What You Need to Know About Maryland’s New Digital Sales Tax


It’s finally here: Maryland’s New Digital Sales Tax. Maryland is moving forward with a tax on digital products and streaming, as well as software as a service (SaaS). While this may come as a surprise to many businesses and consumers alike, it’s been in the works for awhile.

The state began discussing a sales tax on digital products early last year. Lawmakers passed the legislation, but it was quickly vetoed by the governor in March of 2020. The tax targeted digital services at a time when people were beginning to rely heavily on digital products and entertainment. Therefore, the governor felt it was misguided to inflict this kind of tax during a transitional moment, especially when many were struggling.

This year, however, the state revisited the proposal and has overridden the governor’s veto. As of March 14, 2021, the “21st Century Economy Sales Tax Act” has taken effect. This means if delivered electronically, Maryland’s 6% sales and use tax on digital goods applies to digital products. Previously, sales tax was only applicable if the product was delivered physically.

So, what does this mean for you? Almost all businesses will be affected by this expansion of the 6% sales tax. How you are affected depends on the types of goods and services your business sells, utilizes, or relies on. This includes the types of services you personally consume as well.

How is “digital product” defined?

Under Maryland law, tax is imposed on all retail sales. Under this new tax bill, retail sale has been redefined to include the sale of certain digital products.

A digital product is “a product that is obtained electronically by the buyer or delivered by means other than tangible storage media through the use of technology.”

This includes digital subscriptions, streaming digital media or content, and accessing or purchasing digital content or software via a code. 

You may be wondering if that means you’ll start paying sales tax on things like Netflix, Spotify, and your other favorite streaming services. Your concern would be correct. This sales tax will apply not only to businesses who utilize digital software, but to all of us who enjoy streaming.

What types of digital products are now subject to sales tax?

As you might imagine, the list of examples are extensive and leaves practically no services unconsidered. Movies, e-books, video games, online newspapers and magazines, and even recorded or live performances are all subject to sales tax under the new law.

But, the law doesn’t only impact entertainment; it also impacts the way we do business. Taxable digital products also include online classes, access to customer lists, medical records, files, graphics, and artwork. Sale, subscription, or license to content and software applications will also be taxable. 

Software is a little trickier to define, but the law indicates that the sale of canned or commercial off-the-shelf software still constitutes a digital product if obtained electronically. The sale of software as a service (SaaS) is also subject to Maryland sales and use tax.

To say the least, it is all encompassing. Almost all businesses will be affected by this sales tax expansion and should take proper steps to accommodate for this added expense. 

How does this new tax law impact you or your business?

In addition to being impacted as a consumer, if you are a remote seller or marketplace facilitator, you will now be responsible for collecting and remitting sales tax to Maryland for digital goods. Any digital product electronically delivered within the state is subject to sales tax.

This means that if you sell any relevant digital goods to a buyer who exists in Maryland, you must begin collecting sales tax on those goods. 

For most retailers, this is a big change. The state of Maryland has created a guide called Business Tax Tip #29. This can help you navigate a new way of doing things. Along with how to determine exact charge sales tax effectively and responsibly.

Be prepared for a slight increase in business expenses if your business depends on the purchase of digital products or SaaS. Your budget may need some adjusting to accommodate for any sales tax you’ll have to pay on your usual services. You can take a look at, “How to Prioritize Your Technology Budget for 2021,” for more tips. 

How can you be prepared for this change in Maryland’s sales tax structure?

You’ve already taken a great first step! Understanding the new tax law and how it functions is priority number one. If needed, take a little extra time to read over and understand the legislation itself. The more educated you are, the better you can prepare your business and your budget for these future changes. 


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