Maryland Enacts New Sales Tax on Digital Goods and Services

Updated on: March 15, 2021

Updated April 15, 2021 at 11:00 am ET

Effective March 15, 2021, Maryland joined the list of about 30 state-level jurisdictions that tax digital products and services. This means that Maryland’s 6% sales and use tax will apply to tangible personal property, a digital product, or a taxable service; this includes things like ring tones, satellite radio, streaming services, software subscriptions, and more. Initially passed by the Maryland legislature in 2020 as House Bill 932, the law was vetoed by Governor Larry Hogan. The veto has just been overridden, effective immediately. 

In response to the changing non-physical environment for the acquisition and use of many digital products and services, Maryland will now tax a large variety of transactions. This will generate substantial revenue for the state and increase the cost and reporting requirements around such goods and services that are consumed or sold in Maryland.   

Updates and Amendments 

As of April 12, 2021 the Maryland General Assembly, in accordance with S.B. 787, passed legislation that retroactively amends the state’s digital products sales tax provisions, and delays the state’s digital advertising gross revenue tax by one year. 

  • Exclusions from the definition of a “digital product” now include:
    • Prerecorded or live instruction by a public, private, or parochial elementary or secondary school or a public or private institution of higher education  
    • Instruction in a skill or profession in a buyer’s current or prospective business, occupation, or trade and/or a seminar, discussion or similar event hosted by a nonprofit organization or business association if the material is:
      • Not prerecorded and features  interactive element between the buyer and host or other buyers
  • A professional service obtained electronically or delivered through the use of technology having electrical, digital, magnetic or electromagnetic, wireless, or similar capabilities

Additional updates are reflected within this article. 

The tax filings and sales tax collected or use tax owed relative to this new tax are not due until July 15, 2021. This is due to the recent deadline extension announced by Comptroller Franchot for all Maryland income tax returns and MarchthroughMay sales and use tax filings. This will help affected businesses adopt the new rules, update their software, and be aware of use tax they will owe under this legislation. However, the appropriate tax needs to be collected starting March 15, 2021.  

Digital Products 

These items would include:  

  • E-books 
  • Online newspapersmagazines, and publications 
  • Ring tones 
  • Subscriptions to online content
  • Sale or subscription to online software 
  • Downloads of movies, sporting events, and educational materials 
  • Online games, classes, and instruction 
  • Audio or video greeting cards sent electronically 
  • Design files, models, and templates 
  • Digital photographs and artwork 
  • Prerecorded or live performances, music, speeches, and audio books  

In addition, customer lists and mailing lists will now be subject to Maryland’s sales tax, which comes up frequently when a business is sold.  

Digital Code 

These items are defined as a number, symbol, alphanumeric sequence, barcode, or similar code that is acquired online, in physical form, and provides a buyer with the right to obtain one or more digital products. The retail sale of digital products or digital codes will be presumed to be made in the state in which the customer tax address is locatedin other words, the vendor’s business location or where the product is received by the customer for primary use. 

Taxable Electronic Services 

The fabrication, printing, or production of a digital product is now a taxable service for purposes of the sales and use tax. The tax would not apply to a sale of a non-taxable service performed electronically unless the service itself results in the creation of a digital product. 

Maryland published Business Tax Tip #29, which details much of what businesses and consumers need to know about what digital sales are sourced to Maryland, relevant exclusions, and other important data (including the most recent amendments). This tax applies to all businesses, including nonprofit organizations.  

With the ever-changing Maryland tax landscape, it is important for business owners to be aware of which products and services will be taxed and the impact this will have on their tax filing requirements. If you have any questions on the new Maryland digital sales tax, please do not hesitate to reach out to our SC&H Tax team. 

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