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Editorial 6 MIN READ

Massachusetts in April 2017: the $500-and-$500 state

A filing fee as large as the annual report fee, a biotech cluster that pays it anyway, and a statute book that hasn't moved in years

The Editors
Staff, Incorporator.org
6 min read Updated
Contents 5 sections
  1. The mechanics
  2. Maintenance is where the bill comes due
  3. Taxes, briefly
  4. Who Massachusetts actually makes sense for
  5. Sources

Massachusetts LLC costs $500 to form and $500 every year after that, forever, on the anniversary of the formation. Those two numbers are the entire argument. Everything else — the statute in chapter 156C, the resident-agent rule, the corporate-excise questions for LLCs that elect into C-corp treatment — is context around a fee schedule that makes Massachusetts one of the most expensive states in the country to carry an LLC on the books.

If you are reading this in April 2017 while deciding where to form, the question is not whether Massachusetts is cheap. It is whether the reason you are forming in Massachusetts is worth $500 a year in perpetuity.

The mechanics

You file a Certificate of Organization with the Corporations Division of the Secretary of the Commonwealth. The authority is Mass. Gen. Laws ch. 156C, § 12, which both authorizes the filing and sets its price at $500. The certificate is short. It asks for the LLC's name, the address of its Massachusetts office, the general character of its business, the name and Massachusetts street address of its resident agent, and the names and addresses of any managers (or, if there are none, of a person authorized to execute documents on the LLC's behalf). Section 5 of the same chapter is what requires the resident agent: every LLC must have and maintain a Massachusetts office and a resident agent for service of process, and the agent must have a physical street address in the Commonwealth. A P.O. box is not a street address.

The Corporations Division publishes a fillable PDF for the Certificate of Organization. You can file by mail or fax, or through the online portal at corp.sec.state.ma.us. Online and fax filings are processed faster than paper — usually same-day or next-day — but the portal adds a small electronic-filing surcharge on top of the statutory fee.

You will also need an EIN, which the IRS issues in minutes through the online SS-4, and an operating agreement, which Massachusetts does not require you to file but every lender and investor will want to see. Federal tax classification is its own decision: single-member default (disregarded entity), multi-member default (partnership), or an election onto Form 8832 or 2553 for corporate or S-corp treatment. Most operators let the default stand for the first year and revisit the election only if there is revenue to plan around.

Maintenance is where the bill comes due

Every Massachusetts LLC must file an annual report with the Corporations Division on or before the anniversary date of the filing of its original Certificate of Organization. The statutory fee is $500, set in the same § 12 that set the formation fee. There is no proration, no partial credit, and no discount for a dormant entity. An LLC organized on April 11, 2017 owes its first annual report on or before April 11, 2018, and every April 11 after that.

Miss the anniversary and your LLC drifts out of good standing. The Commonwealth does not administratively dissolve LLCs the way it administratively revokes corporate charters, but a lapsed annual report shows up on a Certificate of Good Standing and blocks the routine bank, lender, and counterparty requests that require one. Reinstating an LLC that has fallen behind requires paying the missed reports and a $100 reinstatement fee.

The comparison is worth sitting with. Delaware's flat $300 annual tax and Wyoming's $60 minimum annual-report fee look like rounding errors next to $500 a year forever. Over a ten-year hold, a Massachusetts LLC costs $5,500 in filing fees alone before anyone sends an invoice to a registered agent or a CPA. A Delaware LLC over the same period costs $3,090. A Wyoming LLC can run under $700. If you are forming a long-hold passive-income vehicle, these numbers matter.

Taxes, briefly

A Massachusetts LLC does not pay a state-level entity tax by default. The state follows the federal classification: an LLC treated as a partnership for federal purposes is treated as a partnership for Massachusetts purposes and files Form 3; a single-member LLC is disregarded and flows to the owner's return; an LLC that elects corporate treatment files Form 355 and pays the Massachusetts corporate excise. That excise has two components: a net-income measure at 8.0% of Massachusetts-source income, and a non-income measure of $2.60 per $1,000 of tangible property or net worth, with a $456 minimum. This is why most operating LLCs in Massachusetts do not elect corporate treatment unless a specific planning reason — qualified small business stock, fringe-benefit deductibility, a step-up in basis — makes it worth the minimum.

Sales tax is a separate conversation. Massachusetts imposes a 6.25% sales and use tax on tangible personal property and on a narrow slice of services and telecommunications. If the LLC sells taxable goods into Massachusetts, it registers with the Department of Revenue through MassTaxConnect, collects, and remits. The registration itself is free. The mistake operators make is assuming the Secretary's $500 filing has anything to do with tax registration. It does not. The Corporations Division and the Department of Revenue are different agencies with different systems.

Who Massachusetts actually makes sense for

Three groups keep forming here despite the fee.

The first and largest is anything downstream of the Kendall Square biotech and life-sciences cluster. A one-mile radius around MIT holds more therapeutic pipelines than most countries. If your LLC is a research collaboration with a Broad Institute lab, a holding vehicle for a faculty-inventor's consulting, a special-purpose entity for an MGH-affiliated clinical trial, or a formation by founders who cannot realistically move themselves out of Cambridge, you are not going to save real money by forming in Delaware and foreign-qualifying back into Massachusetts. Foreign qualification in Massachusetts costs the same $500 to register and $500 a year to maintain. You pay the fee either way; you just pay it once rather than twice.

The second is professional services firms that have to be local — law, accounting, architecture, medicine — and need a Professional Limited Liability Company. The PLLC filings run through the same § 12 track with the same $500 fee and the licensing board's additional sign-off. There is no cheaper state to form a PLLC that will practice in Massachusetts.

The third is real estate. Massachusetts real estate held through an out-of-state LLC still requires foreign qualification and the same annual fee, which means the supposed savings of forming a rental-property LLC in Wyoming evaporate the moment the property is in Brookline. Forming in Massachusetts from the start is cleaner.

Everything else — the remote consultancy with Massachusetts happening to be where the founder's apartment is, the side-project e-commerce LLC, the holding company for a portfolio of web properties — has a real case for forming somewhere cheaper. The Commonwealth's $500 recurring fee is the highest flat annual LLC maintenance charge of any U.S. state, and for a business whose nexus to Massachusetts is coincidence rather than necessity, that is a $500 coincidence.

If you are forming this quarter because MIT, a hospital, a biotech incubator, or a deal at a Boston law firm put you here, file the Certificate of Organization and move on; the fee is the price of being in the cluster. If you are forming here because it is where your mailing address is, stop and ask the Wyoming question first.

Sources

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