Massachusetts Small Business Development Center Network
Western Regional Office

 

Business Obligations

 


The following should be used as a guide since laws, regulations, rulings and rates change continually and require expert interpretation. Your lawyer and accountant should be consulted for specific answers. Fess listed are subject to change. Please visit the appropriate organization to determine the current fee schedule.

Secretary of State's Office
McCormack Building, 17th Floor
One Ashburton Place
Boston, MA 02108
617-727-7030

Massachusetts Department of Revenue
100 Cambridge Street
Boston, MA 02204
800-392-6089

Internal Revenue Service
JFK Federal Building
15 New Sudbury Street
Boston, MA 02203
800-829-4933


 

Zoning Regulations

Many cities and towns require businesses to be located only in commercial or industrial zones. Specific information regarding regulations should be obtained from your city or town clerk's office. 

  

True Name Registration

An individual or entity conducting business under any name other than its own, must file a Business Certificate that identifies the individual or entity and discloses the fictitious name under which it is conducting its business and provides the location of the business. The Business Certificate is required to be filed with the clerk's office of each city or town where the individual or entity has an actual place of business. For example, if John Smith, Inc. does business as Smith's Restaurant, it must file a Business Certificate. Fees are set by each city or town and vary. Business Certificates expire after four years and must be filed again.

  

Trademark, Service Mark and Copyrights

An individual or entity may register its trademark or service mark with the Massachusetts Secretary of State's Office. Forms may be obtained by visiting www.sec.state.ma.us or calling 617-727-2850. The completed form and filing fee should be sent to the Secretary of State's Office in Boston. Trademarks and service marks are renewable every five years.

Registering a trademark is not required by Massachusetts law. In order to protect your trademark beyond the geographic limits of Massachusetts, you will want to file for a federal trade or service mark. You will need a federal registration to use the trademark ™ symbol. The U.S. Patent and Trademarks Office website provides useful information on federal trademarks. Search for existing trademarks at Trademark Electronic Search System (TESS).

Copyrights can be obtained for original works of authorship, including books, paintings, sculptures, computer software, plays and movies. Information on copyrights can be found at the U.S. Copyright Office at www.copyright.gov. There is a filing fee for the U.S. Copyright Office (fee schedule). For general copyright information, download the Copyright Office's Copyright Basics primer by clicking here.

 

Patents

The U.S. Patent and Trademark Office grants patents which give the holder exclusive right to make, use or sell an invention. Patents are valid for 14 years for a design patent and 20 years for a use patent. U.S. patent rights are good only in this country. Separate filings are required for other countries. General information on patents can be found at www.uspto.gov/main/patents.htm.

  

Corporations

A corporation is a separate legal entity that exists under the authority granted by state law. A corporation has substantially all of the legal rights of an individual and is responsible for its own debts. It must also file income tax returns and pay taxes on income it derives from its operations. Typically, the owners or shareholders of a corporation are protected from the liabilities of the business. However, when a corporation is small, creditors often require personal guarantees of the principal owners before extending credit. The legal protection afforded the owners of a corporation can far outweigh the additional expense of starting and administering a corporation.

A corporation must obtain permission from the Secretary of State to use or do business under a fictitious name. A corporation must also adopt and file articles of incorporation and by-laws that govern its rights and obligations to its shareholders, directors and officers. A corporation is formed by filing Articles of Organization with the Secretary of State's Office which can include provisions relative to stock and the conduct and regulation of its affairs and for limiting, defining or regulating the powers of its directors or stockholders. It is recommended that approval of name availability should be obtained from the Secretary of State's Office prior to filing Articles of Organization.

An annual report must be submitted to the Secretary of State listing officers, directors and other information.

Corporations must file annual income tax returns with the IRS and with the state in which it was incorporated and possibly other states in which it does business. The elections made in a corporation's initial tax returns can have a significant impact on how the business is taxed in the future.

Incorporating a business allows a number of other advantages such as the ease of bringing in additional capital through the sale of equity, or allowing an individual to sell or transfer their interest in the business. It also provides for business continuity when the original owners choose to retire or sell their interest.

Should you decide to incorporate your business venture, you should seek the advice of competent legal counsel and business-oriented accountants.

 

Filing Name and Purpose of Corporation

  1. There can be as few as one person to establish a corporation. You must state the purpose of the corporation. Taxes and liability considerations should determine business forms.
  2. The State charges a filing fee for incorporation which enables corporations to issue stock. Click here for a list of the current fees.
  3. The name can be reserved for 30 days while papers are being prepared.

For further information, contact the Secretary of State's Office at www.sec.state.ma.us/cor/.

 

State and Federal Identification Number

  1. Sole proprietorships without employees can use the proprietor's social security number as a business identification number.
  2. Partnerships and corporations with or without employees, and sole proprietors with employees, must obtain Form SS-4 (Application for Employer Identification Number) from the IRS or Social Security Administration. 
  3. Partnerships and corporations with or without employees, and sole proprietors with employees, must obtain Form TA-1 from the Massachusetts Department of Revenue, Taxpayer Assistance Bureau.

 

State Tax Law

  1. If you plan to sell tangible personal property items at retail in Massachusetts, you must collect a Massachusetts Sales Tax. Exempt items - which include food products and clothing up to a certain amount - should be determined by the Sales and Use Tax unit of the Taxpayer Assistance Bureau.
  2. You must obtain a Sales Tax Vendor's Identification Number (Form TA-1) before you sell taxable items in Massachusetts. The tax for meals and regular sales is 6.25%.

 

Income Tax Returns

  • Sole Proprietors must file their tax returns annually and must file a declaration of estimated tax (federal form 1040-ES and state form ES) quarterly.
    • Federal Income Tax - Form 1040
    • Federal Schedule 1040-C (Profit & Loss) and Schedule 1040-SE
    • State Income Tax - Form 1
    • State Schedule C (Profit & Loss)
       
  • Partnerships must file their tax returns annually and must file a declaration of estimated tax (federal form 1040-ES and state form ES) quarterly.

    Partnership Entity:
    Federal Form 1065 (Profit & Loss) Federal Form K-1 to partners
    State Form 3 (Profit & Loss) State Form SK-1 to partners

    Partners:
    Federal Income Tax - Form 1040 with Schedule E
    State Income Tax - Form 1 with Schedule E
     
  • Corporations must file their tax returns annually and must also file quarterly using federal form 1120-ES and State Form 355-ES.
     
    Corporate Entity:
    Federal Form 1120 or Form 1120-S (Sub-S Corporations)
    Massachusetts Form 355A, 355 S/B, or 355S

    Note: Federal Corporation Income Taxed to Shareholders - To determine whether or not Sub-Chapter S status is desirable, an attorney or accountant should be consulted. If Sub-Chapter S corporation designation is elected and qualifies under the required time to make such an election, the corporation will not pay corporate tax on income except for a limited tax on capital gains. The shareholders will pay tax on corporate profit even though it may not be distributed.

    Massachusetts now allows for a Sub-Chapter S election for those under $9 million in gross revenues.

    • State Form 355-A (Corporation Excise Tax Return).
    • An Annual Report of Condition must be filed with the Commonwealth of Massachusetts Secretary of State's Office with a fee of $85. Corporations must pay a minimum state tax of $456 to the Department of Revenue, regardless of profitability. Failure to file these forms could result in the corporation being dissolved by the Commonwealth.

Withholding Tax

When hiring employees, have them fill our IRS Form I-9 and Form W-4. If your employees qualify for advance payments of the earned income credit, they must give you a Form W-5.

  1. An employer must withhold income tax from an employee's wages. The number of exemptions are claimed by the employee on IRS Form W-4 (Employee's Withholding Allowance Certificate) and the Commonwealth's Form M-4. 
  2. Sole proprietors are not subject to withholding taxes, but they must file an estimated income tax as stated above. Payments for corporate shareholder's and other employee's salaries are subject to withholding.

Federal Insurance Contribution Act (FICA)

  1. Sole proprietors and individual partners pay self-employment tax at a rate of 15.30% up to $62,700 (1996) and 2.9% on amounts over $62,700 (1996). However, corporate shareholders employed by corporations must pay 7.65% of their wages and the corporation must match their contribution with Medicare of 1.45% on amounts over $62,700 (1996).
  2. Corporations must pay a total of 15.30% (7.65% employer and 7.65% employee withholding on $62,700 of employee earnings). This is a match contribution.
    • Special depository requirements - see IRS rules
    • Quarterly filings - March, June, September & December

State Unemployment Insurance Tax

If you employ one or more persons for 13 weeks or more within one calendar year (need not be consecutively) or have a payroll of $1,500 or more within one calendar quarter, you must pay state unemployment insurance tax. Employers may qualify for a reduced benefit based on "experience" employment record of the business.

Quarterly contributions must be made to the Massachusetts Division of Unemployment Assistance (DUA) 30 days after the end of the months of March, June, September and December.

A subject employer has the responsibility of filing quarterly employment and wage details and making quarterly payments to DUA via the DUA QUEST self-service online system.

 

Federal Unemployment Tax Act (FUTA)

With state unemployment systems, FUTA provides for payments of unemployment compensation to workers who have lost their jobs. Most employers pay both a federal and a state unemployment tax. Only the employer pays FUTA tax; it is not deducted from the employee's wages. For 1999 the FUTA tax rate is 6.2%. The tax applies to the first $7,000 you pay each employee as wages during the year. The $7,000 is the Federal wage base. Your state wage base may be different. Generally, you can take a credit against your FUTA tax for amounts you paid into state unemployment funds. This credit cannot be more than 5.4% of taxable wages. If you are entitled to the maximum 5.4% credit, the FUTA tax rate after the credit is .8%.

There are three tests (general test, household employees test, and farm workers test) to determine whether you must pay FUTA tax. Each test applies to a different category of employee and each is independent of the others. If a test describes your situation, you are subject to FUTA tax on the wages you pay to employees in that category during the current calendar year.

For deposit purposes, figure FUTA tax quarterly. 

Use Form 940 or 940-EZ, Employer's Annual Federal Unemployment (FUTA) Tax Return, to report this tax. You can get this form by calling 800-829-3676.

 

Workers' Compensation Law

  1. If you employ one or more part-time or full-time employees, you must have Worker Compensation Insurance before your employees start work. This insurance can be purchased from any casualty insurance company. For more information, call 413-784-1133.
  2. Sole Proprietors and Partners must cover employees but are not required to cover themselves. Corporate principles employed by the corporation must secure Workers' Compensation Insurance on themselves as well.
  3. The Massachusetts Department of Industrial Accidents (DIA) has the responsibility of enforcing the law.

 

 

For additional information, please visit the following links:

Checklist for First Business Advisory Session  |  Do You Have What It Takes to Succeed in Business?  |  Preventure Considerations  |  Develop a Personal Budget  |  Guidelines for a Business Plan  |  Business Plan/Financing Proposal  |  Financial Resources  |  Business Obligations  |  How to Convince a Banker  |  Marketing Plan Outline  |  Frequently Asked Questions  |  SBDC Request for Counseling