US Maryland sales tax on foreign digital services
- Mar 19, 2021 | Richard Asquith
The US state of Maryland has imposed its sales tax on a wide range of digital services (‘digital products’ or ‘digital code’) from 14 March 2021. This includes non-resident providers and marketplaces selling to local consumers and who pass the registration thresholds.
To assess if a transaction is liable to Maryland’s sales tax, the provider must determine the exact location of the consumer – ZIP or similar – and then calculate the appropriate taxes. Contact Avalara for further free guidance on the rules, and help with any calculation automation and registration needs.
Maryland’s broad digital services sales tax scope
The scope of digital services now liable to Maryland's sales tax is very wide – essentially any services provided over the internet of similar electronic means. This may include:
- Streaming or download media
- Apps
- E-learning (automated)
- SaaS or other cloud software forms
- Online subscription services
- Dating websites
- E-newspapers or journals
- Online database access
The Maryland legislation defines digital products as: “a product that is obtained electronically by the buyer or delivered by means other than tangible storage media through the use of technology having electronic, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities.” .
However, the law does not appear to change Maryland law in the area of software. Maryland remains one of 12 states that continues to not tax downloaded software (while taxing software on tangible media) and is one of 25 or so states that generally does not tax software provided in the cloud.
Registration threshold for sales tax
Maryland’s registration threshold for providers of electronic services is as follows:
- $100,000 annual sales; or
- 200 transactions per annum
Once over either of these thresholds, economic nexus, and the obligation to charge sales tax, is triggered. This follows the 2018 South Dakota vs Wayfair Supreme Court ruling which permitted states to go beyond the existing physical nexus trigger to simply selling from out-of-state.
