STARTING AND OPERATING A BUSINESS IN MASSACHUSETTS



Copyright © 2000, Michael D. Jenkins
All Rights Reserved


BACK TO STATE CHAPTERS INDEX


NOTE: This is only one of 18 chapters of the electronic book, "Starting and Operating a Business in Massachusetts," from an older edition, and is provided only as a sample of the content of the publication. INFORMATION IN THIS SAMPLE CHAPTER IS SEVERAL YEARS OUT OF DATE AND SHOULD NOT BE RELIED UPON. For information on ordering the entire book, in its FULLY UPDATED 2007 EDITION, and the front-end "Small Business Advisor" software, click here.


CONTENTS OF THIS CHAPTER:


I. INTRODUCTION

II. LEGAL ENTITIES

(a) In General
(b) Sole Proprietorships
(c) Partnerships
(d) Corporations
(e) S Corporations
(f) Limited Liability Companies (LLCs)
III. BUSINESS ACQUISITIONS
(a) In General
(b) Bulk Sale Laws
(c) Tax Releases
(d) Unemployment Tax Rating of Seller
IV. MASSACHUSETTS TAXES AND OTHER GENERAL REQUIREMENTS
(a) In General
(b) State and Local Licensing
(c) Income and Franchise Taxes
(d) Sales and Use Tax
(e) Real and Personal Property Taxes
(f) Other Business Taxes
(g) Trade Names
V. EMPLOYER REQUIREMENTS IF YOU HAVE EMPLOYEES
(a) Employer Registration and Withholding
(b) Unemployment and Other State Payroll Taxes
(c) Workers' Compensation Insurance Coverage
(d) State Wage and Hour Laws
(e) State Occupational Safety and Health Laws
(f) Other Miscellaneous State Labor Laws
VI. STATE SOURCES OF HELP AND INFORMATION
(a) Key State Agencies Contact Information
(b) Small Business Development Centers
(c) Internet Sites
(d) Financing Sources


I. INTRODUCTION

Massachusetts has a fairly typical tax and legal structure under which businesses must operate. However, doing business in the state will require you to deal with a considerable number of state business regulations, and taxes are generally somewhat high, for most types of businesses.

In the past, the state was saw a considerable exodus of businesses to lower-taxed jurisdictions like New Hampshire, but this has changed dramatically in recent years, as the state has:
  • Balanced six budgets in a row without tax increases or new borrowing;
  • Reduced personal income tax rates on most types of income from 6.25% to 5.95% and again to 5.85% in 2000; a ballot proposition (Question 4) in the 2000 election further reduced the rate to 5.6% in 2001, 5.3% in 2002, and 5% thereafter (however, the state legislature, ignoring the ballot measure, froze the rate at 5.3% for 2003 and subsequent years, overriding a veto by the governor in 2002);
  • Reduced the tax rate on interest and dividends from 12% to 5.95% in 1999 and thereafter (since reduced further to 5.3% by a ballot measure approved by voters in 2000);
  • Repealed a 5% sales tax on services;
  • Eliminated the estate tax beginning in 1998 and later years;
  • Eliminated the capital gains tax for assets held for at least six years; and
  • Reduced the tax on bank income from 12.5% to 10.5% over five years.

As a result of these changes, a 2004 study by the Massachusetts Taxpayers Foundation showed that the "Taxachusetts" label no longer applies to the state -- in 2002, the state tax burden was only $96 per $1,000 of residents' income, which placed Massachusetts at 40th among the 50 states. (New York had the highest state taxes, at $131 per $1,000 of income.)

Like most states, Massachusetts imposes an income tax on corporations, a sales and use tax, various excise taxes, with property taxes imposed at the local level. The state has also adopted a limited liability company (LLC) law, and a limited liability partnership (LLP) law, so that businesses operating in Massachusetts in LLC or LLP form may obtain the advantages of limited liability, without incorporating or becoming subject to corporate taxation, generally. Besides those usual forms, the state of Massachusetts also has long offered another form of business entity, the Massachusetts Business Trust, as yet another way to organize your business.

At present, the state's economy is quite robust, in terms of the level of unemployment, average per capita income levels, and other economic measures. For example, in May, 2000, the state's unemployment rate was only 2.5%. This compares to a national unemployment rate of 4.1%. On the other hand, Massachusetts has a relatively high cost of living, compared to national averages.

To view the latest federal Bureau of Labor Statistics unemployment rate data for Massachusetts or any other state, visit the BLS website.

The state offers many advantages for businesses, including having one of the most highly educated work forces in the nation. Massachusetts has the highest concentration of colleges and universities in the nation, which have produced half of all the Nobel Prize winners in the United States.


II. LEGAL ENTITIES -- FILING FEES AND REPORTING REQUIREMENTS.

(a) In General. A business that operates in Massachusetts can operate as a sole proprietorship, a general or limited partnership, a corporation, or a limited liability company. In addition, like the federal tax law, the state income tax law also recognizes S corporations, for income tax purposes, and generally allows the income or losses of an S corporation to "flow through" and be taxed or deducted at the shareholder level, rather than taxing the corporation itself as an entity (except for larger S corporations).

Massachusetts also provides for limited liability partnerships, in which no partner is liable for debts of the partnership, in general, as in the case of a corporation or LLC, but with fewer legal formalities than are required for either a corporation or an LLC.

Each of the above entities is discussed below, along with the basic requirements for forming such an entity and any general ongoing (non-tax) reporting requirements that are applicable to it. The tax treatment of each form of legal entity is discussed in Section IV below.

(b) Sole Proprietorships. In general, sole proprietorships in Massachusetts can be formed without any formalities. However, as discussed in Section IV(b), it will generally be necessary to obtain one or more local business licenses from cities or counties in which you operate and, in some cases, state licenses, as well.

No separate tax form filing is required, generally, for a sole proprietorship, under the Massachusetts income tax law. Instead, as with the Schedule C on your federal Form 1040, you simply report the net income or loss from your sole proprietorship on your state personal income tax return. See Section IV(c) for information on the Massachusetts income tax and filing requirements for individuals.

(c) Partnerships. As a rule, general partnerships in Massachusetts can be formed with no formalities, although it is highly advisable to have a written partnership agreement. However, as discussed in Section IV(b), it will generally be necessary to obtain one or more local business licenses from cities or counties in which you operate and, in some cases, state licenses, for any type of partnership, including general or limited partnerships, or limited liability partnerships.

A limited partnership, in which there is at least one general partner (who is liable for partnership debts) and at least one limited partner (who is not liable for partnership debts), may also be formed under Massachusetts law. Unlike a general partnership, a limited partnership must generally have a written partnership agreement, and must file a certificate of limited partnership with the Secretary of the Commonwealth and pay a filing fee of $200.

Foreign limited partnerships must register with the Secretary of the Commonwealth before it may conduct business in Massachusetts, and must pay a $200 registration fee.

For information on limited partnership filing requirements, see the contact information for the Massachusetts Secretary of the Commonwealth, listed in Section VI(a).

Limited liability partnerships (LLPs) are a new form of partnership permitted under the laws of Massachusetts. Like an LLC, an LLP provides limited liability for its owners, while retaining the tax advantages of a partnership for federal and Massachusetts state income tax purposes. However, unlike an LLC, an LLP typically operates like a regular partnership, and is not required to file articles of organization. To form an LLP in Massachusetts, you must register with the Secretary of the Commonwealth and pay a filing fee of $500.

Foreign LLPs, those created under the laws of another state, must also register with the Secretary of the Commonwealth and pay a filing fee of $500.

Unlike the narrow provisions of the LLP laws in some states, which only protect partners of an LLP from personal tort liability in the case of malpractice or other wrongdoings by another partner, the Massachusetts LLP law appears to protect a partner in an LLP from all other types of liabilities of the partnership as well, such as contract obligations and trade debts, with the only exception being liability that arises out of the partner's own malpractice or other misconduct.

Every LLP doing business in Massachusetts, including both domestic and foreign LLPs, must file an annual report and pay an annual filing fee of $500.

For more information on LLP registration and reporting requirements, see the contact information for the offices of the Secretary of the Commonwealth, listed in Section VI(a).

Note that one potential drawback of LLPs, if you will do business in other states besides Massachusetts, is that some states, like California and New York, only recognize certain types of professional partnerships as LLPs. If yours is not a professional partnership, such other states may simply treat your LLP like an ordinary general partnership, with no limitation of liability.

A partnership agreement, for any type of partnership, should spell out in considerable detail such matters as the following:
  • How much and what kind of property will each partner contribute to the partnership?
  • What value will be placed on the contributed property?
  • How will profits and losses be divided among the partners?
  • How will gain or loss be allocated for tax purposes on property contributed to the partnership by one or more of the partners, where such property has a tax basis significantly greater or less than its agreed value?
  • When and how will profits be withdrawn from the partnership?
  • How will certain partners be compensated for their services to the partnership (if at all)?
  • How will partners be compensated for making capital available to the partnership?
  • How will changes in ownership of interests in the partnership be handled?
  • When will the partnership terminate its existence?
  • How will the assets and liabilities of the partnership be handled when the partnership is terminated?

Partnerships, as entities, are not subject to state income tax in Massachusetts. Instead, the income or losses of the partnership, as allocated among the partners, must be reported on the personal income tax returns of the individual partners (or on the corporate tax returns of any corporate partners).

Partnerships are required to file an annual tax information return with the state. For details on Massachusetts partnership tax return filing requirements, see Section IV(c).

(d) Corporations. To form a corporation in Massachusetts, you must file articles of organization with the Secretary of the Commonwealth and pay a tax equal to 0.1% of the par value of the authorized stock of the corporation. No-par stock, or stock with par value of less than $1.00 per share, is deemed to have a par value of $1.00 per share. There is a minimum tax of $200, and any subsequent increases in authorized shares will be subject to tax at the same rate as upon incorporation, with a minimum tax of $100. A document filing fee of $35 also applies to such filings.

A foreign corporation (one formed under the laws of another state or a foreign country), must obtain a certificate of authority before it may legally conduct business in Massachusetts, by filing an application for a certificate of authority and paying a filing fee of $300. A document filing fee of $35 may also apply.

For more information on filing articles of organization or applying for a certificate of authority to do business in Massachusetts, see the contact information for the offices of the Secretary of the Commonwealth, listed in Section VI(a).

In addition, once your corporation is formed, it will be required to file annual reports and a filing fee of $85 with the Secretary of the Commonwealth each year. Failure to file this report on a timely basis could result in suspension or revocation of your corporation's charter.

In addition to paying federal income taxes on its income, a corporation that does business in Massachusetts must also file corporate income tax returns with the state. See Section IV(c) for a discussion of state corporate income tax rates and tax return filing requirements.

For tax forms and more information on corporate income taxes in Massachusetts, see the contact information for the offices of the Department of Revenue, listed in Section VI(a).

(e) S Corporations. An S corporation is simply a regular corporation that has elected, for federal or state income tax purposes, or for both, to be taxed somewhat like a partnership, with its income, losses and tax credits flowing through to its owners, who report such income, losses, or credits on their individual tax returns.

Massachusetts recognizes S corporations for income tax purposes, and generally treats them in a manner similar to the federal tax treatment, although larger S corporations, with total receipts of $6 million or more, are subject to state corporate tax, at a reduced rate.

(f) Limited Liability Companies. Massachusetts, like every other state in the U.S., has adopted a limited liability company (LLC) law. Thus, in addition to the traditional choices of sole proprietorship, partnership, or corporation, a business that operates in Massachusetts may also choose to operate in the form of an LLC. In most states, LLCs are very attractive entities for many small businesses, in that they offer the same protection as a corporation from creditors for debts of the business, while offering much of the flexibility plus the flow-through tax treatment of a partnership for federal tax purposes.

See Section IV(c) for a discussion of the income tax treatment of LLCs under Massachusetts tax laws.

To form an LLC under the laws of Massachusetts, one or more persons must file articles of organization with the Secretary of the Commonwealth, which must be accompanied by a filing fee of $500.

Until recently Massachusetts law did not allow the formation of domestic 1-member LLCs, but this rule has finally been changed, to allow formation of 1-member LLCs on and after January 1, 2003. Massachusetts had previously announced that, for tax purposes, it would treat a foreign 1-member LLC the same as it is treated for federal tax purposes (as a sole proprietorship, in most cases, such as where the LLC is treated as a "disregarded entity" under the federal tax law). The same treatment now applies to 1-member domestic LLCs where the LLC is disregarded for federal tax purposes.

Foreign LLCs, those formed under the laws of another state, must obtain a certificate of authority to do business in Massachusetts, by filing an application for a certificate of authority with the Secretary of the Commonwealth and paying a filing fee of $500. To obtain a certificate of authority, a foreign LLC must submit a certificate of good standing and a certificate of existence from the state in which it is domiciled.

In addition to initial filing fees, an LLC formed in Massachusetts must subsequently file annual reports and pay an annual report filing fee of $500 with each such annual report. A foreign LLC is also required to file an annual report and pay the applicable filing fee of $500.

For more information on filing articles of organization for an LLC, see the contact information for the offices of the Secretary of the Commonwealth, listed in Section VI(a).

III. BUSINESS ACQUISITIONS

(a) In General. When acquiring an existing business, there are a number of state legal and tax issues you or, preferably, your business attorney, should attend to before closing the purchase. These include matters such as doing a title search for any real property that is being acquired, checking for any recorded security interests on personal property items, and thoroughly researching county, state, and federal records for any judgment liens, tax liens, or other liens, before property is acquired. You will also benefit from consulting a tax advisor before the agreement of sale is negotiated, in order to seek a structuring of the agreement so that the purchase price is allocated among the assets in a way that favors you. You may be able to obtain considerable tax savings if the purchase price is allocated in a way that gives you the best possible tax results under federal and state income tax laws, and other state tax laws, such as sales/use tax or property tax laws.

Depending upon the state (or states) in which the seller's assets are located, you may also have to comply with state bulk sale or bulk transfer laws. You should also obtain tax releases from various state taxing agencies, as discussed below.

(b) Bulk Sale Laws. Typical bulk sale laws require either publication of legal notices to all creditors in advance of the sale and recording of such notices in some cases, or maintenance of detailed lists of the property to be transferred, for inspection by the public.

Massachusetts is one of the states that has repealed its bulk sale laws, so you no longer have to be concerned with this requirement when buying a business in Massachusetts.

(c) Tax Releases. When you acquire an existing business, you will want to make sure that you do not unwittingly become liable for any unpaid taxes owed by the seller. Typically, to protect yourself, you will need to receive a tax release or releases from various state taxing agencies, for such taxes as sales and use tax, income tax withholding, and state unemployment taxes, in each state in which the seller does business. If you fail to obtain such a release or written statement from the tax agency that the seller is not delinquent on any tax payments, you will be held responsible for such tax if it is not withheld from the purchase price proceeds and paid to the state at the time the sale of the business transpires.

In Massachusetts, there is no specific procedure for an unemployment tax release, but you should insist that the seller demonstrate that all such taxes have been paid on a timely basis and have the seller make a request in writing to the Division of Employment and Training for a statement of the seller's unemployment tax liability, if any.

You should also request a certificate of good standing from the Department of Revenue regarding the seller's liability for any unpaid state income, sales or employee withholding taxes that might be owed. Since August 11, 2004, the state Department of Revenue has established a new certificate of good standing application on the Internet. Taxpayers can use this site to apply for and receive a certificate of good standing in only three days.

(d) Unemployment Tax Rating of Seller. In addition to obtaining tax releases, you may find it advantageous to succeed to the seller's unemployment tax experience rating, if the seller has a tax rate lower than you would otherwise obtain as a new business. To obtain the seller's favorable experience rating as a successor employer, you will need to apply on a timely basis to the Division of Employment and Training, within 120 days after the business purchase, requesting that you be treated as a successor employer.


IV. MASSACHUSETTS TAXES AND OTHER GENERAL REQUIREMENTS.

(a) In General. Massachusetts has a very complex tax system for taxing both individuals and corporations, and tax rates in the state are generally very high, although the sales tax rate of 5% is relatively low.

(b) State and Local Licensing. Nearly any business, operated anywhere in the United States, will have to have at least one government license of some kind. In most cases, this will be a local license, issued by your city or county. Before you open your business, contact your local city or county hall and find out if your particular business needs one or more local licenses. Most kinds of local business licenses are granted upon payment of a fee, with no further requirements, except possibly for annual or other periodic renewal fees.

However, if you are engaging in any kind of food business, you will usually need to also obtain a health department permit and show that you are in compliance with health department food-handling requirements. In addition, be sure to check with an attorney or local government zoning or planning department officials to determine if your business will be in compliance with all local zoning and planning restrictions. If you own or rent any type of facility, you will generally need fire department permits, showing that you meet fire safety codes and any construction or improvements to an existing structure will usually require a building permit. If you intend to simply operate your business from your home, you may be in violation of local zoning requirements, but this is less likely to be a concern if you don't have clients, customers, suppliers, or employees coming to your house on business, on a regular basis.

State governments have also traditionally required special licenses for many kinds of professionals, such as for physicians, dentists, lawyers, and accountants. To further protect consumers, Massachusetts has expanded the list of occupations that must be licensed by the state to include many other occupations. Most state licenses not only require payment of fees, but are only issued for a given profession or occupation upon showing that you have completed certain educational or experience requirements, or passed certain tests, or some combination of the foregoing.

For information on state licensing and business registration requirements in Massachusetts, see the contact information for the offices of Division of Registration, listed in Section VI(a). The Division of Registration is an "umbrella" agency within the Office of Consumer Affairs and Business Regulation, and is responsible for ensuring the integrity of the licensing process for more than 45 trades and professions regulated by some 32 separate boards of registration.

(c) Income and Franchise Taxes. Massachusetts has both an individual income tax and a corporate income tax.

The Massachusetts individual income tax is a complex, 3-part tax. Part A, the tax on dividends, income, and certain capital gains, is imposed at a tax rate of 12%. Since 1999, dividends and interest are taxed at the rate of 5.95%. Part C is the tax on capital gains on assets held from 1 to 6 years (rate reduced to zero if held over 6 years), and Part B is all other income, which is taxed at a rate of 5.95% in 1999, and 5.85% in 2000. Under Ballot Measure 4, approved by voters on November 7, 2000, the Part B tax was further reduced to 5.6% in 2001, 5.3% in 2002, and to 5% in 2003 and later years. However, the state legislature in 2002 froze the tax rate at 5.3% for 2003 and subsequent years, notwithstanding the voters approval of Ballot Measure 4 and a veto by the governor, which was overridden by the legislature.


NOTE ON ELECTRONIC FILING AND PAYMENT: For tax years beginning on or after January 1, 2004, if you wish to request an extension of time for filing your Massachusetts individual income tax return, you must file the request by electronic means, if the tax payment with the extension is $5,000 or more, or if no payment accompanies the extension request.

In addition, all new businesses that register with the Department of Revenue on or after September 1, 2003 are required to file certain tax returns and make certain payments electronically, as are both new and existing businesses that apply for additional registration to collect wage withholding taxes, sales and use taxes, and certain other state and local taxes.

Beginning January 1, 2005, partnerships that file partnership information returns must do so electronically, if they have 25 or more partners and meet an income/loss threshold of either $50,000 gross income (or $100,000 or more received from sale of stock or securities), or an ordinary loss of $50,000 or more from a trade or business (or losses of $100,000 or more from sale of stock or securities).


Individual taxpayers generally pay state income tax on their business earnings from a sole proprietorship, or on their share of the earnings of a pass-through entity, such as a partnership, S corporation, or LLC. The Massachusetts personal income tax return is Form 1, which must be filed with the Department of Revenue.

Partnerships, or entities taxable as partnerships, such as LLCs, are not subject to state income taxation in Massachusetts, but must file an information return with the Department of Revenue each year, showing each partner's share of taxable income, losses, and credits, on Form 3. The partnership information return is due by April 15th of the following year, in the case of a calendar year partnership.

Individual taxpayers doing business as sole proprietors, or who are partners in partnerships, or members of LLCs, are required to make payments of estimated Massachusetts individual income taxes, on Form 1-ES, if their net tax liability (not covered by withholding) exceeds $200 ($400 beginning in 2005). Estimated tax payments are due in four installments, on the 15th day of the 4th, 6th, and 9th months of the taxable year, and the 15th day of the first month of the following year.

To avoid penalties for underpayment of estimated tax, you must either pay in 80% of the current year's tax, or 100% of the previous year's tax.

The Massachusetts corporate income tax rate, on corporations other than S corporations, is also computed in a complex manner. This tax, called the corporate excise tax, consists of two parts: a 9.5% tax on net taxable income, and a tax of $2.60 per $1,000 of tangible property in the state or per $1,000 of net worth, whichever is applicable.

The corporate excise tax is the sum of the two above calculations, and cannot be less than an annual minimum tax of $456. The state corporation income tax return is Form 355A for domestic corporations, or Form 355B for foreign corporations. It must be filed with the Department of Revenue by the 15th day of the third month following the end of the taxable year, or by March 15th in the case of a corporation whose taxable year is the calendar year.

Corporations are required to make estimated tax payments of their state corporate income tax in advance, if their tax liability for the year equals or exceeds $1,000. Estimated tax payments are due in advance, in four installments, on the 15th day of the 4th, 6th, 9th, and 12th months of the taxable year. Rather than paying in 4 equal installments, Massachusetts requires 40% of the estimated corporate excise tax to be paid with the first installment, 25% each with the second and third, and the remaining 10% of tax with the fourth installment.

The total estimated tax that must be paid in is usually equal to 90% of the actual tax liability for the year. However, if the preceding year was a full year of 12 months, the current year payments need only be equal to 100% of the prior year's tax liability, if less.

Penalties will be imposed for failure to make the required estimated tax payments on a timely basis.

S corporations are generally taxed in the same manner as under federal law. That is, the income or losses are taxed to the shareholders, not the corporation, at least for small S corporations whose gross receipts are under $6 million. However, an S corporation with between $6 million and $9 million of gross receipts must pay tax on its net income at a 3% tax rate, and S corporations with $9 million or more in gross receipts pay tax at a rate of 4.5% (which is still much less than the 9.5% tax rate on income of a regular corporation).

In Massachusetts, a limited liability company (LLC) will be taxed in the same manner as a partnership, thus avoiding the possible double taxation of income that can occur with a corporation. Note that under the IRS "check-the-box" regulations, effective in 1997, an LLC is able to elect to be treated as a partnership if it has more than one owner, or as a sole proprietorship if it does not, for federal tax purposes. Massachusetts law until recently did not permit formation of a one-owner LLC. However, effective as of January 1, 2003, Massachusetts became the last state to permit formation of one-owner LLCs. The state's Revenue Department has announced that it will treat all LLCs the same as they are treated for federal tax purposes, which will generally choose to be treated as sole proprietorships ("disregarded entities"), rather than as corporations, in the case of one-owner LLCs.

(d) Sales and Use Tax. Massachusetts imposes a general sales tax on retail sales of tangible personal property and certain types of services at the statewide rate of 5%. Sellers are required to obtain a seller's permit and to collect and pay over the sales and use taxes to the Department of Revenue.

There are numerous exemptions from the sales tax, the most important of which is the resale exemption. If you are a wholesaler or retailer who purchases goods that you will resell, your purchase of such goods may qualify as an exempt sale for resale. Similarly, if you sell goods to wholesalers or retailers for resale by them, your sale may also qualify as an exempt sale for resale. In any such transaction, the exemption is ordinarily available only if the purchaser gives the seller a valid resale certificate, certifying that the items are being purchased for resale, and not for use or consumption by the buyer.

A shadow tax, the use tax, is also imposed at the same rate as the sales tax. It is primarily intended to tax property that is acquired from sources outside of the state, in transactions not subject to sales tax, when such property is used or consumed within Massachusetts. Use tax may also apply to items purchased on an exempt basis, such as for resale, if such items end up being used or consumed, instead of being resold.

Before making any taxable sales, you will need to register with the Department of Revenue on Form TA-1, Application for Original Registration.

Note that the Massachusetts Department of Revenue has announced a moratorium on sales taxation of Internet services, as its tax on such services was felt to be putting the state at a disadvantage compared to other high-tech states which like California, Florida and the state of Washington, which have exempted such services, including Internet service providers (ISP's), from sales taxes.

For more information on Massachusetts sales and use tax registration and compliance, see contact information for the offices of the Department of Revenue in Section VI(a).

(e) Real and Personal Property Taxes. In Massachusetts, as in every other state, any business real estate you own will be subject to real property taxes.

Massachusetts also imposes personal property taxes on tangible personal property. However, certain business personal property, such as business inventories and machinery of corporations that are subject to the corporate excise (income) tax, are exempt from personal property tax in Massachusetts.

While Massachusetts generally taxes tangible personal property, it does not impose a property tax on intangible personal property, such as stocks, bonds, promissory notes, and other such paper assets.

All businesses with taxable property are required to file Form 2, listing all taxable property owned on January 1, by March 1 of each year, with the town assessor's office.

(f) Other Business Taxes. Massachusetts imposes a number of other taxes on businesses, including:

  • Taxes on alcoholic beverages;
  • Cigarette and tobacco products taxes;
  • Gasoline and other fuel taxes;
  • Motor vehicle registration taxes and fees;
  • Real estate transfer (conveyance) taxes; and
  • Various other taxes on special kinds of businesses, such as insurance companies and utility companies.

(g) Trade Names. A trade name, also known as a fictitious or assumed name, is any name used in the course of business that does not include the actual legal names of all the owners of the business. Thus, if your business goes by any name other than your own real name, it is operating under a trade name. The same is true of a corporation, if it operates under a name other than its legal name. A trade name might also be one that suggests the existence of additional owners, by using such words as "company," "associates," or "group."

In most states where you do business, it will be necessary to register a trade, fictitious, or assumed name, so that people who do business with you can find out who the actual owners of your business are. You may also want to register any such trade name, as a means of protecting against other companies usurping that particular trade name.

In Massachusetts, any unincorporated business operating under an assumed name must register the assumed name with the city or town clerk's office. However, corporations are exempted from this requirement, as is any partnership whose title contains the surname of at least one partner.


V. EMPLOYER REQUIREMENTS IF YOU HAVE EMPLOYEES

(a) Employer Registration and Withholding. If you have any employees, you will already be withholding federal income tax and FICA taxes from their wages. Since Massachusetts imposes a state income tax on the income of individuals, you will need to also withhold Massachusetts income tax from the wages of your employees. Before you begin to pay wages, you must register as an employer with the Department of Revenue, on Form TA-1.

For more information on Massachusetts income tax withholding and registration requirements for employers, see the contact information for the offices of the Department of Revenue, listed in Section VI(a).

(b) Unemployment and Other State Payroll Taxes. If your business employs one or more individuals in each of 13 weeks during any calendar year or if your payroll amounts to $1,500 in any calendar quarter, you, as an employer will be required to pay state unemployment tax based on the amount of such wages paid.

Employers subject to the Massachusetts unemployment tax are required to register with the Division of Employment and Training on Form 1110A, Employer Status Report, which is also used to obtain an employer identification number for unemployment tax purposes.

New employers are required to pay tax at a rate of 2.125% in 2000 on the first $10,800 of wages paid to each employee, in general, or 5.652% for construction industry employers. After you have had employees for a while, you will develop an unemployment tax experience rating. This rating is based on the number of employees you terminate who then claim unemployment benefits and the amount of such benefits paid to those former employees, under complex formulas. The state will inform you when they have assigned you an individual tax rate based on your firm's experience rating. That rate may be higher or, if you have had relatively few benefit claims charged to your account, lower than the standard new employer tax rate you initially were paying.

All state unemployment taxes are imposed upon you as the employer, and, under Massachusetts law, cannot be charged to your employees or withheld from their wages.

Employers with 6 or more employees are during a calendar quarter are also required to make contributions to a state health insurance fund for unemployed workers. This tax rate is generally 0.12% of covered wages, except that it is 0.04% in the first year an employer is subject to the unemployment tax law, and 0.08% in the second year.

For more information on your Massachusetts unemployment tax obligations as an employer, see the contact information for the offices of Division of Employment and Training, listed in Section VI(a).

(c) Workers' Compensation. Workers' compensation insurance is a state-mandated insurance requirement for most employers, in almost every state. In Massachusetts, virtually all businesses with one or more employees are required by law to have workers' compensation insurance, except those able to self-insure. Note, however, that a sole proprietor is generally not considered an employee. However, unlike the laws in most other states, a partner in a partnership doing business in Massachusetts may have to be covered, according to the Department of Industrial Accidents web site, which suggests that a self-employed person is not exempt, although there is nothing in the Workers' Compensation Act that specifically says a partner in a partnership is considered to be an employee. (However, see Ryder's Case, 341 Mass. 661, 171 N.E. 2d 475 (1961), which held that a partner is employed by himself or herself and thus is not covered by the Workers' Compensation Act.)

Similarly, unlike most states, Massachusetts requires that an employee of a corporation who is the sole stockholder of the corporation be covered for workers' compensation purposes.

Workers' compensation provides wage loss and medical benefits to employees injured on the job and it protects you, as an employer, from legal action for damages for injuries or job related illnesses suffered by your employees. In effect, it is a "no-fault" insurance system for work-related injuries or illnesses. Thus, if you fail to obtain required workers' compensation insurance, and an employee is injured on the job, you will have opened yourself to unlimited liability and severe legal consequences, so it is very important to obtain workers' compensation insurance for your employees.

Be aware that neither general liability nor health and accident insurance can properly substitute for workers' compensation insurance.

As an employer, you must notify injured employees of their benefits and post a notice in the workplace informing your employees of their workers' compensation coverage.

For more detailed information regarding your obligations as an employer under the Massachusetts workers' compensation laws, contact your insurance carrier or see the contact information for the offices of the Department of Industrial Accidents, listed in Section VI(a).

(d) State Wage and Hour Laws. Some employees of certain small firms not engaged in interstate commerce are not covered by the federal minimum wage and overtime laws. However, even if few or none of your employees are covered by the federal wage-hour laws, if, for example, because your firm does less than $500,000 a year in gross sales and the employees in question are not deemed to "...engage in (interstate) commerce...," they will still generally be subject to the Massachusetts wage-hour laws, which provide for a state minimum hourly wage that is currently $6.75 an hour, since January 1, 2001. The Massachusetts minimum wage laws do not apply to professional services, or to outside salespersons.

Massachusetts law also requires payment at time-and-a-half for overtime hours worked, in excess of 40 hours in a week. Note that, as under federal wage-hour laws, certain classes of executive, administrative, and professional employees are exempted from the Massachusetts overtime rules.

Employers are required to post the state minimum wage poster in the workplace.

In addition to wage-hour laws, most businesses are subject to federal child labor laws, which put numerous restrictions on the working hours and kinds of work in which minors under the age of 18 may engage. Your business must also be cognizant of similar state child labor laws, in the Commonwealth of Massachusetts.

(e) State Occupational Safety and Health Laws. Employers in Massachusetts must comply with state and federal job safety laws designed to prevent injuries resulting from unsafe or unhealthy conditions in the workplace. The Division of Occupational Safety and Health of the Department of Workforce Development enforces health and safety standards issued under the laws of Massachusetts. Unlike about half the states, Massachusetts does not have an OSHA-approved state plan, however, so most job safety enforcement in the state is the responsibility of the federal OSHA agency.

Note that while you may obtain a free safety consultation from federal OSHA experts, they must and will cite you for any violations they discover at your workplace. This is not the case with state safety inspections. If you request a safety consultation from the Division of Occupational Safety and Health and they detect violations, they will not cite you if you promptly correct the unsafe conditions.

For information on your job safety and health obligations as an employer, required posters, and possible on-site safety consultations, see the contact information for the Boston offices of the Division of Occupational Safety and Health the Department of Workforce Development, listed in Section VI(a).

(f) Other Miscellaneous State Labor Laws. Other Massachusetts labor laws you need to be aware of, as an employer, include the following:

(1) Wage payments to terminated employees. Wages must be paid weekly or biweekly, except in the case of bona fide executive or administrative employees, or in certain other limited instances. State law prescribes that an employee who voluntarily quits your employment must be paid final wages no later than the next regularly scheduled payday. However, in the case of an employee who is discharged, any wages owed to him or her must be paid on the day of discharge, generally.

(2) Right-to-work laws. About half the states have enacted "right-to-work" laws, which guarantee that no person may be denied employment for refusing to join a union or for not paying union dues, thus banning either "union shop" or "agency shop" agreements, or both. In a union shop, an employee not belonging to a union may be hired but then must join the union, usually within 30 days. In an agency shop, an employee need not join the union but, to remain employed, must pay union dues.

Massachusetts does not have such a right-to-work law and allows union shop or agency shop contracts between an employer and a union.

(3) State anti-discrimination laws. In addition to having to comply with federal anti-discrimination laws, employers must also be aware of and comply with state civil rights laws in Massachusetts, and must display a poster informing employees of their rights. You can obtain this poster from the Massachusetts Commission Against Discrimination, at the address listed in Section VI(a).

Massachusetts law not only bars the usual types of job discrimination based on race, sex, religion or national origin, but also specifically prohibits sexual harassment or discrimination on the basis of handicap or on account of a person's sexual orientation, other than persons "whose sexual orientation involves minor children." The state anti-discrimination law applies to all employers with six or more employees.

All employers except those with fewer than 25 employees are also subject to recordkeeping requirements under the Massachusetts employment discrimination law.

In addition, state law now requires (since January 1, 1997) that every employer with six or more employees adopt a written policy on sexual harassment.

Employers are required to post notices in the workplace containing excerpts from the Massachusetts employment discrimination laws, and can be fined up to $1,000 for failure to do so.

For more information on state civil rights laws, contact the Massachusetts Commission Against Discrimination, also listed in Section VI(a).

(4) Reporting new hires. Under new federal welfare reform laws, employers in all states are now required to report newly-hired (or rehired) employees to a designated state agency within 20 days after the date of hire.

However, since Massachusetts has already had a similar law since 1993, requiring reporting of new hires within 14 days to the Department of Revenue, it appears that the more stringent state law, rather than the federal, may continue to apply, at least in the near future. The Massachusetts new hire reporting requirement applies not only to employees, but also to independent contractors your business hires, if you anticipate paying the independent contractor $600 or more over the course of the year.

If you have Internet access, be aware that the Massachusetts Department of Revenue will soon allow such reports to be filed electronically over the Internet.


VI. STATE SOURCES OF HELP AND INFORMATION

(a) Key State Agencies Contact Information. Massachusetts, as many states have done in recent years, has set up "one-stop shopping" centerS to help your new or existing businesses to obtain all necessary state licenses and permits and comply with other state tax and regulatory requirements. These are the Business Assistance Resource Centers, which offers a wide variety of information and forms for the small business person concerning the legal requirements for doing business in the Commonwealth.

Their information is gathered from a number of agencies including but not limited to the Department of Employment and Training, Department of Industrial Accidents, Department of Revenue, the Internal Revenue Service, the Massachusetts Office of Business Development, and the state Attorney General's Office.

For additional information concerning the Business Assistance Resource Center, contact:

Business Assistance Resource Center
Corporations Division
Office of the Secretary of the Commonwealth
One Ashburton Place, Room 1710
Boston, MA 02108
(617) 727-2853
Or, contact:
Secretary of the Commonwealth
Citizen Information Service
One Ashburton Place, Room 1611
Boston, MA 02108
(617) 727-7030
(800) 391-6090 (Within Massachusetts)
In addition, the Massachusetts Office of Business Development (MOBD), which is a part of the Department of Economic Development, offers hands-on assistance to new or relocating businesses in the Commonwealth. If you call, they will assign a specialist to assist you with getting started and finding your way through the maze of state taxes and regulations. MOBD has a number of "one-stop" offices around the state. For more information, contact the main Boston office at:
Mass. Office of Business Development
10 Park Plaza, Suite 3720
Boston, MA 02116
(617) 973-8600
(800) 5-CAPITAL (Toll-free nationwide)
(617) 973-8797 (Fax)
E-mail: mobdMassachusetts.ma.us
Addresses and other contact information for other key Massachusetts state government agencies mentioned in this book are listed below for your convenience.

SECRETARY OF STATE. Contact the office of the secretary of state (which is called the Secretary of the Commonwealth in the Commonwealth of Massachusetts) for information on:

  • Limited partnership filings and information
  • Limited liability partnerships (LLPs) filings and information
  • Corporate filings, including articles of organization, and information on corporations
  • Limited liability company (LLC) filings, including articles of organization, and information on LLCs
  • Trademark and service mark registration
Secretary of the Commonwealth
Corporations Division
One Ashburton Place, 17th Floor
Boston, MA 02108
(617) 727-9440 (Tape recorded messages)
(617) 727-9640 (Corporate filings)
(617) 727-2859 (Limited partnerships, LLCs, LLPs)
TAXES. Obtain state income, sales and use tax, and other miscellaneous business tax forms, instructions and information from the Massachusetts Department of Revenue, which is the main tax collection agency in Massachusetts. Also register with this agency as an employer, for sales and use tax and state income tax withholding purposes, on Form TA-1.
Mass. Department of Revenue
Taxpayer Service Division
19 Staniford Street
Boston, MA
(617) 887-MDOR (887-6367)
(800) 392-6089 (Toll-free within Massachusetts)
Or, to request tax publications, use Department of Revenue Form 2000, Request for Massachusetts Forms and Publications, and mail it, with any required payment for return postage, to the Department of Revenue at:
Mass. Department of Revenue
P.O. Box 7033
Boston, MA 02204-7033
STATE LABOR LAWS. Contact the following agency about your obligations as an employer under various state labor laws, including:
  • Massachusetts wage-hour laws
  • Massachusetts child labor laws and regulations
  • Other miscellaneous Massachusetts labor laws
Division of Fair Labor and Business Practices
Labor and Business Protection Bureau
Office of the Attorney General
200 Portland Street
Boston, MA 02114
(617) 727-3476
STATE LICENSES. The following agency is the main Massachusetts licensing agency. Register with this state agency for various professions and occupations that require special state licenses.
Division of Registration
239 Causeway Street
Boston, MA 02114
(617) 727-3074
STATE SALES TAX. Obtain your sales and use tax license or permit and information on the Massachusetts sales and use tax law from the Department of Revenue, at the address listed above for that agency.

STATE UNEMPLOYMENT TAX. Contact the following state agency to determine whether you are an employer subject to payment of state unemployment taxes, and for registration as an employer if you are subject.

Division of Employment and Training
19 Staniford Street
Boston, MA 02114
(617) 626-5243 (617) 523-4882
NEW HIRE REPORTING. Report newly hired employees, or independent contractors to whom you expect to pay $600 or more in the course of the year, to the Department of Revenue at the following address, by mail or fax, within 14 days of hiring. Note that by the time you read this you may be able to file such reports on the Internet.
Department of Revenue
P.O. Box 7032
Boston, MA 02204
(800) 332-2733
(617) 887-5049 (Fax)
WORKERS' COMPENSATION INSURANCE. If you employ workers for whom you must supply workers' compensation coverage, contact the following agency for further information:
Department of Industrial Accidents
600 Washington St., 7th Floor
Boston, MA 02111
(617) 727-4900
(800) 323-3249 (Toll-free)
STATE OSHA PROGRAM. For information on state occupational safety and health laws that affect you as an employer in Massachusetts, contact:
The Commonwealth of Massachusetts
Department of Workforce Development
Division of Occupational Safety and Health
1001 Watertown Street
West Newton, Massachusetts 02165
(617) 727-3982
(617) 727-4581 (Fax)
There is no approved state OSHA program in Massachusetts. The federal government provides federal OSHA enforcement instead. For required posters and information on federal occupational safety and health laws that affect you as an employer in Massachusetts, contact:
U.S. Department of Labor/OSHA
Regional Office
JFK Federal Building, Room E340
Boston, Massachusetts 02203
(617) 565-9860
(617) 565-9827 (Fax)
STATE ANTI-DISCRIMINATION LAWS. Contact the following state agency for more detailed information on Massachusetts civil rights laws that may apply to your business, and to obtain anti-discrimination notices you are required to post in the workplace:
Mass. Commission Against Discrimination
One Ashburton Place, 6th floor
Boston, MA 02108
(617) 727-3990

(b) Small Business Development Centers. A number of Small Business Development Centers (SBDCs) are located throughout Massachusetts to assist you. These centers, usually located on college campuses, provide a wealth of start-up information and sponsor frequent business-oriented seminars. Contact the lead office below for information, or for the location of other SBDCs nearer to you.

Mass. Small Business Development Center
University of Massachusetts
205 School of Management
Amherst, MA 01003
(413) 545-6301
(413) 545-1273 (Fax)

(c) Internet Sites. If you have access to the Internet, there is a wealth of state and even local business information provided by state and local governments. All states now have a state government Web page, and most major state agencies also have sites on the Internet where you can obtain useful small business information on matters such as state taxes, financing sources, or the addresses and phone numbers (or e-mail addresses) of various state and federal agencies' offices in Massachusetts.

Since new sites are appearing constantly, you might also want to search for other Massachusetts government Web sites by using one of the popular Internet search engines, such as Excite! or Yahoo.

To start your Internet search for Massachusetts government information, you may want to begin with the following Internet sites:

Commonwealth (state) of Massachusetts home page:

http://www.state.ma.us/
Massachusetts Department of Revenue (taxpayer assistance, downloading of state tax forms):
http://www.state.ma.us/dor/dorpg.htm
Massachusetts Office of Business Development (operates several "one-stop" centers that assist new and startup businesses):
http://www.state.ma.us/mobd/mobdhome.htm
Division of Employment and Training (unemployment tax, state anti-discrimination law posters):
http://www.detma.org/index.htm
Secretary of the Commonwealth (corporate, LLC, LLP, and limited partnership filings; also offers Citizen Information Services for new and small businesses):
http://www.state.ma.us/sec/index.htm
Massachusetts Commission against Discrimination (information on employer requirements under state anti-discrimination laws):
http://www.state.ma.us/mcad/
Massachusetts New Hire Reporting (Department of Revenue web page):
http://www.state.ma.us/cse/PROGRAMS/newhire/nhfast.htm

(d) Financing Sources. For information and help on locating financing for your small business, contact the nearest U.S. Small Business Administration office in Massachusetts. The address of the main SBA Office in Massachusetts is:

U.S. Small Business Administration
Regional Office
10 Causeway Street
Boston, MA 02222-1093
(617) 565-8415
(617) 565-8420 (Fax)
Also, the state offers a number of loan programs and financial assistance programs for business. Contact the state's Office of Business Development (see address listed above in Section VI(a)) for information on state financial assistance programs.

Copyright © 2000 Michael D. Jenkins
Last modified: December 6, 2000