Maryland Expands Tax on Digital Goods

The Maryland General Assembly overrode Governor Larry Hogan’s veto of charging the state’s sales and use tax on digital goods (H.B. 932). Effective March 14, 2021, Maryland’s 6% sales and use tax on digital goods now applies to the following (non-exclusive) digital products if obtained or delivered by electronic means:

• E-books, newspapers, magazines, periodicals, or any other publication
• A digital download or stream of a motion picture, music video, news and entertainment program, live event, sporting event, tutorial, etc.
• A digitized sound file that may be downloaded onto a device and may be used to alert the user to a communication or information (ringtones)
• A sale, subscription or license to access content online
• A sale, subscription or license to use a software application

Also effective March 14, 2021, the sale of canned or commercial off-the-shelf software obtained electronically is considered a digital good and is subject to Maryland sales and use tax. The sale of software as a service (SaaS) is also subject to sales and use tax.

In light of the increase in online learning and entertainment, it is important to note that charges for viewing or attending continuing education classes, seminars, or conferences that are delivered electronically are subject to sales and use tax. “Prerecorded or live music or performances, readings of books or other written materials, and speeches” delivered electronically are considered taxable digital products under Maryland law. (H.B. 932, Laws 2020, effective March 14, 2021 and Business Tax Tip #29 Sales of Digital Products and Digital Code, Maryland Comptroller, March 9, 2021)

UPDATE: The Maryland Comptroller has revised a version of the Business Tax Tip #29 to be in accordance with amendments in S.B. 787 passed during the 2021 session and to provide examples. The revised version explains the applications of sales and use tax to digital products, including:

1. “The expanded exemption for certain software offerings – including a long list of potentially non-taxable customized, configured, or modified software and eleven explanatory examples;

2. Services provided electronically, including personal, professional, or insurance services;

3. Advertising agencies’ services and creation of tangible personal property and digital products; and

4. Continuing education classes, seminars, or conferences – including those performed by non-profit organizations – and courses and lectures by schools.”

(Business Tax Tip #29, Maryland Comptroller, effective June 3, 2021)