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.
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Table of Contents

Overview

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 with DOR's Out of State Contractors Unit
  • Filing a bond or paying a deposit (certified check) to DOR for projects valued at $20,000 or higher — that includes material
  • Paying sales and or use tax on purchases of project materials 
  • Registering with DOR to file and pay applicable taxes via MassTaxConnect
  • Presenting a DOR Certificate of Compliance to the hirer before completion of a project

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

Registration, bond and deposit requirements

Before beginning work in Massachusetts, a contractor or subcontractor must submit the following:

The amount of the bond or check is 6.25% of the total price of the contract. The bond must be modified or an additional check 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 or 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.

A contractor or subcontractor must also register with DOR to file and pay all applicable taxes via MassTaxConnect.

To learn more about Massachusetts taxes visit:

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

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 certified (surety) check if:

    • The project has been completed
    • All taxes applicable to the project have been filed and paid
    • A letter has been sent to DOR's Out of State Contractors Unit requested a refund.
      • Massachusetts Department of Revenue
        Out of State Contractors Unit
        200 Arlington St.
        Room 4300
        Chelsea, MA 02150

    DOR Certificate of Compliance & customer responsibilities

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

    It's the responsibility of the contractor or subcontractor to present the Certificate off Compliance to their customer before a project is finished. Those that do not comply will be subject to audit.

    If a customer does not receive a Certificate off Compliance, it's the customer's responsibility to contact DOR.

    In some cases when a contractor doesn't comply, a customer will have to submit a check or furnish a bond.

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

    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-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%)

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

    For more information visit Business Use Tax.

    Hiring subcontractors

    An out of state subcontractor hired to work in Massachusetts has the same obligations as an out of state contractor:

    • Registering with DOR's Out of State Contractors Unit
    • Filing a bond or paying a deposit to DOR for projects valued at $20,000 or higher — that includes material
    • Paying sales and or use tax on purchases of project materials
    • Registering with DOR to file and pay applicable taxes via MassTaxConnect
    • Presenting 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 hirer (whether an out of state contractor or Massachusetts based contractor) to:

    • 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:

    Contact

    • (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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