required to register with DOR. However, a bond or deposit isn’t required if:

  • The contractor or subcontractor has been approved by DOR's Out-of-State Contractor's Unit as an "in state" contractor or subcontractor.
  • A project has a total cost of less than $20,000.
  • A project has charges for labor only.
  • A project involves purchases of material for exempt entities such as:
    • Government agencies (Form ST-5C is required)
    • Religious and charitable IRC Section 501 (c)(3) organizations (Form ST-5C and Form ST-2 are required).

For exemptions for government agencies, and religious/charitable Section 501 (c)(3) organizations, a completed Form ST-5C: Contractor’s Sales Tax Exempt Purchase Certificate is required to be presented to:

  • DOR during the out-of-state contractor or subcontractor registration process.
  • Other contractors and subcontractors with whom out-of-state contractors or subcontractors work with.
  • Vendors for whom out-of-state contractors or subcontractors buy project materials from. 

For non-government agencies and religious/charitable Section 501 (c)(3) organizations, certain sales tax exemptions may apply for purchases for use in an exempt activity, including, but not limited to:

  • Agricultural production
  • Commercial fishing
  • Manufacturing
  • Research and development.

However, these sales tax exemptions do not eliminate DOR's bond or deposit requirement for contractors or subcontractors. A completed Form ST-12: Exempt Use Certificate is required to be eligible to receive these exemptions.

    All parties are responsible for making sure that exempt certificates are up to date and valid.

    Bond and deposit refunds

    DOR does not release or refund bonds. An out-of-state contractor or subcontractor must contact their bonding company to learn how this process works.

    DOR will refund a surety payment if:

    • The project has been completed.
    • All taxes applicable to the project have been filed and paid.
    • The taxpayer is registered as an Out-of-State Contractor via MassTaxConnect and selects Request Refund from their account.
    • The taxpayer is registered for other tax types via MassTaxConnect and sent an e-message requesting a refund. 
    • The taxpayer requested a refund by sending a letter to DOR's Out-of-State Contractors Unit:

      Massachusetts Department of Revenue
      Out-of-State Contractors Unit
      200 Arlington St.
      Room 4300
      Chelsea, MA 02150

    DOR Certificate of Compliance

    DOR will issue a Certificate of Compliance to an out-of-state contractor or subcontractor who has complied with the registration process, including filing and paying all applicable taxes. 

    Those who registered and were approved via MassTaxConnect can print their Certificate of Compliance, instead of waiting to receive through the mail.

    It's the responsibility of an out-of-state contractor or subcontractor to present the Certificate of Compliance to their customer before a project is finished. An out-of-state contractor or subcontractor who does not comply will be subject to audit.

    If a customer does not receive a Certificate of Compliance, it's the customer's responsibility to contact DOR's Out-of-State Contractors Unit. 

    If a customer fails to comply, the customer would be personally liable for any tax due on materials used to complete a contracted project.

    Visit Hiring subcontractors and customer responsibilities for more information.

    Bringing building materials into Massachusetts

    A 6.25% use tax is due on the entire purchase price of building materials brought into Massachusetts from:

    • A non-use tax state (such as New Hampshire)
    • Another country.

    Materials brought into Massachusetts from a state with less than a 6.25% sales tax rate, require the difference (use tax) be paid to DOR. 

    • For example, a 5.50% sales tax on materials paid to Maine, would require the remaining .75% be paid as a use tax to DOR. (6.25% – 5.50% = .75%)

    Materials brought into Massachusetts from a state with more than a 6.25% sales tax rate, do not require the difference to be paid (use tax) to DOR.

    • For example, a 8.0% sales tax on materials paid to New York would not require the difference to be paid (use tax) to DOR a long as:
      • The out-of-state contractor provides supporting invoices (no more than 5) from purchases made in New York.

    Out-of-state contractors and subcontractors register to file and pay use tax via MassTaxConnect.

    Visit Business Use Tax for more information.

    Hiring subcontractors and customer responsibilities

    A customer who hires an out-of-state subcontractor to work in Massachusetts is responsible for making sure that the subcontractor: 

    • Registers with DOR's Out-of-State Contractors Unit.
    • Files a bond or pays a deposit to DOR for projects valued at $20,000 or higher (that includes material).
    • Pays sales and or use tax on purchases of project materials.
    • Registers with DOR to file and pay applicable taxes via MassTaxConnect.
    • Presents a DOR Certificate of Compliance to the hirer before completion of a project.

    If a subcontractor does not comply with these obligations, it's the responsibility of the customer to contact DOR's Out-of-State Contractors Unit and:

    • Deduct 6.25% of all amounts payable to the subcontractor and 
    • Pay a deposit to DOR for projects valued at $20,000 or higher — that includes material.

    Please noteAt this time customers will not be able to remit payments on behalf of their subcontractors online. A check will need to be mailed to:

    Massachusetts Department of Revenue
    Out-of-State Contractors Unit
    200 Arlington St. Room 4300
    Chelsea, MA 02150

    Along with their check, a customer must include a letter that gives information about the company and project the check is being sent in for. This information must include:

    • Name
    • Address
    • Number the company is registered under (SSN or FID)
    • Amount of the contract
    • Name and description of the project.

    Frequently asked questions


    How do I check the status of my project?

    If your project was registered through MassTaxConnect, you can check the status by logging into your account. If you are not registered through MassTaxConnect, contact the Out-of-State Contractor’s Unit at (617) 887-6995.
     

    If I paid sales tax to the vendor, do I need to submit a bond or certified (surety) check.

    Yes. If you registered as an Out-of-State Contractor through MassTaxConnect, you can submit/attach the Guarantee Bond Form or make a surety payment online. Visit Bond and deposit requirements for more information.
     

    Does the Department of Revenue release or refund bonds?

    No. DOR does not release or refund bonds. An out-of-state contractor or subcontractor must contact their bonding company to learn how this process works. Visit Bond and deposit refunds for more information.
     

    How do I get my surety payment refunded?

    Visit Bond and deposit refunds for more information.
     

    What needs to be submitted to receive a Certificate of Compliance?

    DOR will issue a Certificate of Compliance to a contractor or subcontractor who has complied with the registration process, including filing and paying of all applicable taxes. Visit Overview and registration for more information.
     

    When will I receive my Certificate of Compliance?

    Customers who registered and were approved using MassTaxConnect can print their Certificate of Compliance from their MassTaxConnect account, instead of waiting to receive their certificate through the mail.
     

    Do we still have to submit a Guarantee Bond Form and Registration Form even though we are registered for taxes?

    Yes. You must register as an Out-of-State Contractor and submit a Guarantee Bond Form. Visit Overview and registration for more information.
     

    I paid 6% sales taxes to my state for the materials I brought to Massachusetts. Do I owe any Massachusetts sales taxes?

    Yes. Visit Bringing materials into Massachusetts for more information.

    I paid 8% sales taxes in New York for the materials I brought to Massachusetts. Do I still owe any Massachusetts sales taxes?

    No. Visit Bringing materials into Massachusetts for more information.

    My employees are all residents of Rhode Island. Am I required to withhold Massachusetts income tax?

    Under Massachusetts law, employers who have employees perform work in Massachusetts, regardless of the workers’ residency, are required to withhold Massachusetts income tax. If your project will be completed in less than two weeks, Massachusetts does not require the employer to withhold income tax. Visit Mass. General Laws Chapter 62B for more information,

    Can I still request a Certificate of Compliance if my project has been completed for more than one year?

    No. The Department does not issue Certificates of Compliance for projects completed more than one year after the end of the contract. 
     

    Can the project owner request a copy of the Certificate of Compliance issued by the Department of Revenue to a subcontractor?

    No. A Certificate of Compliance must be presented to the customer (hirer) by the subcontractor voluntarily. DOR cannot release a certificate to anyone but the owner of the certificate.


    What do I do if a subcontractor that I have hired has not fulfilled his/her obligations?

    Visit Hiring subcontractors and customer responsibilities for more information.

    Contact

    Out-of-state contractors or subcontractors registered with MassTaxConnect can send a secure e-message to DOR's Out-of-State Contractor's Unit or call/write:

    • (617) 887-6995
    • Massachusetts Department of Revenue
      Out-of-State Contractors Unit
      200 Arlington St.
      Room 4300
      Chelsea, MA 02150

    Massachusetts General Laws

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