A New Sales Tax Law – and a New Risk: Why Insurer Reporting May Not Reflect Your Shop’s Reality

by Sean Preston, Managing Attorney of Coverall Law

Who Controls the Narrative?

Massachusetts has introduced a new rule that will affect how repair shops are seen from a tax standpoint.

The regulation – 830 CMR 62C.8.2 – comes from the Department of Revenue (DOR) and applies to payments made on or after January 1, 2025. On its face, it looks like a simple reporting requirement. In reality, it changes how your work may be measured.

Under this rule, insurance companies must file an annual report showing how much they paid your shop during the year. They must also report how much of those payments they say went toward sales tax. Just as important, they must send a copy of that report to both the state and your shop.

That may sound routine. It is not.

For the first time, the state will have a second version of your transactions – one created by the insurer, not by you. Your books show what you billed and what you collected. The insurer’s report shows what they decided to pay, and how they chose to break it down.

Those are not always the same numbers.

So the real question becomes: what happens when the insurer’s version of the job does not match yours?

That question is not theoretical. It is built into how this rule works – and it is where the risk begins.

What the Regulation Requires – and What It Assumes

At a basic level, the rule applies to motor vehicle insurers that issue policies in Massachusetts. If an insurer pays your shop for a repair – or for related charges – they now have a reporting obligation to the state.

Each year, insurers must file a report that includes key details about your business, such as your shop name, federal ID number, address and license number. More importantly, they must report two numbers:

“the total amount of payments” made to your shop

“the total amount… attributable to… sales and use tax”

Those two figures sit at the center of this rule.

The reporting is not limited to repair work alone. The regulation specifically includes payments for items like:

“sublet towing, gate fees, estimate fees and storage”

In other words, insurers are required to report a wide range of payments – some taxable, some not – under a single reporting framework.

There is also a defined timeline. Insurers must send a copy of their report to your shop by January 31 each year. They must file that same report with the Department of Revenue by March 31. If they later find an error, they have until December 31 to correct it.

On paper, this system appears straightforward. But it rests on two key assumptions.

First, it assumes that what an insurer pays is a reliable stand-in for what your shop actually sold. Second, it assumes that insurers can consistently determine how much of those payments relate to sales tax.

Those assumptions sound reasonable.

In practice, they often do not hold.

Core Disconnect: Payments Are Not Taxable Sales

At the center of this new rule is a simple idea that does not hold up in the real world.

Under Massachusetts law, sales tax is based on the retail price your shop charges for the repair. It is not based on what an insurance company decides to pay. That distinction has always mattered – and it matters even more now.

The regulation, however, focuses on something different. It requires insurers to report: “the total amount of payments made…”

That sounds straightforward. But those payments rarely match the full value of the job.

Your invoice reflects the total repair. It includes all parts, labor and any taxable items. It also reflects the true selling price – the number your tax is based on. Insurer payments, on the other hand, often reflect only a portion of that amount. They may exclude deductibles, delay supplements or leave out disputed items entirely.

This is not unusual. It is how the system has always worked.

In day-to-day operations, shops deal with:

•  Partial payments from insurers

•  Supplements that are paid later – or sometimes not at all

•  Deductible amounts paid directly by the customer

•  Operations that are reduced or denied

Each of these situations creates a gap between what was billed and what was paid.

That gap is the problem.

Insurer reports will show payments. Your records show sales. Those are not the same number – and they never have been.

Yet this rule puts those two numbers side by side, as if they should match. In doing so, it attempts to compare two sets of data that are structurally different by design.

Where the Data Breaks Down in Practice

The issues created by this rule are not rare or unusual. They are part of everyday operations in a repair shop. Once you look closely at how the numbers are actually created, the gaps become hard to ignore.

One of the biggest problems starts with how insurers are supposed to report sales tax. The rule requires them to report: “the amount…attributable to…sales and use tax”

But it never explains how to calculate that number. There is no set method. There is no requirement that all insurers use the same approach. And there is no link to how shops actually calculate and report tax.

As a result, two insurers could look at the same repair and report two different tax amounts. Both reports might follow their internal systems. Neither may match the shop’s records.

The issue becomes even clearer when you look at how tax applies to parts. Under Massachusetts law, sales tax is based on the retail selling price, including any markup. That is not optional – it is how the tax is defined.

There has already been at least one example where this broke down. An insurer failed to pay sales tax on the marked-up portion of a recycled part. While that issue may have been corrected, it highlights a larger concern. If an insurer under-calculates tax and then reports that lower number to the state, it creates a mismatch with what the shop is required to report.

The problem is not limited to parts. The rule also requires reporting on a wide range of charges, including: “towing, gate fees…storage.”

Some of these charges are taxable. Some are not. Some depend on how they are billed. In practice, they are not always treated the same way by every insurer or every shop. If those items are misclassified, the reported data becomes even less reliable.

Timing adds another layer of confusion. Shops report sales tax based on when the work is billed. Insurers report based on when payments are made. Those two timelines do not always line up. A job billed in one year may be paid in another. When that happens, the numbers can look off – even when everything was handled correctly.

Finally, there is the role of estimating platforms like CCC, Mitchell and Audatex. These systems often drive how insurers calculate and record payments. But they do not always reflect the final invoice. Supplements, adjustments and real-world changes may never be fully captured in the system data that feeds the insurer’s report.

The result is a set of numbers that may be consistent inside the insurer’s system – but incomplete when compared to what actually happened at the shop.

Taken together, these issues point to a larger problem. The reporting system produces data that is inconsistent, not standardized, and in many cases difficult – if not impossible – to reconcile.

Why This Matters: Risk Shifts to the Shop

All of these technical issues lead to one practical result: the risk does not stay with the data – it shifts to the shop.

Under this rule, the Department of Revenue will now receive two separate versions of the same activity. One comes from your shop, through your normal sales tax filings. The other comes from insurers, through their annual reports showing what they paid and how much tax they believe was included.

That creates a parallel dataset.

Once both sets of numbers are in the system, the next step is easy to predict. They will be compared. Differences will stand out. And those differences may trigger questions.

That is where the exposure begins.

For shops, this can mean:

•  Being flagged for a discrepancy that is not actually an error

•  Increased scrutiny from the state

•  The need to explain why your numbers do not match the insurer’s report

Even when your records are correct, you may still have to defend them.

There is also a clear imbalance in how responsibility is assigned. Shops are legally responsible for collecting and remitting the correct amount of sales tax. That obligation is strict, and it does not change under this rule.

Insurers, on the other hand, are responsible for reporting. They must file the required information, but they are not responsible for the underlying tax liability in the same way. If their numbers are incomplete or inconsistent, the burden does not fall on them in the same way it falls on the shop.

That creates a difficult position.

Shops may be asked to explain differences that come from data they did not create and do not control.

When Reporting Becomes a Liability

It is important to be clear about one point. The risk created by this rule does not depend on bad intent. It does not require insurers to act improperly. The issue is more basic than that.

The system itself is built on inputs that do not line up.

Insurers report what they pay. Shops report what they sell. Those numbers are created in different ways, for different purposes. When those two sets of data are put side by side, differences are not the exception – they are expected.

Problems begin when those differences are treated as errors.

In a typical scenario, an insurer may underpay part of a repair. That could include labor, parts or taxable markup. The insurer then reports the payment it made, along with the amount of tax it believes was included. That figure is sent to the state as part of its annual filing.

At the same time, the shop reports sales tax based on the full retail price of the job, as required by law.

Now there are two numbers in the system. One is lower. One is higher.

If those numbers are compared without context, it can create the appearance that the shop overreported – or that something does not add up. In reality, the shop may have done everything correctly.

This is where the concern becomes real.

The danger is not just non-compliance. It is the misinterpretation of compliant conduct.

Best Business Practices for Shops

The good news is that while you cannot control how insurers report their data, you can control how your shop documents and supports its own. In this environment, strong internal practices are no longer optional – they are your best protection.

Start with billing. Your invoices should always reflect the full retail value of the repair, with the correct sales tax applied to all taxable items. That includes markups where applicable. Do not adjust how you calculate or apply tax based on what an insurer chooses to pay. Your obligation is tied to the law, not the payment.

It is also important to separate how you track tax from how you track payments. Sales tax should be recorded based on what you bill, not what you receive. That means clearly tracking three numbers: the tax you billed, the tax you collected and the tax you remitted. Insurer payments should not be used as a shortcut for any of those figures.

At the same time, shops should begin tracking differences between what was billed and what was paid. These gaps are common, but under this rule they need to be documented. When an insurer pays less than the invoice total, there should be a clear record of why. That explanation may become important later.

Documentation, in general, takes on a larger role. Shops should retain complete files for each job, including estimates, supplements, final invoices, payment records and any communication with the insurer. The goal is simple: if a question comes up, your file should be able to tell the full story without guesswork.

When insurers begin issuing their annual reports, those documents should not be ignored. Review them. Compare the reported totals to your own records. If there are differences, identify them early and keep a record of what you find. These reports may become part of how your business is evaluated.

Finally, this is an area where professional guidance matters. Work with your accountant or tax advisor to make sure your processes align with Massachusetts requirements. It is also worth thinking ahead about how you would respond to an audit or inquiry. Having a plan in place before there is a problem can make a significant difference.

None of these steps eliminate the mismatch built into the system. But they do put your shop in a position to explain it – and defend your numbers if you ever need to.

A System That Still Needs Clarity

While the reporting requirement is now in place, many of the details that matter most to shops remain unclear. The rule outlines what insurers must report, but it does not explain how those numbers will be used – or how differences will be handled.

There is no clear framework for reconciling the two sets of data. The regulation does not provide a method for comparing insurer-reported payments to shop-reported sales. It also does not define how insurers are supposed to calculate the portion of a payment that is “attributable” to sales tax. As discussed earlier, that number can vary depending on the approach used.

Just as important, there is no guidance on what happens when the numbers do not match. The rule does not explain how discrepancies will be reviewed, or what level of difference may trigger further action.

This leaves several open questions.

How will the Department of Revenue evaluate conflicting information? If an insurer’s report and a shop’s records show different numbers, which one will carry more weight? Will there be any allowance for normal business differences, or will any mismatch raise a red flag?

At this stage, those questions do not have clear answers.

Until more guidance is provided, shops are left operating in a system where the reporting requirements are defined – but the rules for interpreting the data are not.

Preparing for a New Compliance Environment                                                       

This new regulation does more than add a reporting requirement. It marks a shift toward third-party data comparison as part of tax oversight in Massachusetts. For repair shops, that shift brings greater visibility – but also new challenges.

With insurer reports now entering the system, the state will have another way to look at your business activity. That added visibility can highlight differences that were never meant to match in the first place. As a result, shops may face new risks, along with a greater administrative burden to explain and support their numbers.

The practical takeaway is straightforward. Shops should assume that insurer data will be used, and that any differences between that data and their own records will matter. Even routine variations may require explanation.

The best way to prepare is not to change how you calculate tax, but to strengthen how you document it. Accurate billing, complete records and clear internal tracking are no longer just good practice – they are essential.

Until more guidance is provided, the safest position is to be ready to show your work. A shop that can explain its numbers clearly and consistently is in a far better position than one that cannot.

Until the system is clarified, a shop’s best protection is the ability to demonstrate – clearly and consistently – that its records reflect the true taxable transaction, regardless of how that transaction is reported by others.

Want more? Check out the June 2026 issue of New England Automotive Report!