Moderated by Srishti, Digital Transformation Consultant at Hyperbots
Srishti: Hello, everyone! My name is Srishti Rajvir, and I’m a digital transformation consultant at Hyperbots today. I’m delighted to have Dave Sackett as my guest. Thank you so much for taking the time, Dave.
Dave Sackett: Yeah. Thanks, Srishti.
Srishti: So a little bit about Dave for our viewers. He is the VP of Finance at Persimmon Technologies, and today we will be discussing the Massachusetts sales tax system. So whenever you’re ready, Dave, we can get started.
Dave Sackett: Okay, sounds good. I’m ready.
Srishti: Alright, to start with, could you explain how Massachusetts’ sales tax system stands out, especially in terms of the rates and the products that are taxable?
Dave Sackett: Sure, Massachusetts has a statewide sales tax rate of 6.25% on most goods and services. This is relatively straightforward, but there are some exceptions. For example, there’s tangible personal property that’s taxable, while food and clothing are generally exempt. Prepared food, like meals in restaurants and hot food sold in grocery stores, is taxable. It’s important for businesses to understand these distinctions to avoid errors when they file their taxes.
Srishti: That’s helpful. Speaking of exemptions, could you provide some specific examples of goods or services that are exempt from sales tax in Massachusetts?
Dave Sackett: Yeah, sure. Certain goods and services are exempt from sales tax, including clothing, most food items, and prescription drugs. For example, if you buy a pair of jeans or a sweater, it won’t be taxed. However, if you dine at a restaurant or buy food outside, that is taxed at the 6.25% rate. Another example is prescription medications. These are exempt, but over-the-counter drugs, vitamins, and cold medicines—you’ll be paying tax on those.
Srishti: That sounds like businesses really need to stay on top of the details to remain compliant. So what challenges do businesses face in handling sales tax with these exemptions and different rates, especially those with multiple locations?
Dave Sackett: Yeah, there is complexity in applying the correct tax rates, especially when dealing with exemptions. One of the biggest challenges is knowing whether something is taxable or not. Businesses that operate across municipalities face additional complications, as some localities impose their own taxes on top of the state rate. Tracking which items are taxable or exempt requires a system. For example, differentiating between grocery store food and prepared meals—a grocery store might sell both a cold salad, which is exempt, and a hot meal, which is taxable. Distinguishing between these two for every transaction requires a tool.
Srishti: I see. How frequently do Massachusetts sales tax rates or exemptions change, and what strategies do businesses use to keep up with these updates?
Dave Sackett: Massachusetts generally has a stable tax rate, but exemptions can change. It’s politically driven in some cases, and there are occasional updates to the regulations. For example, changes can occur in the types of food services that are exempt from sales tax. Companies need to monitor updates from the Massachusetts Department of Revenue to ensure compliance with any changes in the laws. Having an automated system that can track these changes and apply them across transactions is a super helpful tool. For instance, if a state changes its policy on sales tax exemption for certain food items, businesses would need to update their point-of-sale system immediately to reflect that change and ensure they’re collecting the correct tax.
Srishti: Understood. And in your experience, how can AI and automation help businesses maintain compliance with Massachusetts’ sales tax rules?
Dave Sackett: AI and automation can play a huge role in improving efficiency and accuracy in tracking sales tax. AI can automatically determine the correct tax rate for transactions based on the customer’s location, the product type, and whether it’s taxable or exempt.
Srishti: Additionally…
Dave Sackett: There are AI tools to keep track of regulatory changes, ensuring businesses update their systems whenever tax rates or exemption rules change. If Massachusetts were to modify the taxability of certain digital products, AI could update the system instantly to reflect the new rule, ensuring businesses don’t miss it.
Srishti: Understood. Can you share a specific example of how AI has helped a business navigate Massachusetts’ sales tax rules?
Dave Sackett: Yes. A company that sells both tangible goods and prepared food had issues ensuring the correct sales tax was applied at checkout, especially when operating in multiple regions. With AI automation, the system is now automatically classifying food items as either taxable or exempt based on the preparation method. For example, a customer buying a cold sandwich from a deli would pay no tax, but a hot sandwich would be taxed. AI in the background ensures the correct tax is applied each time. This streamlined the process, reducing manual effort and errors.
Srishti: That’s an amazing example. Now, when businesses have to handle multiple exemptions or taxability rules, how can they streamline their processes to avoid errors?
Dave Sackett: To avoid errors, businesses need correct classifications and automated tracking of tax. AI can help by instantly classifying products at the point of sale and ensuring the correct tax rate is applied to each transaction. Businesses should also invest in systems that integrate directly with the state tax authority for updates. For example, if Massachusetts changes the definition of prepared food or creates new exemptions, the system should automatically update without manual intervention by the finance team.
Srishti: Understood, and this is really helpful. That brings me to the last question: what advice would you offer to businesses finding it difficult to keep up with sales tax rules in Massachusetts?
Dave Sackett: My advice would be to implement a reliable sales tax automation solution that uses AI. These tools can handle complex calculations, track changes in regulations, and apply the right tax rate in every situation. Staying informed is critical, so combining automation with a proactive approach to monitoring state regulations will reduce the risk of non-compliance. Also, maintain a strong relationship with your tax advisor to ensure your business stays on top of Massachusetts-specific rules. Additionally, businesses must consider not just sales tax but also Massachusetts use tax on items they buy and use in the business.
Srishti: Understood. Thank you so much for sharing your expertise today. It has been really insightful. I’m sure our audience will find these tips very helpful. That brings us to the end of our discussion. Thank you so much, Dave, for being a part of this.
Dave Sackett: Yeah. Thank you. Happy to help.
Srishti: Of course. Thank you so much, and to our viewers, we’ll stay connected and see you next time. Bye-bye. Have a good one!
Moderated by Kate, Financial Technology Consultant at Hyperbots
Kate: Hello, everyone! My name is Kate, and I’m a financial technology advisor here at Hyperbots. Today, I’m thrilled to have Jon Naseath with me. Hey, Jon, how are you doing?
Jon Naseath: Hey, Kate, doing good. How are you doing today?
Kate: I’m doing wonderful. So Jon is the COO at Cantu Capital, Inc. Today, Jon and I will be discussing the complexities of California sales tax regulations and how companies can stay compliant. Let’s dive right in. Coming to the first question, Jon, can you provide an overview of California sales tax rules, particularly on which goods and services are taxable, and which are exempt?
Jon Naseath: Sure, and I’ll just start by saying that California is a fun place to do business. There are always lots of different regulatory considerations, and the more the government tries to help, in many ways, it just becomes more complicated for accounting. A lot of times, that turns into more money, anyway. So I’ll get off my soapbox. But sure, California sales tax rules are complex. One main example is that most tangible goods are taxable, like electronics, clothing, and vehicles—your normal physical products. However, essential items like groceries and prescription medicines are exempt. They’ve wanted to make it so that people can buy the food they need and have kind of an influenced benefit on those versus other things. Like many jurisdictions, California uses tax policy to try to influence behavior. Prepared foods at restaurants are taxable, but unprepared foods are not. You’ve probably seen this where a restaurant asks if you’re eating in or taking it out; different tax rules can apply. It gets pretty complicated. Services are not typically taxed unless they involve creating or modifying a tangible good. For example, repairs on appliances are taxed because they involve a tangible outcome. It’s a bit complicated, but California isn’t unique. I’ve done business in places like China and India, where we faced similar complexities. Brazil, as everyone knows, is a particularly challenging place for taxes. Just the concept of having multiple layers of local, state, and federal regulations makes it tricky. Today, we’ll pick on California, but if any California regulators are listening, it’s not personal!
Kate: Understood. Moving on, how does California’s sales tax rate vary across different jurisdictions?
Jon Naseath: California has a base sales tax rate of 7.25%, but local cities, counties, or districts add additional rates on top of that. It can fluctuate a lot based on where you’re living. For example, Los Angeles and Santa Monica have a combined rate of 10.25%, while more rural areas like Lassen County only apply the state minimum tax. I’m from California—my dad was from Lassen County. I grew up in San Diego, and we always joked that anything north of San Diego was “Northern California.” Regional differences are significant. For instance, gasoline taxes are piled on heavily in California, which makes a big difference in overall costs.
Kate: I see. How frequently do these sales tax rates change, and what triggers these changes?
Jon Naseath: They change too often! Anytime regulators see an opportunity to generate more revenue, they might introduce a new tax or adjust an existing one. It’s tricky to know when these changes go into effect, as they might be announced far in advance. These changes usually occur quarterly or annually, often aligning with the fiscal year. In urban areas, local governments frequently adjust taxes to fund projects. Around the New Year, for instance, there’s always a cycle of news announcing new laws and taxes coming into effect. It’s a common theme—localities are always looking for new revenue streams.
Kate: That’s an interesting point. What challenges do businesses face in keeping up with these changing sales tax rates?
Jon Naseath: Managing taxes in a jurisdiction with frequent changes is tough. If you’re operating in hundreds of local jurisdictions, each with independent and aggressive tax rules, staying compliant can be a nightmare. Manually tracking these changes is nearly impossible, especially for businesses with high transaction volumes across multiple areas. Mistakes can be costly. If your processes aren’t up to date, you risk audits, penalties, and underpayment issues. However, if you can demonstrate solid processes and systems, regulators are usually more lenient, even if there’s a discrepancy.
Kate: Makes sense. Where can companies find reliable information on California sales tax rates and updates?
Jon Naseath: The California Department of Tax and Fee Administration (CDTFA) is the primary source for current sales tax rates and regulations. They provide a city and county tax rate lookup tool, updated quarterly. Beyond that, tax compliance platforms like Hyperbots or Avalara’s AvaTax can help businesses automate the process and ensure compliance in real-time.
Kate: That’s helpful. Can you provide an example of how a business might use these resources to stay compliant?
Jon Naseath: Sure. Let’s say a retail company operates in multiple California cities like Carlsbad, San Francisco, and Lassen County. They could use Hyperbots or Avalara to automatically apply the correct tax rates for each location. These tools are consistently updated, so the company doesn’t need to manually verify rates every quarter. If a new tax rate is applied to a specific zip code, the tool adjusts transactions in real-time and feeds accurate data into the ERP system. This reduces the risk of under or over-collecting taxes and simplifies compliance.
Kate: That’s a fantastic example. How can AI help businesses manage these complexities, especially in a state like California with high tax variability?
Jon Naseath: AI excels at processing large volumes of data, updating tax rates in real-time, and ensuring accurate application across transactions. Tools like Hyperbots leverage AI to track updates from CDTFA, notify teams of changes, and calculate rates based on zip codes and product types. AI reduces manual intervention, minimizing errors and allowing businesses to focus on strategic goals rather than administrative burdens.
Kate: That’s impressive. Finally, are there any specific AI tools or features you’d recommend for managing sales tax compliance?
Jon Naseath: I’d recommend Hyperbots and Avalara’s AvaTax. They’re both excellent at handling tax rate calculations and compliance across multiple jurisdictions. These tools use AI to integrate seamlessly into business processes, ensuring that sales tax rates are applied accurately and up-to-date in real-time.
Kate: Thank you so much, Jon. This has been a very enlightening discussion.
